All Forum Posts by: Andrew Michaud

Quote from @Kelly Mahon:

We just took over a RD built 24 units (3 8plexs). The RD program is income based and if you go over tenants making to much income the loan rate goes up. We took the buildings out of the program and had the tenants switch to Section 8. Now that we did that we can still have market rate and the Section 8 voucher tenants are paid directly to our account every first of the month. This program seems to work the best for us. 

You can simply just convert a property from HUD or RD to Section 8? Is it a big job? Is the properties mortgage financed through RD vs a bank? Is HUD/RD rents higher than Section 8 vouchers as its all government housing? Is there monthly overhead headache on management of RD/HUD vs the Section 8/Market Rents route?

I am wondering what the differences are between a section 8 tenant, and properties that rent is covered by HUD and Rural Development. I was told HUD federally owns the units? So more rent? But you own the buildings? Is someone here able to clear this up. Thanks!

Has anyone used some of these management software or website/apps such as RentRedi, TenantCloud, Apartments.com?

Have you had any luck with these? Which are the most user friendly? I started with Apartments.com and it is overall a pain in my opinion and not the most user friendly. I'm seeking other options.

Thanks!

I am looking at a 38 unit property. It seems to cash flow well and cap rate is at 13%. Good condition buildings, good location. 

But, most of the tenants are section 8. They could still be good tenants, but I often hear stories about these lower income tenants. I like the idea of having government direct deposits every month, and less work gathering rents, etc. But does it come with a price?

Are these tenants a pain, calling the owner often, damaging property, etc, or is it case by case where it strictly depends on that tenant. Section 8 could mean a sweetheart mother in her 60s who is 5 days early on rent and don't hear a peer from her, or it could mean a teenager blasting music and children painting the walls with chef boyardee.

I am trying to evaluate a property, and I'm curious what many call an ideal or excellent cap rate for a rental property. Is it 8%?

Quote from @Brandon Vukelich:

Already a lot of good feedback here.  Red flags for me that stand out on the financials are water, sewer, trash and maintenance.  W/S/T $3800/year?  Are the tenants being billed back a portion or on separate meters?  I would believe that Maintenance & Repairs would run at least double the $12k/year figure.  I see you intend to self-manage.  Not sure about your experience but 38 units is not for the novice landlord.  I'd find it hard to believe it is currently performing at a 14 cap but maybe you found a unicorn.  Best wishes on the decision!

 I currently have 20 units. Reason Water/Sewer is so low is 2 of 3 properties have their own well and septic. This will be a large purchase but don't think it will be too bad. Hopefully not many phone calls!

I am looking at purchasing a 38 unit apartment complex in Maine. Our area is a bit cheaper market than other places in the US. The property is in an excellent location. Right in town and walking distance to hospitals, schools, municipalities. Buildings are also in excellent shape, very well maintained, but all will need roof replacements.

Here are the metrics of the property.

Asking Price $1,330,000 ($35k/unit)

Total Income - $319,500

Taxes - $31,260

Insurance - $14,760

Maintainece - $12,000

Electricity - $20,032

Heat - $22,956

Trash - $2,400

Lawn - $7,200

Snow - $12,000

Water/Sewer - $1,416

Management - Self

Total Expenses - $126,528

Net Income - $192,972

Debt Services - $89,640 with 20% Down, 5.75% Interest, 15YR/20 Amortized 

Total Cash Flow - $103,000

DSCR - 2.51

Is this a good purchase?

Also, I am purchasing for 35,000 per unit, but Estimate appraisal will come closer to $43,000/unit.

Quote from @Bjorn Ahlblad:

@Andrew Michaud on top of what @John Clark said it also depends on where you get your numbers. Get UTD taxes from county web site, insurance from a broker-depending on age some carriers may not even want flat roofs! Talk to a lender about reserves-they will want 12-18 months reserves on deposit. All the best!

I am asking the question with the provided specs of property, as they're accurate. I have done some research etc and all solid metrics. Asphalt roofs. Still cash flows 110k/yr. What if we figured in very worse case and it cash flowed $80k/yr? Good or bad?

Quote from @John Clark:

Quote from @Andrew Michaud:

Price is approximately $35,000/door for a total purchase price of $1,330,000. All buildings are in excellent shape, but are in need of roof replacements.

 Your math is wrong. Recalculate purchase price adding cost of roof replacement to the $1.33 million you're paying up front for starters.

Then calculate cash flow PROPERLY. There's a lot more to cash flow than just debt service. Can you pay all the expenses of the property (taxes, management, repairs, vacancies, general administration, reserves, etc. etc. etc.) out of that $110,000 each year? How much is left over?

Then compare your net return after all expenses (including tax savings on other income from depreciation) on the amount of money you're putting into the property and the time you will spend managing it, to the money you can make in some other investment. Adjust for risk. Look at your answer.

This is net cashflow after debt services AND expenses. I wouldn't mention cash flow without expenses being part of it, otherwise it would be considered gross profit. Cash flow shown is after tax, insurance, lawn, snow, water, sewer, trash, heat, electrical,  maintainence percentage.

I am looking into purchasing a 38 unit from a company. Price is approximately $35,000/door for a total purchase price of $1,330,000. All buildings are in excellent shape, but are in need of roof replacements. Property after debt services cash flows $110,000 per year. Is this a good deal?