All Forum Posts by: Brent Neuenschwander

One other thing I forgot ... with my property, the city would charge a $400 deposit for each tenant to put water in their name. You might face the same issue - depending on your customer, would a big deposit be a deal breaker when they're deciding to move in. I'm going to speak with the city and see if we can work something out to reduce the deposit, but just one other thing to consider...

And as far as leaving as is and billing back the tenants, not sure how you would do that on just one meter, unless you just divided the bill evenly among the 4 units, and I'm not sure how well that would work - might be a headache when one of the apartments uses 5x as much water as everyone else and it gets passed along evenly.

I'm glad you posted this as I have been thinking about this too. We are closing on a 5 unit that has 1 water meter. I haven't taken the step of contacting water company yet to get an estimate on installing separate meters, but the little research I did seems to jive with your ~ $4k number. Not sure of your specific market but to me it seems like a good investment. Spend the $4 - $5k and increase your NOI by $1,500. If your market cap rate is somewhere around 8 – 10%, you just increased the value of your asset by $15 - $19k, for a $5k cost. But I know you also have to consider how this would impact your rent. If you are passing that cost on to the tenants, will you be able to maintain the current rent? I wouldn't think it would be a deal breaker, you are probably talking somewhere around $30-$50/month passed on to the tenant, but I guess that's another thing to consider.

Seems pretty tight. I don't know that I would reduce your capex to 5% - even though they did a lot of capital improvements, the problem with a lower priced investment is the cost of a new roof/furnace/appliances/whatever represents a bigger percentage of your income. If you drop capex to 5%, that means you are putting aside $450/year ($750 x 12 x .05) for it. That doesn't cover a lot when you have to replace carpet/appliances/water heater/etc a few years down the road. The numbers seem pretty tight. I'm guessing (I'm sure you have more concrete numbers) that you'll pay around $1,500 taxes, $750 insurance, $1,000 each capex and maintenance, $1,000 property management = somewhere around $5k - $6k/year to run your rental. If you have it rented for 11.5 months at $750/month, you are taking in $8,625. NOI = income minus expenses = $8,625 - ~ $5,500 = somewhere around $3,125. You paid $53k to earn that so $3,125 / $53,000 = 5.9% return. Hopefully the property can appreciate as well. Maybe you increase rent or you can try to trim some of the expenses down but like I was saying, the lower priced you buy, the less opportunity there is to do that. Hopefully you don't have a big capital expense. Anyways just my 2 cents, I'm certainly not an expert by any means, would be interested to hear what others have to say…

BTW there is a great article somewhere on BP by Ben L that talks about this subject (how cheap properties get killed by capex), it's a good read.

Thanks for the feedback Andrew and Jeff. I should have mentioned, I will definitely scrub the list as far as replacing all 5 water heaters vs. hanging on to some of them, appliance replacement vs. cleaning etc etc. In that regard, I was trying to be conservative with my thinking and just assuming that we would lean towards replacement. But yes, I will CERTAINLY salvage anything possible. Especially considering the area/tenants, I'm shooting to go with clean and functional units, not a ton of frills.

Jeff, I do have a concern also that $85k might be low. Even if we do decide to cut some of the initial repair scope, I don't have a lot of contingency built in. I suppose even if initial investment was $90-95k I would still be looking at 17-18% return which I would be happy with. Hopefully I can come in close to original estimate but we'll see! Thanks guys

Hi all, first time poster that has just gotten into real estate investing. I took the plunge and am in the process of completing a short sale purchase. Waiting (for over a month now) on the bank to sign the contract, the owner has already signed. Here are the specifics:

Property is one building, 5 units, approx. 2,800 sqft. Three 1 bedroom units, two 2 bedroom units, all 1 bath. Range in size from 448-770 sqft with an average of about 550. Only one unit is currently occupied, although seller provided rental history for the last 3+ years showing steady history. She was getting $2,400/month when all units were rented (about $480/unit on average). Located in a small rural town about 30 minutes away from larger cities. One larger apartment complex in town that looks to cater towards section 8 tenants and currently has no vacancies. Other than that, a few houses for rent but not much else.

Asking Price $50,000

Sales Price: $50,000 (all cash)

Initial repairs needed (will be paid in cash): $35,000

1. New roof & gutters: $12,000

2. Paint portions of units/common areas: $3,500

3. Replace carpeting in one unit and clean floors: $2,000

4. Appliance replacement: $1,500

5. Misc electrical updates: $1,500

6. Misc plumbing updates: $1,500

7. Replace baseboard heaters (most are bad): $2,000

8. Patch a few cracks in foundation per inspection: $1,500

9. New 5 water heaters (30 gallon): $2,500

10. New vanities/toilets/tubs in all units: $5,000

11. Misc: $2,000 

Total upfront cost for purchase + repairs: ~ $85,000

Expenses:

1. Estimated yearly property tax: $1,000/year

2. Insurance: $1,100/year

3. Annual maintenance (lawn/snow/common area cleaning/etc): $4,500/year

4. Set aside for future capex: $3,600/year

5. Property management: $0 (will manage myself, at least to start)

6. Vacancies: $2,600/year (assuming one month vacant/unit/year).

7. Utilities: $1,800/year (owner pays W/S/T and averages $150/month).

Total yearly expenses: $14,600

Income: $2,600/month - $31,200/year (plan on increasing average rent from $480/unit to $520 - pretty comparable with other complex in town but might be optimistic)

Summary:

Initial investment: $85,000

Yearly income: $31,200

Yearly expenses: $14,600

Yearly profit: $16,600

So what is your feedback? Did I get a good deal? Am I missing something or are my estimates/assumptions way off? I have a few concerns. First, the fact that only one unit is currently rented. Also, I believe my initial repairs estimate is pretty close but might be low on appliances. Most of them are old and we are planning on replacing some with discontinued/scratch and dent. Will probably be replaced over time but not sure. Thanks everyone for your feedback! Let me know if I missed anything.