All Forum Posts by: Ben Hudnall

@Colleen F. Sorry to revive a 3 month old thread. But you referenced above that owner occupied allows you to be more "picky" in choosing tenants. How does that work exactly? What criteria can I be more strict on compared to a true rental only property.

@Chris Grenier Good advice. So from your stand point that 500$ I was salivating over would have been worth it.

Also, great to see someone originally from the area (Worcester) I grew up in Westborough

@Jeff Greenberg @Thomas S.

Well, unfortunately I learned another lesson today - the property accepted a different offer.

Anyways, for the sake of understanding if I made a big mistake in my inaction, here are the numbers and caveats:

Units: 3
Current Rents: 1500,1450,925
Water/Sewer = 175/mo
Garbage = 45/mo
Vacancy (5%) = 192.25/mo
repairs (8%) = 307.92/mo
Mortgage Payment + PMI = 1693/mo
Taxes 2350/yr
Insurance = 1700/yr
Prop Mgmt (10%) = 384.9/mo

This leaves me with a monthly Income of 3849
Expenses of 3324.05 a month
for a cash flow of: 524.95 a month. (self management would give me a 909.84CF)

Total aquisition costs are ~14,000$ for a COCR o f 45%

Cap rate of 8.9

Now caveats and reasons I have been apprehensive: it needs a new roof in the next 5 or so years, One of the hot water heaters is extremely old and will have to go soon, and one of the boilers is from 1995 (ready to go).

Other than that there are some....dubious rehab decisions from the current owner - boarded up window sections, no dishwashers, etc. Lastly, that 1500/1425 rents are definitely priced with section 8 support involved. Market probably bears somewhere between 1350 and 1450.

I've done my due diligence. I've found a great property. It cash flows quite well for the area. It's currently completely rented at 1500/1500/950. I'm pre-approved for the full amount, and mortgage + PMI + prop insurance = ~2000$.

However, I now understand the inaction or paralysis that I hear thrown around this site and on the podcasts. The concept of being on the hook for 2000$ a month if I cant get it filled is quite daunting to me. 

I know this place makes sense, and I know that 2/3 filled it pays for itself, but just that concept of pulling the trigger and making an offer is really hitting me.

Any advice how to get over this hurdle? Or am I looking at this the wrong way and I should pull back to a lower payment number?

(I'm really hoping that someday, this is one of those times I think back and kind of laugh about)

@David Faulkner 

This is a really good way to think about capital expenses. Especially the point where rent is irrelevant. I (unfortunately) live in New England, and new roofs are a guarantee every set number of years. A 1 story needs a new roof just as often as a 4. 

My python calculator needs to be modified to include a timed depreciation on all included capital expenses 

@Andrew Johnson That is a good idea. I have even toyed with going the opposite direction - setting rules for myself to focus only on deals that cash flow with 100% financing. But your final advice has been echoed by my broker/mentor - find a property, then do the math to see at what price it would become profitable to you. Then work from there. Seems pretty sound.

@Ned J. Maybe investors are trying for a long term appreciation play in your area. It is CA after all.

@Christopher Phillips @Ben Wilkins
good advice, I also really really want to focus on cash flows above all else, so my gut told me that these deals all were pretty poor!

@Jason Turo
I haven't checked municipal laws, but I know for water/sewer at least, that these places aren't sub metered. So I could increase rents, but determining who owes what might be difficult. Unless there is a general method to calc sewer/water that I am unaware of. 

@Hayden Aquilon
I was under the impression that FHA PMI was for the life of the loan, and never went away. This was one of the reasons why I was planning to refi in the future (as well as take out equity to reuse). But yes, these are also the numbers on a 30year not a 15.

@Justin Fox
I agree on walking away from these deals. My gut was telling me that there was no money here, but I wanted to make sure I wasnt missing anything.

Side note to all: my broker forwarded one to me last night that, using the same math above cash flows 482 a month. I went to see it this afternoon and while it will need some capex in the near-short term (roof comes to mind), it definitely looks workable. So it looks like positive cash flows do exist in my area. Maybe I have just been looking at stinkers until now!

For about a year or so, but I'm trying to look at this as a longer term investment - Buy and hold.