All Forum Posts by: Dan Kelley

My realtor walked me through a triplex yesterday prior to it being listed on the MLS. I liked the unit as it was in better shape than several buildings I've been through. It's downtown, yet still in a decent area right next to a library.

I'll attach a spreadsheet. Hopefully you're able to read it. If not I'll try to figure out a way to post it better.

1. I'm somewhat guessing currently on the utilities. Owner pays all and said it was around $4,000/yr, I bumped it up to $4,850.

2. I ran the calculations assuming a management company. Realistically I plan on managing it myself to start out.

3. The seller is planning on listing at $97,000. My purchase price I entered should yield a 10 cap with management included. If I consider it without management, it's a 13.5 Cap at my suggested offer of 73,230.

4. Property has already been lead abated and seems to be in great shape. Each unit is not nice enough that I'd like to live in them, but they are simply a little rough cosmetically and not kept the neatest from current tenants.

5. ALL 3 tenants are on housing. Rents were just recently raised on some of them and it was approved by housing and the building recently passed housing inspection.

6. So far, all of these numbers and details are word-of-mouth from seller, so I've still some work to to verify everything.

7. I would like to look at possibly separating the utilities in the future. Currently there is only 1 unit that the PO had the electric separated. Everything else is tied together.

8. The $1,200 misc. income is coin operated laundry. Washer is 2yrs old, dryer is 7-10yrs. PO claims approx. $100/month income from that, but I don't know if that is a realistic number in a 3-unit building?

Please look it over and let me know your thoughts, concerns, or advice. Do you think the numbers are OK where they are? Or should I push for a lower purchase price to secure a greater cap rate when factoring management?

**EDIT: If you ctrl zoom in your browser, you can read the spreadsheet just fine. Sorry about that!***

@Rick Turman did you ever find out more precisely how much utilities run? In my area, I've seen 4-plexes where the owner paid utilities and it cost him around $6,500/year. Definitely eats up a good chunk of cash flow. Splitting the utilities or submetering if possible would definitely be something worth looking into.

@Account Closed That is a good observation. I wonder what would be defined as "occasional meetings?" Would they consider a full day once a month to be "occasional?" If it were a full day dedicated to attending some sort of online training and hold meetings?

I know someone who is kind of a pessimist when it comes to investing. I told him I was looking at a 27 unit apartment complex. His response was that it was foolish because if there were to be some sort of fire that destroyed the complex, I would lose everything. I said, "that's what insurance is for!" to which he replied that it can take up to 2 yrs to receive an insurance settlement from something like that.

Is this accurate? How does a scenario like that really play out?

Wouldn't it be more beneficial to save the $600/year as Cap. Expense reserves rather than paying a warranty company? That way YOUR money is staying in YOUR hands. If you don't have any repairs, you've added that much money to your account. Might as well make a 1/4% interest on your own money rather than handing it to some company. Granted, if you had a major failure within the 1st few years, it would definitely hurt, but after that you'd begin to develop substantial savings.

http://cpaonfire.com/tax-saving-strategies-for-ent...

Here is an article also describing what I was saying.

I respect your opinions and am not trying to argue, just wanting to further understand.

So it would be disallowed even though it's possible that the business would have spent the money elsewhere anyway? I own an auto repair shop, and I would think that if I wanted to host a meeting or training for my employees that I could host it at my home and have my business pay me for the use of my home and food. 

@Zachary C. I feel your pain. I'm self employed and own my business as an S-corp, however I just opened 1 year ago, so I am ineligible as far as any residential loans are concerned (was looking at buying  a duplex with a 203k.) While you may be able to pay your bills better than most employees, the bank still has no way of knowing if your business is going to close it's doors 6 months from now until you've proven yourself.

What is your business, if you don't mind my asking? 

So is Cap. Ex. in addition to a reserves for replacements? Or are they the same thing? I've been trying to calculate Reserves for any potential properties, but I don't want to be missing anything.

Thank you all for the replies. That's why I posted here- to learn. I will keep you posted if I move forward on the deal, however it seems to me at this point that it may be difficult to perform all the necessary rehabs without becoming over invested with a total cost more than the building will appraise for. I will keep looking but will keep this one on the back burner. Looking at a fully rented 4-plex on monday listed at 109,000. Hopefully that one will be a little more promising. 

Thanks again for the input.

Happy Investing!

@Tess Tari You're from Colorado? Want to trade homes? I kid, but in all seriousness I would love to move out to Colorado in a few years if I can get my wife on board.

As far as downtown Dubuque is concerned... It is definitely getting to be a little rough but it depends on the area. There are millions of dollars being invested into the millwork district. They have and still are converting old warehouses into really nice apartments. There are other areas that I would't advise purchasing in. I had looked at a building with 8 apts and 3 store fronts with my brother-in-law and business partner friend and some got SHOT in the building during or just before we were walking through it. We were walking down one of the hallways and a cop burst through the door looking for the suspect. 5 minutes later there were 12 cop cars and an ambulance sitting outside. That was the 1800 block of Central. 

Downtown seems to have little bubbles of nice areas dispersed throughout pockets of crappy areas. Hopefully the city works to improve things, but that requires landlords and investors to do their part and screen tenants and make sure we're allowing the RIGHT kind of people to stay in Dubuque.