All Forum Posts by: DL Martin

So "Example Guy" above buys a 5 Unit for 100k and puts 20k down. He finances 80k at 4.5%, ammortized over 25 years, which is $444 per month. His Prop Tax rate in Ohio is 2% annually which is $167 per month. He pays $25 per unit/per month for Insurance which is $125. So his PTI = $736 per month. His laundry pays him $125 per month but we wont count that because he uses that money to offset the trash/water and lawn maintence.

Example Guy gets $400 per unit ($400x5 units = $2,000), but one of the five units is vacant, every single month, so he actually is getting $400x4 units = $1,600 per month.

$1,600 - $736 = $864 per month positive cash flow.

Example Guy may not be dancing in the street naked over his monthly $864 windfall, but even with his monthly trash/water/lawn costs, he is still not getting his *** handed to him.

If Example Guy self manages and does the Rehabs (make readies?) and evictions himself, I don't see how Example Guy feels like he is losing his ***.

Further, in 10 years, Example Guy will have paid the principle down to $58,000. If Example Guy gets his $^!% together, and gets that vacant apartment rented, and turns that extra $400 per month against principle each month, in 10 years the principle will be paid down to ... zero.

@john chapman

Well thought out post.

But, like politics, I suspect that All Real Estate Is Local.

Fifteen years ago or so, I paid 200k for a 4 plex. The units (all 2 BR) rent for $850. Payment/Taxes/Insurance is $1,400 per month. The laundry pays the utilities, more/less. The property taxes cannot increase by more than 2% in any one year, per the State Constitution.

In 2008, my family (3 of us) moved into it while we built a custom home in Riverside. While living in the apartment, I took the opportunity to refinance it as "owner occupied", with no problems whatsoever.

While living there, I had zero issues with any tenants. I ONLY rent to families with small children. No single people, except for students in advanced degree programs at the nearby private university.

My building is one of approximately 20 identical buildings, all side by side, on one street, within one block of Loma Linda University. Loma Linda University purchased the building directly across the street from mine for $640k during the height of the California RE Bubble. The university houses medical school students there now. I would estimate the value of all of these buildings today at 500k.

So, mortgage/taxes/insurance $1,400. Rental income $3,400. Cash flow = $2,000 per month. Capital appreciation = $300k over fifteen years.

Someday the building will be paid off and California's open armed embrace of Illegal Immigrants GUARANTEES that rental housing supply will always be in high demand, driving C and D property rents higher and higher. Five years from now, it would not surprise me if our apartments are renting for $1,000 per month.

And this is in one of the poorest counties in California(San Bernardino). I can't imagine having the good fortune to own a 4plex in an expensive, coastal county...

"all real estate is local"

@Ray Browne
"I've started using hotel style air conditioning/heat in wall units, they are very efficient for small spaces, economical. They don't require a separate trade (HVAC) your electrician can handle them, they don't need to be installed until move-in if your worried about theft."

@Ray Browne

Ray, can you recommend a manufacturer, model number and good source for these units?

Excellent post. All of your points are valid.

DL

@Chris Martin
"I hope when you brokers are doubling the prices charged to owners that you are disclosing to the owner the fact that you are getting compensated. These kickbacks, upcharges, labor services, etc., that yield gains to the manager seem to be paid for directly by owners."
>

A property management fee is essentially an agreement to collect the rent, pay the utility bills and then forward the remaining rent to the owner. Fielding any tenant calls/complaints during the month is customarily also included, but ANY action beyond that initial tenant phone call will be charged to the owner.

Any repair bill will include a "middleman" (PM) charge, and it should be accounted for on the following month's reconciliation statement. And therein lives the difference between a "good" property management company and the rest.

The trick for the PM company is to know the pain tolerance of each owner and to determine that "perfect" fee to charge on every repair...A fee large enough to make the owner say "ouch!" but not so large as to make the owner say "HOLY $#*) !!!!"

:)

After reading the many posts about garbage disposals, I think that maybe here in SoCal the typical renter might be a bit more esoteric than back East. Maybe, coincidentally, all of my tenants grew up in homes with disposals and therefore, know how to properly use them. In any event, I will be adding an addendum to my rental agreements in which I will cover proper use of garbage disposals and maybe add a service call fee in which it is shown that misuse caused the service call.

In 15 years, I have NEVER had a tenant report a "clogged drain" and have never had to pay a single Rotor Rooter service call. So I would hold that up as evidence that a garbage disposal might not be purely evil.

Good discussion.

I just finished reading Buy and Rent Forclosures byJoseph Neilson.

Mr Neilson advocates stripping houses of central air, garbage disposals and many other amenities in order to eliminate maintenance costs.

My question is, wouldnt garbage disposals cut down on clogged drain service calls?

In 15 years of owning apartments, I can count on one hand the number of times a tenant has called me with a disposal issue. Further, to replace during an apartment rehab costs only $79 and 15 minutes of labor.

Your thoughts?

Dave

Bryan L; It's good to see that you have recovered after a RE "meltdown" . How have lenders viewed what must have been pretty ugly post apocalypse credit report as you have sought to rebuild?

Back on Topic, I have no real world experience in "Pitfalls", but I would guess that 1. Being an absentee owner/paying property management fees from afar is a major RE Pitfall and 2. Having zero or near zero rehab experience and relying on contractors or property management companies to handle estimating/materials purchasing/rehab labor.

I cannot imagine being an absentee owner.

-Dave