All Forum Posts by: Brian H.

David the electric is $25-35 for the common areas and water runs $160-180 per month.

Will having the taxes reassessed affect the resale value of the property? I don't plan on selling anytime soon but I'm curious.

So...I'm convinced this isn't a screaming deal. But, I have a binding purchase agreement with the seller. What to do? Truth be told, I want this place and would prefer to negotiate a lower price rather than walk. Would it make sense to cancel the contract, release the EMD to him and ask him to renegotiate? I feel like I owe him the money because he's kept the one unit vacant while waiting for me to occupy it.

Thanks everyone for the replies. Seems most of you are confirming my concerns.

Brandon: The "living for free" part is a huge incentive for wanting to do a quad deal. Believe it or not this one has the largest "spread" of any I've looked at (that I'm willing to live in, that is). I'm projecting it to be more like $2000/1150 (not 1050 as I wrote earlier, that was a typo) so I was a bit confused by your comment about the spread. But I got the jist of what you were saying...it's a thin deal, agreed.

Tim: I hear what you're saying about the value of keeping a good tenant, perhaps at lower rent and on month-to-month terms. But it seems to me that renewing the lease and raising the rent a little bit at a time would be better management. I've been a renter for years and have been on the receiving end of managers who used both styles but frankly the ones who required leases made more money!

Angelo: When you say it would be better if I wasn't borrowing so much, do you mean putting more money down? I'd certainly get more cash flow. But, I won't have much left in reserve. So, not sure if that's really an option.

Steve: I would love to get closer to 2% in rent but after looking for a few months I'm not sure those deals exist in multifamily here in Louisville. I'm pretty sure it won't happen in this case, even if I can convince the owner to come back to the negotiating table. I think I'd feel better about the deal if I could get a 1.5% deal though.

David: For now, I have to keep my investments in Louisville. I'm not comfortable investing outside my market at this time. For what it's worth, this property is about five minutes from Bowman. But if I thought I could get $675 per unit we wouldn't be having this conversation. So I'm guessing those places are a little closer to the Highlands?

Uwe: That's the Cap rate I came up with too...but what did you mean by the 10% for beginning investors comment? I definitely consider myself in that category so please :)

I have an accepted offer on a quad in Louisville. I thought I'd done a good bit of due diligence prior to the offer but since getting the property under contract I'm getting cold feet. I'll explain why in a moment, but first the basics:

Four units, 2/1 each, 950 sq. feet. Three are rented at $475, 500 and 545. I plan to O/O the fourth unit, which is in move-in condition.

Purchase price: $155,000
3.5% down: $5425
Taxes: $2610
Insurance: $1851

Estimated payment (PITI): $1043.00, (P&I only): $672.

Income based on unit 4 renting at $475 (conservative estimate): $23,940
NOI: $11,970

Monthly cash flow: $325

I felt like this was a good deal a week ago but when I made the offer I was mistaken about the taxes and insurance on the property. They are nearly double what I was led to believe. Secondly, I'm having a tough time interpreting the expense breakdown I received for the last three years from the PM company. At best they're confusing, at worst they're also quite a bit higher than I anticipated (nearly 80% of the rental income last year. The previous two years were around 55%).

One more major question mark in this whole thing is that the two higher priced units have long-term tenants (around four years) but the leases expired over three years ago. I find it odd that the leases weren't renewed and the rents were never increased, especially given the disparity between their prices ($45). If I can raise the remaining units' rents by even $25 I will feel better about this one, and that's what I initially planned to do but when I saw that the leases haven't been renewed it just made me wonder. The units are fairly spacious compared to most I've looked at, and the property itself is centrally located near the intersection of two major interstates, right on the bus line and within five minutes to a large hospital complex. It's not the best neighborhood, I would categorize it a C, but I feel perfectly safe there.

By the way I realize that the numbers will be a little different the first year than what I'm quoting since I'll be living in that fourth unit. But looking at it purely as a rental...what say ye?

Thank you both. Brian, the property taxes from the PVA website are about $2600 and aren't included in the P&L statement as far as I can see. Joel, the property is managed by a PM company but honestly I'm finding their computer generated reports rather confusing. I guess I'm gonna have to just wait until after the holidays to talk to the PM in person. In the meantime I am gonna act on your suggestion to check out the Schedule E, thanks!

Looking at a four-plex as my first multifamily venture. I have the rent roll and expenses for the past three years and have a question about an item in the expenses column. It's entitled "Inv. Fixed Asset" and is one of the larger expenses for each year ($1431, $1465 and $2299 for 2009, 2010 and 2011, respectively). Can anyone shed light on what this might encompass? I would ask the property manager but she's out of town for the holidays so I thought I'd pose the question here.

Brandon thanks for the reply. The taxes are $1100 a year, I included those as an expense when I calculated my projected NOI. I have personal reasons why I'd like to get this one so I didn't go any lower than 78500 in my offer but I feel pretty good about it. If I get it I'll be pleased but if not that's ok too.

I am considering submitting an offer on a 3/2 brick ranch in what I consider one of the worst neighborhoods in an otherwise desirable area. It's a very blue collar neighborhood in a zip code that's primarily upper-middle class with good schools. But, there are a lot of FOR SALE signs and at least one FOR SALE OR RENT within a couple blocks from my target property. It has no garage and no basement, is sitting on an oddly shaped, but very large corner lot. It needs both interior and exterior cosmetic work and has a 23-year-old furnace. It's been sitting on the MLS for 320 days; they're asking $94500 and I was thinking about offering $78000. Preliminary projected numbers:

Purchase price: $80,000
Loan amount: $77,200
P&I: $325
Rent: $750
NOI: $4500
New furnace: ~ $5000
New paint: ~ $2000
Cash on cash: 6%

The repairs kill my initial return but this will be my primary residence for at least a year; am curious if this skews the investment potential in a way I'm not considering. Also I'm not sure how accurate my repair cost estimates are. I'm planning to buy and hold.

Do my numbers make sense? I think I'm being pretty conservative on the rents in this scenario by the way. Am curious how much value I could add by building a carport or even a single-car garage if I do the work myself.

Oh and the original point of the post...should I be leery of the numerous For Sale signs?

@Richard Martin - Sorry to dig up an old thread but I'm curious about how you differentiate in your own mind between the "serious investors" and the "fools". I have been making some low offers lately and my realtor is not crazy about it but so far has been playing along. I'm hoping she doesn't feel that I'm a waste of time because I know exactly what I'm after and will close when I find the right deal. But so far none of my offers have even received a response so I have to wonder what she's thinking...

Thank you everyone for the replies. @Mitch Kronowit, that is exactly the kind of info I'm looking for, thank you for taking the time to type all that. I wouldn't have thought about the different needs of lineholders vs. reserves, for instance. Good stuff. @Bill Gulley, I'm curious about any zoning restrictions as well. Definitely worth researching.