Another deal from Fitchburg MA, good or bad?

Question

Possible 1st investment property trying to get another perspective on wether this is responsible amounts for everything let me know what you think.

** Purchase & Rehab **Purchase Price: $85,000After Repair Value: $110,000 (the tax assessment was even higher then this but hoping to refi and pull as much equity out as possible, unsure of how the city and bank assess the property and if it's different though, I need to look into it more)Purchase Costs: $2,550Rehab Costs: $2,200Down Payment: $17,000Total Cash Needed: $21,750** Financing **Loan Amount: $68,000Loan to Value (LTV): 80%Loan Term: 30 YearsInterest Rate: 3.75%Monthly Payment: $315** Cash Flow (Monthly) **Rent: $1,250   (possibly more this is on the low end for 3 bedrooms, and even lower for a stand alone house, but trying to be conservative in that the house is on a really small plot of land and has a cliff on 1 side)

Vacancy: -$63 (5%)Expenses: -$339 (28.6%)NOI: $848Mortgage Payment: -$315Cash Flow: $533** Returns & Ratios **Cap Rate (Purchase Price): 12%Cap Rate (Market Value): 9.3%Cash on Cash Return: 29.4%Return on Equity: 14.2%Return on Investment: 105%Internal Rate of Return: 105%Rent to Value: 1.5%Gross Rent Multiplier: 5.7Debt Coverage Ratio: 2.7

I had budgeted for 6k for renovations but realistically it probably only needs 2k, it's basically perfect the way it is right now just a tiny bit dated in that it has oak cabinets and wood grain molding. But what's your guys thoughts on this, yay or nay, thanks!

Justin Rank · Answer

Yes, I would pull the trigger. The purchase price would be on the low end of what single fam’s are selling for and I think your rental numbers and arv are just a little conservative. I just rented two two bedroom units in Fitchburg for 1,250 each and closed on a 3/2 single family yesterday in Fitchburg that My property manager can get me 1,500-1,600 and has an arv of 180k(nice neighborhood, bigger lots).

Check with your bank, most banks require 25 percent down around there with a 5-7 adjustable amortized over 20-25 years.

Post an update if you pull the trigger

Check with your bank, most banks require 25 percent down around there with a 5-7 adjustable amortized over 20-25 years.

Post an update if you pull the trigger

Marco Graves · Answer

Ended up getting a different deal, way better, 140k duplex added 50k to it, just got appraised for 270k renting out a bit below market for 2,475 one unit has section 8 so not to worried about tenant job loss. About to finish the refi and pull everything out.

Justin Rank · Answer

@Marco Graves Did you pull the trigger? If so, how's it going?

Account Closed · Answer

I have relatives who moved to Fitchburg in the late 1800's and I visited them in the 1950's. After looking at pictures of homes for sale today it looks like the city is stuck in time and still has a lot of homes build in the late 1800's.

I started my real estate investing in Springfield, West Springfield, Holyoke. Chicopee, Wooster, North Hampton and a few other cities. The problem I always ran into was there is almost zero appreciation, the rents can't be increased more than a few dollars a year and it is almost impossible to evict a tenant in less than 6 months. I should write a book about how crazy the judges are when favoring tenants and giving them extensions.

I just sold a triplex in Holyoke that was in pristine condition and had a hard time getting $249k. In California, people pay tens of thousands of dollars more than the asking price. People put properties on the market and buyers bid higher prices by tens of thousands of dollars. In Massachusetts, it has always been a struggle to get the asking price.

Account Closed · Answer

I would like to see every cost and not Rule-Of-Thumb costs.

What is the property tax?Property Insurance?Gardening? Snow removal?Who pays for water?Trash removal?Sewer use fees?

Does the property qualify for tenants with decent income and decent amount of cash in the bank?

What is the condition of the roof, plumbing and heating?Water problems in the basement?

While many people may tell you the numbers are okay the real question you have to ask is what is the best investment you can get for your money. Suppose, you have 5 properties in this price range, or you have a property that is costs a little more money, but has a better ROI, better tenants, better appreciation, etc.

Post all the numbers and I will look at them in my software.

Derreck Wells · Answer

Trim, moldings, walls, floors, ceilings, and anything else that has paint on it could be lead paint. It wasn't only used on trim and moldings. Some stain back then also had lead in it. The x-ray gun will find it if it's there.

The law still states that you need a lead certificate on file, whether the property looks move in ready to you or not, so you will still need to get a lead inspection done, address any hazards found, and get a letter of compliance issued. Plus it's the only way to avoid liability from past tenants. There might have been lead paint on the trim at one time. And even if there wasn't, you can't prove it. If a professional tenant comes and claims there was and you don't have a Certificate on file with the state, you lose.

Marco Graves · Answer

Ahh yes I get what you're getting at, but in all seriousness It's move in ready, and all the trim and molding stuff that normally is leaded in old houses is wood grain so no worry of lead, but ya your right about the laws, if it ever comes up in the future I know who to call though.

Derreck Wells · Answer

You're $6k for renovations is too low.

Chances are your real estate agent didn't inform you of the lead laws (they rarely do). In MA, if the property isn't deleaded when you buy it, you are responsible for the past tenants that may have been lead poisoned while living there unless you delead within 90 days of closing. The state is trying to get every rental property in MA lead safe, and they figured this was the best way to do it.

You can use this in your negotiations on any new properties you look at. If it doesn't have a lead certificate on file, it IS going to cost you to delead, the state has pretty much made it mandatory at this point, at least if you want to avoid the liability of a lead paint lawsuit from a past tenant. Don't let that scare you though, I've had clients negotiate $20k off the selling price, and I only charged them $10k for the deleading, so it can actually work in your favor for it not to have been done yet.

You also cannot rent to someone with a child under 6 unless you have a lead certificate on file with the state. If you rent to a couple with no kids and they have a baby, you are then required to delead the unit with the added expense of putting the tenants up in a hotel during the process.

This is a 3 bedroom, so you'll end up having a family apply. You cannot deny the family because of the lead paint either, that's considered discrimination (you're refusing them because they have a kid) and is against the anti-discrimination laws of the state. If there are kids under 6, you NEED to have the unit deleaded and have a lead certificate on file.

If the unit has been inspected, but not deleaded, you also cannot do any construction or remodeling in the unit, they consider that unauthorized deleading and it will prevent you from ever getting a lead cert. The best you would be able to get is a Letter of Environmental Protection, which tells everyone you did illegal work then hired a licensed deleader in to fix it. It generally increases your insurance rate and decreases your tenant pool (who wants to rent from a shady landlord that does illegal work?). So if this is the case, you need to delead before you can renovate.

But, when you delead the property it will actually increase your tenant pool and the rent you'll be able to charge them. A deleaded unit is more valuable to a tenant then a non-deleaded unit, even if they don't have kids under 6, they still like to know they are safe from lead paint issues. Anyone can get high blood lead levels, the law only specifies under 6 because it affects the developing brain more severely then a it affects a fully developed brain.

If you want to message me the address, I can check the database and see if there was ever an inspection done on the property for you. I'll be able to tell if there's a lead cert on file already too. Maybe you'll get lucky and it's already been done.

Good Luck on your investment!

Another deal from Fitchburg MA, good or bad?

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