My First Deal!!

[Gregory Jimison]

Well I have finally pulled the trigger and am currently completing the process of purchasing 2 fourplexes from a bank! Here are the numbers, let me know what you think. 100% bank financing 140k property (both buildings) 40k construction (rolling into one note) 20 year term @6.25 2 bed 1 bath units 3496 sq ft Built 1900 Property is in C/C+ neighborhood 2 blocks from a university and medical school. Property is in okay shape but needs a new roof (no leaks just near the end of its life) and needs rewired (not up to code). All utilities are separate except water/sewer. Average market rents $640, section 8 voucher is $493 with tenant paying all utilities (will be more due to water sewer). Let me know what you think.

[Aaron Montague]

@Gregory Jimison 

1% Rule:

The 1% or 2% rule doesn't have anything funky.

Divide the monthly rent by the total cost to purchase, done.

2000/month rent on a 100k place is 2% on the nose.

The point of this rule is to see if the place is worth looking at any farther.  Once a property passes the (whatever)% rule, it might be worth digging into farther.  In your case, you're probably going to make a killing on these placess

Water Question:

The cost depends on what you choose to do.

Simplest thing is to pay the water bill on your own.  Not a great long term play.  But bear in mind that Water/Sewer bills are generally lienable, so you will have to stay on top of this bill no matter what

2nd simplest is to back bill each tenant.  You have the advantage of an equal number of bathrooms and, I assume, kitchens in these 8 units.  When the water bill shows up for each property, divide by 4 and send a bill to the tenant.  Bear in mind, each time, and I do mean each time, the tenants will ask you what this bill is for.  They will also be mad that you make them pay it.  There is a headache associated with this method.

For the next option you need to check with your local ordinances.  You can put a separate meter on each apartments main line AFTER it comes into the house on the house's main water supply.  This gives you an exact amount to back bill each tenant AND it allows them to see how much what they are using.  These cost about $300 installed.  It could be a ton more if you have really funky pipes.

The final option from my playbook is actually run a new water line for each apartment.  This will cost you a mint.  And it is major construction so it needs to be approved by your town.  Your town may also have a rule AGAINST doing this.  Plus it would probably run you at least 12k to put new lines in.  

I recommend option 3 - meters and back billing.  It is hard for a tenant to argue that $104.56 of the $440.38 bill is theirs.  It is annoying to convince the single, travelling salesperson that 1/4 of each bill is theirs while another 1/4 belongs to the couple with the new baby.