All Forum Posts by: Lee Miles

I love this thread! Here's a 4-Plex I rehabbed last year. It was a big project and I learned so much! This property has proven to be quite profitable and it attracts great tenants. Thus far, it's been an enjoyable land to lord. ;)

What's an average rule of thumb for cap ex?

I was unsure about cap ex, but I do know that some of the units need updated, and I'd plan on doing those renovations as each tenant moved out throughout the year.  So I went a high. Honestly, I'm not sure they'd go low enough for this deal to make sense. On the other hand, they've had no luck selling this house in over a year (likely because the numbers are no good at $165K). Thanks Ashton!

I estimated a 10% Vacancy and a 20% CapEx (very rough estimate), and the deal no longer looks very good at all. Thanks.

Thanks for holding my feet to the fire! I did not account for those things. I'll go back and refigure. I manage my properties myself for now. I'm 2 years into investing/landlording, and I thought it best to get to know the business first hand. 

I've got a line on an off-market 6-Plex. It's currently fully rented, and the rents are much lower than market rents. 3 of the tenants are month-to-month and the other 3 are on a year lease. The sellers are aware of the low rents - claim they're keeping rents low so they don't go into a higher tax bracket... 

6-Plex consists of: 2- Studios / 3- 1BR / 1- 2BR. House is downtown, in a historic district. A nice and safe location. 

Current Rents: $2700/mo (I believe I can have rents up to $3200/mo within a year)

My quick analysis, (using $2700/mo for income), looks like this:

Asking Price: $165,000

10% down: $16,500

Payments @5%, 20yrs =  $980/mo

Operating Costs: $1080/mo (Gas, Electric, Water, Insurance, Taxes)

$2700/mo - Operating Costs: $1080 - Mortgage $980 = $640/mo Cash Flow

Cap Rate: 4.6% 

Am I missing anything in my analysis? 

If the analysis is solid, then this 6-Plex meets the $100/door rule. The Cap Rate isn't great. However, when rents are brought up to market value, the monthly cash flow will be around $1140, which is getting close to $200/door and the Cap Rate would be 8%.

The sellers bought the house on contract and have a couple years of payments left. They feel strongly about their asking price, but they are willing to sell to me on contract. (I'm told the original owner is fine with this, as he just wants paid off, and will be paid off via this deal). 

The sellers are getting on in years and they do not want to be in the landlording business any longer. In fact, they've told me emphatically that they no longer want this house. 

The house is assessed by the county at $125,000. Typically homes sell for close to their assessed value around here. Like any other buyer, I'd much rather pay $125K than $165K. Not sure if they'll budge on the asking price - they say they paid $165K 14 years ago, and they want that amount back.

I'm going to see the inside of the house on Monday, but I've walked the property and the exterior is in good shape, aside from maybe $500 in brick work. Assuming all is well on the interior, I may decide to make an offer.

My motivations: I'd like to push for a lower down payment - as low as possible. I'd rather pay closer to $125K than $165K. And I'd like to keep my mortgage payment under $1000/mo. 

Seems like their motivations are the sales price and simply getting out of the landlording business. They are extremely motivated to do so. 

Any advice on how to structure a deal that makes us both happy?

Thanks in advance! 

* Forgot to mention that tile guy threatened to turn me into my insurance agent (whose wife I've known since childhood) for the saw on top of the stove. Just to be safe, I scrapped the stove (which was used anyhow and ready to be replaced). 

I hired a tile guy to tile a bathroom (floor and shower walls) and to handle a few small jobs on the side. Things were going well until a couple weeks ago, when I'd given him $140 to buy supplies, and not only did he not buy the supplies, but this is where his worked slowed to a stop. That weekend, I got a drunken phone call from the tile guy (who'd clearly fallen off the wagon), cursing me out because, in my absence, one of my lesser-skilled laborers had put a miter saw on top of the stove and to make cuts, getting sawdust on and inside the stove (stupid, I know). After an intense phone yelling, the tile guy hung up and refused to answer my calls. 

He also left a message on the trash bin, threatening to dump it's 300lbs of trash all over my yard if I didn't empty it by Monday afternoon. This is a trip, because the trash bin was mine. I'm guessing he thought it was his...

After taking his behavior into account - his lack of work in the last week or so, and his threats and bullying, I fired him last week. Well, I got his bill yesterday and it is extremely high, with a false accounting of his hours worked (on the side jobs I'd had him do) that is laughably inflated (3 hours to inspect a kitchen faucet for leaks! This is an amazing claim, as I was standing there the whole 5 minutes he inspected the faucet!) He also charged 4 hours to reattach the handle on the stove - this literally took him 20 minutes. What the heck?! 

To top it off, he's also attempting to charge me for a job he'd abandoned last year - as well as attempting to double charge me for a job I paid him for 10 months ago! The job he abandoned: I hired him to do a drop ceiling and a tile landing last winter and he left the job half way through, never finishing the ceiling and never starting the landing. He mysteriously left one day and wouldn't return my calls for months. This was 10 months ago. I realize my first mistake was hiring him again, but I was in a hurry and he was the only tile guy I knew at the time. I profoundly regret hiring him again. 

How do I handle this situation? What are my options? There was no contract between us for this work. Do I have to pay full price for the abandoned job - which I had to pay someone else to finish, and which cost me money due to messing up my time table to have a renter in the finished unit? I don't want to pay the full asking amount on this recent job because I know his charges are dishonest and severely inflated. I learned too late that he's not an honest dude - I looked up his criminal rap sheet this morning and it's as long as your arm. He's also lost a slew of civil cases! (Another lesson learned - vet your workers!). 

I'm a fair guy and I gladly pay for services rendered, but I won't be taken advantage of. Any advice is greatly appreciated! 

Thanks for the feedback guys. @Steve Babiak I get your math! It makes total sense. I definitely won't bring up the family issues when addressing my tenant.  

My worker (who lives next door to the trouble maker) has been chronicling her bad behavior with the police and the neighborhood association. I think the neighborhood bad seed will soon be removed, but still this late-paying tenant of mine is not a viable candidate.

Thanks again. It's nice to be able to bounce scenarios off of more experienced folks!

I had the understanding that rent is late after the 1st, but there is no late fee until the 5th (or whatever date the lease stipulates). Is that not correct?