Just in time! Closed on an 8-unit property today to end the year

[Zach Robbins]

I bought my first rental property in early 2015 (a duplex) which continues to be a success almost 3 years later. For one reason or another, unlike most, I felt a feeling of being content and went back to the sidelines. Today I'm kicking myself for the lost time and opportunities that I have missed but after today I'm officially back in the game and eager to stay in it. 

Today's deal breakdown -

Description: An old school house that was converted in the 70's to an 8-unit apartment building on the upper two floors. It consists of (5) 2BR-1BA and (3) 1BR-1BA units. Each floor has it's own coin operated laundry and dryer. A new roof was put on in 2012 and while you'd expect it to a flat roof because of it being an old school house they actually replaced it with a pitched roof. The building is currently half vacant after the previous owner replaced the property manager in the spring of this year and the new managers felt it would be best because of poor tenants. The owner decided to sell the property shortly after this. The units were never going to attract quality tenants in their current condition and with the owner choosing to sell he had no desire to put more money into the property. There is a basement that is almost fun in itself to see as it gives you a sense of history (for example an old fuse box that still has "teachers lounge", "boys locker room" etc labelled on the fuse box door). The basement is big and offers potential for additional income but that will be a phase two after the top two floors are stabilized. There is an 8 stall parking lot in back of the building. 

The Purchase:

Purchase Price: $224,900

Loan: 25% down ($56,225), 5% interest, 5 year term, 20 year amortization

Closing Costs: $6,150 (received $5000 sellers assist)

Repairs Budget: $15,000

Total Cash Invested: $77,375

The Income:

Gross Rents: $4,500 (estimated after repairs and full occupancy)

The Expenses:

Property Taxes: $500

Management (10%): $450

Insurance: $225

Natural Gas (both clothes dryers are gas and surprisingly they're the only things running on it): $40

Vacancy (5%): $225

CapEx & Vacancy: $405 (estimated, don't ask why I have $5 at the end instead of an even number..I'm going off my previous work so who knows what I was thinking at that time)

Electric (common areas): $100

Water & Sewer: $375 (there is a very small water bill to me as each unit is separately metered. The bulk of this is for sewer)

P&I: $1,114

Total Expenses: $3,434

Monthly Cashflow: $1,066

Cash on Cash Return: 16.5%

I'll post some more pictures later on with the inside current conditions and continue with updates as we progress with the rehab. Rehab begins tomorrow when I start removing all the old carpet from the vacant units (which I'm replacing with vinyl).

Let me know what you think!

- Zach

[Henry LiChi]

Congrats on the acquisition. I think there is plenty of upside to this. The expenses can dramatically be lowered assuming the fixtures in that building are older and not upgraded. Rents may not be able to be raised but you can lower your expenses dramatically by replacing:

- common area light bulbs to LED
- if you are paying for the water and sewer, it would be wise to switch to all low flow.
- kitchen and bathroom faucets can have the aerator be replaced with a low flow .5 gpm. Amazon sells these for only a buck or so each.
- shower heads to low flow 1.25 to 1.5 instead of old shower heads that use up to triple the amount.
- more upfront cost but it may be worth replacing toilets to low flow ones that use 1/3 the water.
- less water usage = less in the sewage = less water and sewage expense.

Imagine cutting your electrical bill to a quarter the amount and your water and sewage by at least half. Well worth the upfront cost as it pays for itself within months.