All Forum Posts by: Aaron Thivierge

Water doesn’t seem that crazy to me especially if there is a lawn getting irrigated included in that number.

I recently bought a home last year.  Your typical small yard suburban home and my first water bill was $350.  Just my wife and I and our 2 toddlers.

Had a well drilled for irrigation and the bill hasn’t gone over $55 per month since.

So maybe $60 per unit seems more reasonable but if that number includes and irrigation that for sure is where the problem is.

Anyway. 

Peace

@Aaron Thivierge Your P&I seems too high at $1800 for 240k (320-80) loan. Is this a 30 yr fixed? What's the interest rate? At 5.5 or even 6% your P&I should be ~1400.

Also water $440/mo is absurd, unless water in Jacksonville FL is very expensive. Do you know how many gallons are they using? How many people are living there? I would call the water company and find out average usage for the area or at least usage history to see if this is a recent increase.

I would also look into how much rehab is needed to get market rents for the other 2 units and add that cost along with lost income during rehab to purchase price and figure out your CoC, ROI, ROE, and MIRR if you have an idea of when you'd refi or sell.

@Aaron Thivierge

What is the zoning on the lots Rld, Rmda, Rmdb, etc?

Sorry @Aaron Thivierge, it was a reference to Bigger Pockets podcast 303. I should have mentioned that. Lol

@Aaron Thivierge I think that fact that you are not accounting for any maintenance, lawncare, capex or management cost is making the deal look much better than it is. If you factor in these costs, the Cap Rate (not exactly a perfect fit as a 4 plex would be valued based on sales comps, not Cap Rate) would be very low, like 6.1. Additionally, even assuming rents go up to $4100/month, your expenses are likely to be over 50% when you include maintenance (5%), Capex (5%), lawncare (2%) and management (8%). Adding these costs in, and you are negative on cashflow.

The empty lots would be very intriguing to me if the area can support new construction.  But if your buy a 2/1 & 2/1.5 fourplex for $300,000, the value is likely in the $80-90/ft2, so it likely will not support new construction, if this is the case, the lots are more of a liability, although there may be other uses (putting storage sheds on them and renting storage space for your tenants, parking etc.)

I think it depends on the location of the B quad in Jacksonville. It is not accurate to generalize Jacksonville as an unappreciating market as there are 30 zip codes here. What zip code are you talking about? Could it be Riverside? Avondale? Murray Hill? 32205? 32210? What is the zip code? 

Also ,I know plenty of builders who would build on the 2 lots depending on the zip code and area. 

An investor who wants to maximize his or her potential net worth will pay a purchase price based on the current position of the property.  If he can increase revenues or decrease expenses, he should be the beneficiary of those changes, not the seller.  Almost every seller and buyer out there thinks that the subject property is not being run efficiently and money is being left on the table.  Some of this is that the energy level tends to decrease the longer you own a property, but some is also that additional costs are required to get the property up to potential.  Take for example the statement that “rents are below market and an easily be raised”.  In 95% of the cases, in order to substantiate aren’t increase the owner will have to (1) get rid of existing tenants, (2) invest in property rehab and repair (3) have higher maintenance costs to maintain the higher rent rates and (4) attract a financially better tenant.  These cost money in both direct costs and lost income.  Further, it is by no means a certainty that rents CAN be raised, let alone easily.  Even if other competing housing is rented for higher rates, the subject property may have some inherent deficiency that the market discounts.  For example it may be on the wrong side of the Freeway for access to major employment or shopping areas.  A discount of as much as 20% might be required to attract tenants if a similar property is available on the “right” side of the freeway.  Buy for what the income can be, but only pay for what the income is. 

Agreed. If the numbers are telling you that nothing over $300,000 will work, don't let ego change your mind.

So are the 4 units identical and rents just haven’t been raised equally or are the cheaper units smaller?  If the same size bringing all rents to market at $1100 give you an extra $700 a month.  Also, bill back the water AND install low flow toilets and faucets, ideally you could separate meters but that’s a capex expense that probably wouldn’t figure well into your numbers at purchase.