All Forum Posts by: Dan Johnson

Closing Date: 10/5/2018

Rehab period: 10/15/2018- Jan 31, 2019

4 unit rental property which will be held as long term rental property

Purchase price: $79,000 using a commercial 5 yr loan amortized over 25 years w/ 15% down payment

Rehab: $45,000 of my own money

ARV: $100,000

NOI upon purchasing property: $9,629

NOI after rehab: $15,857 (60% increase after boosting rents and decreasing operating costs)

I’m looking to recoup the $45k rehab money I’ve put into this property as quickly as possible. The way I see it there are 2 options:

1) Residential refinancing which requires a 6 month seasoning period. Will a residential refinancing appraisal take into consideration the fact that I increased NOI? Or does residential refinancing appraisal only care about condition of the house and improvements made (and not the rental income)?

2) Commercial refinancing. Once I get all units occupied at a higher rent price can I then apply for commercial refinance right away? Or should I wait several months to establish rental history at higher rent prices?

My current commercial loan appraised this rental property at $86k before any rehab. Property condition was considered fair (it was actually poor in my opinion). Is this $86k figure now tied to my property and set in stone? Or will I easily be able to get a higher appraisal value based on higher rents, higher NOI, and improved property conditions due to remodel (new cabinets, new interior paint, new doors, new windows, new water heater, new support structure, new bathrooms, new appliances, new exterior paint, etc)?

Does commercial appraisal usually just focus on rental income and NOI or does it also focus on improvements in the condition of the property?

Thanks,

Thanks everyone for your input. Good stuff. It's what I needed to hear.

Ok...makes sense. Yes, that would be a much bigger problem that could arise by trying to save a few bucks. I'll ask him to reprice the quote to include permits in the pricing. And I would need to ensure that his license is reciprocal in my state. Thanks for the insight...very helpful.

Recently bought a 4 unit multifamily home in Louisiana. This is a C-/D+ property. I need to get some electrical work done which consists of: 2 new electrical panels, 2 new dedicated circuits, adding several new plugs, and replacing 6 outlet receptacles. Several quotes from local electricians have been very high.

I got a quote from a handyman for 40% of what the other quotes were. He doesn't have his state license, but he did show me his electrician's license from a neighboring state. He says that the licenses are reciprocal between the two states. In this scenario, let's assume I trust him, and he signs a written contract with me stating the scope of work and the payment terms.

I understand that replacing panels requires a permit from the city. And adding dedicated circuits might require a permit too. He tells me that his quote is low because he doesn't plan to pull any permits or get the city involved. I would think as long as quality work is done, and the panels and dedicated circuits are in working order, there shouldn't be any problems when I sell the property.

What would my risk be if I hired him and he does all the work to my satisfaction? Would there be any problems when I sell the property in a few years? 

Thanks so much for any input on this,

Hi Ernest,

What do you mean when you say the plumber 'fixed it?' Did they remove the old line from the street to house and replace with a brand new one (this could cost several thousand dollars)? Or did they simply clean/clear out the line (usually costs a few hundred bucks)?

It sounds like they cleaned/cleared out the line. If this is the case, then they are not liable for anything.

I'm in the same situation as you. I recently purchased a house built in 1900. A few days into my new ownership the bathtub filled up with water. The tenant said the sink also backs up. So I called a plumber to inspect the water line from the street to my house. He snaked the camera in the water line and saw tree roots. I paid him $200 to clean/clear the water line. The plumber said there is no guarantee when they clean the lines. He said there is a high chance I'll have to continually clear the lines because tree roots will constantly grow into it, and because the line is made from old clay tile. He said he's seen cases where the line gets blocked again within a few weeks. Or it might be a few months or years before I have to clean the line again.

So I'm calculating that I'll have to get this line cleaned several times per year at $200 each time. The other solution is to pay the plumber to remove and replace the entire line. This water line travels down a hill and under a retaining wall. He quoted me $5,000 to replace the line. He said digging under the retaining wall is the hardest part- it would be cheaper if I didn't have a retaining wall.

Anyway I may have this house for 5-10 years if things go well, or I might get sick of it and decide to sell this rental house in 1 year. This is why, for the time being, I'm electing to clean the lines several times a year-because of the uncertainty of how long I'll own the house.

Good luck, Dan

Hi Shubhashini,

Yes Little Rock is a good place for investment property. You can hit the 1% rule in most cases. It is a stable market. It's best to invest for cash flow rather than appreciation. There are several good property management companies for you to utilize as well.

Recently purchased a 4 unit quadplex with 2 units downstairs and 2 units upstairs, and currently renovating one of my downstairs units. Upon ripping out the ceiling drywall we noticed that the ceiling had 2 layers of drywall. I'm guessing it has been like that for several years. Either the previous owner thought he was fireproofing/insulating between the 1st and 2nd floors, or was just too cheap to replace the drywall correctly (most likely).

I'm now wondering if I should rip out the ceiling in the other downstairs unit. My question is: is it safe to have 2 layers of ceiling drywall? Seems like unecessary extra weight. Has anyone ever heard of 2 layers of ceiling drywall falling down because it was too heavy?