All Forum Posts by: Mike S

This is our first deal that we've actually come to an agreement with a seller and we're in our inspection period. It's a 2 bed over 1 bed duplex that has been rented by a mother and daughter since March 1st of 2013.

The inspection of the structure is of no concern to me. I'm very experienced with buildings and I'm having some gutter issues and the roof examined by roofers.

Where I'm a little behind the curve is the tenants, their leases, and what to do from here. I did get a copy of their lease and it appears to be very thorough. I asked my agent for rent rolls and they have not appeared as of yet. I will be inquiring about them again. What else do I need?

I've read about estoppel letters. When do I do those, who signs them, and what exactly will be in there? I have to honor the lease in place anyway (which is fine), so do I just say that the tenants agree to the same terms?

What about security deposits and pro rated rent? Do I have to request those, especially the security deposit?

Like I said, this is our first deal ever so it's been a steep learning curve.

Thanks,

Mike

I've buying our first rental property in cash with the intention of refinancing after closing along with some repair cost. What should I look into before closing? I was thinking title search. What about title insurance?

I have already found out costs like insurance, taxes, etc.

Thanks

I appreciate your feedback. I'm financing through a local portfolio lender. The building is actually in great shape and is in a nice part of West Price Hill. I also think I'm up to the challenge as I'm very familiar with low income folks through my job. East Price Hill is a worse, but it's hit and miss all over. I'll also be using a local property management company to handle the day to day stuff.

We're looking at a duplex of 2/1s that are rented currently for $450 with 6 months left and $480 month to month. Overall the building is in great shape, with the only major maintenance issue that I can see is that the roof looks at least half way through its life.

It's listed for $49,500 but has been on the market over a year likely due to comps. (Not many duplexes selling above 35K in the West Price Hill area of Cincinnati.) The max we'll pay is $35,000. Financing will be 30% down ($10,500), 6% for 15 years with a payment of 206.74

Expenses monthly are:
-Taxes $115.66 currently
-Insurance $52.25
-Maintenance (10% of rent) $93
-Utilities ($50 per quarter, per unit for water and sanitation) $33.33
-Management (10% of rent) $93
-Vacancy (10% of rent) $93

Once I take my expenses and debt service from my gross rent, I'm left with $243.01 cash flow for a 27.77% COCR. If I understand correctly, my NOI is $5397 for a CAP rate of 15%.

Looking forward, I should be able to reduce the taxes to about $800 with a revaluation and market rent for 2/1s is about $550. These units are nicer than most in a little nicer area and they have AC, so I think higher rents might be justified.

Let me know what you think.

Here is how I've been doing property analysis. I take my expected gross rents and divide that in two. On my expense side, I use actual property taxes as if they were paid monthly, expected insurance as if it were paid monthly, 10% of gross rent for maintanence, 10% of gross rent for vacancy, and 10% of gross rent for management. Usually I end up with a small surplus.

So when these expenses actually occur, do you use the expense side as a slush fund or do you line item things and take money from those lines?

Just getting started and I'm trying to figure out how to run the finances and accounting for rentals that I plan to buy.

Do you run the expense portion as a total fund or more like a line item budget? Take maintenance for example. I've calculated 10% of gross rent for maintenance. Should I make that a line item and deduct regular maintenance out of it or do you dump all the expenses into a fund and draw out of that. How about vacancies? Do I line item that and pay myself rent out of that line?

I already think that taxes and insurance need to be line itemed as those are fairly fixed and will need to be paid regularly, so why not line item the rest?