All Forum Posts by: Blaine Johnson

@Account Closed

I am only looking at P for personal reasons, but as stated before, the deal has to work in my bank accounts favor or I will not do it. This place is getting maint. help now and has many unseen repairs and other upgrades. If you call a new roof an upgrade instead of maintenance, etc!? I could turn every tenant over as there are no renters protections or controls beyond the lease. I have done that before to rehab and increase subsequent rents. Most of the tenants are students/singles as the unit size and price would attract. The property is at 80% occupancy currently (which helps rather than hinders at this time) but rarely has any empty unit for more than a few weeks but I do not have solid evidence of that yet. If the 2 largest units and 1 of any other stay rented, they will cover the mortgage and expenses. The rest is cash flow.

 Smart Girl! Great detective! I did say it was old. But I would not categorize it as any less safe than any part of town that is not on a hill. Yes there are other options in the area and I am looking into several that may meet what I am looking for. I have owned this type of property before, and yes, it needs work. That is the biggest detriment to the deal, beyond the fact that I am not there full time. Rent in the entire city is low compared to the required investment. Always has been if not owner occupied. You must be from there or know it somehow? I was raised there and then raised my family there.

@Jay Hinrichs,

I did spend over 20 yrs. in this market in the past but this is not a done deal at all.  I ask for input to be sure I am covering all the angles in my research. I am not countering or denying anyone else's comments, but letting them know that I have looked into what is being said or suggested and the applicable info or results. I am actually leaning away from the deal at this point, until I get more info from sources "on the scene". I will let everyone know the outcome and location then.

@Davon Lowery, The market is this area rarely supports the 2% rule. In fact, I have never had one OR seen one meet that criteria. 1.5% is even stretching it due to the low rents involved. Some of the large multi's may make the cut, barely. The main goal here is to simply make it pay for itself and hold it for the future (retirement) income it will yield. Any cash flow now is a bonus. Equity is hard to grow here as the market is slow to move in any direction. The taxes are at 68% of the national average and assessed on the full market value/last sale price of the property. Tax increases are few and far between, impacting individual properties minimally. Government spending is very low compared to most. Way lower per-capita (I mean taxpayers footing the bill) than California. People "invest" here for personal reasons. But it can and should still be done with common sense over emotion and the best deals one may find.

@Devan Mcclish, a good thought...

However,

Water/Sewer/Garbage are all combined in one bill/account within this municipality, required by statute for all residential units, and would require meters AND sewer AND Totes/dumpsters to be individual to each unit. They are not separable. That would be very expensive, and nearly impossible logistically to make happen on this property.

@Account Closed, I am on the same page with you on comps and gave the same explanation to someone else, with very similar numbers even, just yesterday. Isn't that supposed to be the first question in real estate valuation? What are the comps? Seems to be the case in my neighborhood even if the final sale comes in much higher or lower for whatever other reasons.

@Matthew Schroeder,

I have checked into and received documents and quotes for utilities, taxes, insurance, management, etc., etc. in my projections.

I will be paying water/sewer/garbage, all municipal, as is customary in this location for a multifamily. SFR's can be either way here. All other utilities are separately metered and paid by the tenants.

I was not relying on my erroneous cap rate number as a deciding factor, but on the actual projected expenditures vs. income and the potential return.

Thanks again for your help!

Matthew,

You are actually correct. Net profit after ALL projected expenses would be a little over 15K a year. A little over a 9 cap rate.

I am re-learning some definitions here.

 Bob,

I do not think that the market will ONLY buy at an 18% cap, and that is not the norm. The market risk in this area is controlled by the quality/longevity of renters in general. This is especially true for small units like most involved in this deal.  As a college town that is heavily dependent on that institution for it's economy, all things rise and fall with the school year. Wages are low in general compared to the national average as well. Most smaller properties can not absorb the potential 3 month loss of income at the lower rents the market dictates vs. the initial investment costs and be as profitable as this potential.

Owner occupied duplexes are numerous here, with few large multi-families. (I have owned a couple of those in the past that actually paid me to live there for free.) They are serious competition is this market. However, this particular deal has 2 larger units included that could/would rent to a less transient client and carry the debt entirely. The caps in this area still usually range from a nice 8-10, but 15 is a very real potential cap if you stay on top of it, and ahead of the MLS, in going after the deals. I am not hinging the deal on any of that, just putting it out there.

The cap rate was on my calcs, not the current owners.

Conservatively, and based on the area market, the total rent revenue should be at 2400 mo. 50% capacity, or even just the 2 larger units rented continuously, will pay the bills and keep the emergency fund ready. 

Annual net income approx 15k. after ALL usual costs.