All Forum Posts by: Ben Lukes

Hi everyone.  I'm in the middle of closing on what would be my first property, a 4-plex in Tacoma...but the cash flow is looking pretty tight.  I'd love to hear your thoughts on it before I close.  Inspection has been paid for and may not be able to get the appraisal fee back, but I'd rather lose those than close on a bad deal.

• Purchase Price: $360,000
• 4-plex w/ (3) 2-bed/1-bath units and (1) 3-bed/1-bath unit
• Rents: 3-bed unit: $950, (2) 2-beds: $850, (1) 2-bed: $800 (month-to-month).  Total $3,450/month
• Landlord pays water/sewer/garbage (approx. $5k/year total)
• Property Taxes: $4,360/year
• Property Insurance: $2,212/year (waiting for second quote, hopefully lower)
• Maintenance/Turnover: assumed $4,000/year for all maintenance/CapX/turnover
• Management Fee: Assumed 10%.  Current manager charges 6%.  We will likely take over management after a couple months.
• Financing: FHA first time homebuyer loan (3.5% or possibly 5% down)

Units are not in great shape, but also not too bad, and are basically at market rent ($850 for the 2-beds, $950 for the 3-bed).  Seller agreed to repair roof, replace all water heaters, and some other minor repairs to one of the units.  The utilities are really killing the cashflow (I would charge a utility fee to tenants if possible as soon as the leases expire).  I'm also concerned that $4,000/year for all repairs, CapX, etc. might be too low.  Finally, putting only 3.5% or 5% down and paying mortgage insurance is really hurting cashflow, but I don't have the money for a 25%+ down payment.

Is this a good deal?  Does anything look out of whack?  Please let me know if there is any information you need that I missed.

Thanks!

Unfortunately I don't know, but I'm very interested in the answer.  I'm looking into buying a condo or two myself and am interested in learning the details of how financing works...

Thank you @Adrian Chu (and @Ruth Bayang). I was looking at older condos around Ballard, Magnolia, and Queen Anne....not too concerned about great cashflow as long as it's positive given that I feel very comfortable with these locations and am confident they will appreciate over the long term (as long as the building and HOA stay in good shape...). Is this the type of area you were talking about?

I'm curious if you have a preferred complex size by number of units. I would think smaller complexes may be at higher risk of running into financial trouble with their HOA.

Is anyone buying condos in Seattle, renting them out, and getting positive cash flow (and if so, how much)? New condos (this cycle or the last), or older condos (prior to last cycle)? What areas are working for you? I've been looking around Ballard, Magnolia, and Queen Anne Hill (areas I am most familiar with), and it looks like I might be able to get some deals to be cash neutral or moderately cash positive, but I'd love to hear if others are already doing this. Given the appreciation potential in this area I really only care about having enough of a cash flow cushion to comfortably reduce the chance of going negative.

@Enrique Jevons I missed your response 4 months ago...this is very helpful, thank you!

@Amit M. the best way to deal with the first-come, first-served rule is to raise your requirements, and your rent, which you can get away with in the current market.  That way you won't have to rent to someone that will end up costing you big time farther down the road.

Thanks @Alex Chin, I'll have to give Hilltop a second look.  I agree it has a lot of appreciation potential given its proximity to downtown and the coming expansion of the UW campus.

Alex Chin Any particular part of Hilltop?

I second everything people have said about 6th Ave and Hilltop.  While I don't know much about the specific location of the house on Ainsworth, my wife and I did spend some time walking around Hilltop a few blocks to the east of there.

Given the location just a few blocks up the hill from the new(ish) UW Tacoma campus and the low prices we figured it would be a great location for student rentals.  However, we stuck around as it started to become dark and my wife was definitely frightened to be in the area.  I was also on high alert...and probably felt the least safe I have ever felt in any city I have ever visited.  We had people offering to sell us drugs and others trying to egg us into arguments that seemed like they would lead to physical altercations...we also talk to some neighbors that noted a significant drug problem.

All that said, given that the campus is planning on expanding up the hill I think the neighborhood will come around in 10-20 years...so it's probably a good longterm play.

I'm curious about the mechanics of short sales as well.  I know what they are, but I don't know how they work.

For example:

1. If a house is listed on the MLS as a short sale, has the bank approved that listing price?

2.  If they have approved the listing price, will the process go fairly quickly if you offer that price?  I hear short sales take forever, but maybe that's only when you try to offer less than the asking price.

3.  Does it help speed the process if you meet with the bank after making your offer?  What if the mortgage holder isn't a bank?