All Forum Posts by: Vlad Selsky

My mother-in-law needs to do 1031 exchange. She has about $650K, all cash. Anybody familiar with the Boston market? What is a decent cap rate for a two-family in Brighton, Waltham, Watertown, and Belmont?

Thanks!

Vlad

The HOA covers all the major stuff, and the inspection was very sound. Expenses run $40K a year and they just about break even. I calculated that a 17% HOA increase will build up a $10K reserve in less than 2 years (25% of operating expenses). I will be speaking with the pest management company on Monday.

I believe that many owners are out of state and are financially tight. I can't contact every one, was barely able to contact the single trustee. I'm at least trying to get details on HOA fee collection, see if there is any in arrears/delinquency. I am heartened that one of the owners tried to make an offer on my unit, so as an insider he clearly has faith and sees the upside.

After a very long search, I am days away from signing a P&S on a condo investment. This is in Boston. It is a residential unit in a 12 unit complex. 9 are residential, 3 commercial. The cash flow and IRR are fantastic, not even close to anything else I've looked at. The current tenants are strongly interested in renewing their lease in September. Having 16 months of assured cash flow is golden.

The first concern is a rodent infestation. The property manager has engaged a pest control company the last 3 years yet the problem remains. Not really seeking advice here. I'm assuming this is a solvable problem, but it still bugs me that my tenants (4 girls) still have to live through this.

My greater concern is the interelated combination of three things: HOA has ZERO reserves, the Board is providing minimal oversight/leadership, and the property management company is lousy. There are three trustees that are pretty checked out for various reasons. The president and only real decision maker permanentlly lives out of town in Arizona. The Board has never met face to face! They correspond via email. There aren't even meeting minutes. All 10 owners (of 12 units) are investors. Due to the history of this building and original condo origination, many of them are out of state and some (like the President/trustee) have lost lots of money on this investment (from historical events). The good news is that I was just able to speak with the President. He's a good guy and would more than welcome me joining the board (even becoming president). I would clearly be able to exert powerful influence in turning this situation around. Actually be local and stay on top of what's going on. I do have a full time job and two young kids, so a big concern is how much time this might suck up. But having gua.ranteed tenants, and the unit requiring minimal maintenance (inspection revealed it to be in great shape), puts me more at ease.

On to the property management company. The first order of busines needs to get them out and find somebody new. They have a reputation for being lousy, and clearly there's nobody around to keep them honest. I'm sure with a reputable company, the budget can be trimmed of fat.

MY BIGGEST QUESTION IS ON THE ZERO RESERVES. Should this be considered a show stopper, or is this, while undesirable, not uncommon (especially in a 100% investor owned complex)? To some degree, as a trustee I'll be able to start improving this situation. And good chance that more units will start to sell and fresh blood will be injected into the HOA. Philosophically, with the greater reward comes a greater risk....here in the form of a weak HOA and no rainy day fund.

I feel a bit of pressure to move forward. It's a huge sellers market here and pickings are slim, multiple offers very common, prices are high. It may be many more months before I find another suitable investment, or I'll have to compromise on lower ROI. Time is no longer on my side because this would be an all cash deal -- and the money is a cash out refinance/loan from another property. I'm starting to pay the mortgage as of today, so every month that goes by without any cash flow...well you get the picture.

Hoping cooler heads prevail -- I welcome all opinions!

Vlad

Hit Post too soon. To continue one more thought...

Ben -- I was born in Moscow but came over when I was five. I speak spotty Russian, understand it a bit better, and prefer a good microbrew to a shot of Vodka/Cognac. However, there is some of my mom's Borscht soup in the fridge...

Frank/Ben,
I get what you are saying. And if I were a professional real estate investor, it would be crystal clear. I just wanted to make sure that I wasn't missing anything obvious.

I'm looking at REI as a means to diversify my investments. I'm fully leveraged in the stock market so wouldn't feel comfortable kicking in another $60K at the moment. The second condo is about all I can bite off anytime soon. Why condos? Because I've got 4.5 year old and 2 year old boys occupying majority of my time! Multi family homes in the Boston area are usually very old and need a lot of work. So I'm OK with accepting 8-10% cash on cash...still a few percentages points greater than historical stock market returns, and that's not inclusive of any tax benefits or accrued equity.

I've been rather spoiled by my current condo tenants. A young professional couple, prefer to fix their own plumbing issues than call the landlord. They love raising their kid in the condo. In their 4th year as tenants. I only stop by once a year to do a 10 minute inspection and reseal the granite countertops. Not saying I'll be blessed with same situation in the second condo, but clearly I'm willing to sacrifice some returns for the condo fees/mgmt of building.

Ben/Others...

I am perplexed to the advice of not touching my personal cash. If you have access to MLS, take a look at # 71477080. It sells for $275K and I can get a 30-year fixed at 4.125%. I'm assuming annual 2% rent increase, 3% inflation, and $1900 rent.

Scenario #1: I cover the sale entirely with my other condo cash out. My pre-tax cash flow in Year 5 is -$526 (negative/loss).

Scenario #2: I put in $60K of my own savings thus my loan is for $215K. Now my year 5 cash flow is $2966 (positive). That is a cash on cash return of almost 5%. (Note that I wouldn't be using this $60K for any other investment vehicle in the near future). Also after tax cash flow is significantly higher than scenario #1

Am I missing something? It would seem that the best course of action is to find an optimal mix between own cash deposit and loan.

Vlad

Really appreciate the prompt response and advice. So if I can't rely on IRR or Cash on Cash, do I simply look at (pre-tax) cash flows for the first 5 years to compare one property to another? Is there no metric or 'rule of thumb' to help decide if the condo is a 'good' investment? There has to be something...as I could take the $275K and invest it in the stock market. So how do I calculate a "return" on this zero money down investment? Obviously I need to be greater than my 4.125% interest.

p.s. I only mention 5 years b/c I've been using this calculator for my calculations: http://www.goodmortgage.com/Calculators/Investment_Property.html

Hi,
First time post here.

I am interested in buying a condo rental property in the Boston area. Mo

st buildings have low owner occupancy so I wouldn't qualify for a traditional loan.

I have another rental condo that is fully paid out. I am cleared to do a reverse cash refi, so I can draw on $275K at 4.125%. I can also draw on another $70K cash savings if necessary.

If I find a property less than $275K, is it a no-brainer to pay for it in full? And having done that, I'm having trouble with my IRR calculator. Assuming initial investment of zero and theoretically selling the property after 5 years, I'm getting a crazy IRR. Here are my net cash inflows: year 1 - 1604; year 2 - 1811; year 3 - 2027; year 4 - 2266; year 5 - 22,325 (these are just some numbers from a representative MLS listing). What is the IRR on this?

Thanks,
Vlad