All Forum Posts by: David Lee Hall, III

Quote from @Amir B.:

@David Lee Hall, III

Hi David,

Does the deal make more sense if I put down 25% instead? I'm still learning how to calculate profits. The seller hasn't disclosed the repairs needed.

Not really. You aren’t changing monthly payments by much. Sure it would help a little but the limitations are in the income level. If you are only clearing $1000 a month give or take, what happens when you have to replace 4 furnaces in 2 years ($16,000 right there) or the roof a year later (probably another $12,000 give or take). Even tenant turnover could be an issue if a tenant trashes a place it could take an entire year of profit to get another tenant in there. 

The good news is if you are financially stable and have an extra $25,000 or so in the bank as reserves, it should be a fairly safe deal to be a first time one to learn the ropes. It wouldn’t surprise me if you don’t make any money at the end of 10 years aside from equity capture on the loan payoff.

a quick comparison:
I have a SFH at $635/mo. Insurance is about $65/mo. Taxes $150/mo. Mortgage $210/mo. 
on the surface, great, I am cash flowing $210/mo! Wrong. I was using a property manager- it was $90/mo. (I since fired them and do it myself.) But of, the sewer failed - $13,000 on that repair. That is 7 years just to get back to $0 due to the limited cash flow. Opps, termites in the porch, another $5,000. Adjacent pine tree died and was starting to lean, $1,700. Smoke in the house, fire department called, oops they plugged half a dozen extension cords together and melted a circuit: $1,200 and damn lucky. Furnace died $1,700. I have had the property 8 years. Have had 0 vacancy and 2 months late with fees paid when they were late. They started at $500/mo when I bought it and I slowly have raised rates but since they haven’t moved I haven’t tried to kick them out and remodel to improve rents. I should be back to even sometime late this decade. 

You are basically buying a 4 unit version of my one house. Sure, it can cash flow, but you need to ask yourself if you are willing to deal with the issues that come with a low income property. Many investors I work with have sworn off places that don’t pull over $1,000/mo gross unless it is larger multi family wear economies of scale come into play. Great - that means I can get the $800 units without competition and at a lower price. But I offset that by driving a pickup that is 20myearsvold and probably has tools more valuable than it is inside so I can do my own repairs and turnover. If you expect to call a contractor every time a faucet leaks or you need vinyl flooring, that price point likely is going to leave a bad taste in your mouth.

Quote from @Amir B.:

Seller has done it before. 

All the more reason for you to find a closing attorney.

As someone that only ever wants to use his own contracts - the reason is simple, I wrote them with my lawyer to make sure I have all the contingencies I need as a professional buyer. Additionally you are buying something as-is and don’t know the repairs.

Currently you are at $2400*12 gross annual.

That is $28,800

Minus 15% property management fee (rough estimate 10% plus leasing fees and renewal fees): 4,320

Minus taxes: $4343

Minus Insurance: $745

Minus OpEx (10% estimate): $2,880

That leaves you $16,512 net or $1,376/mo.

From this you have $344 per month door.

But there are 3 numbers not included here. First is capex savings. You need to save for furnaces, roofing, etc. The mortgage payments need to come out as well. I have no idea what the amortization period is to calculate this. Finally, and the first number you need to start with, is profit first. What is your per door amount you want to pay yourself.

At first glance this looks very skinny.

You could have a little more margin if you have value add opportunities such as rehab to move rents up a few hundred or you self manage, in which case you could pay yourself the management fee (keep in mind that you are locking yourself into low return if you remove this number from calculating because then you would never be able to hire a PM and still pay yourself if the number with PM included is low or negative).

Quote from @Matthew Catanzariti:

Quote from @Theresa Harris:

Run the numbers.  If you can save that much in capital gains, why not sell it and use that money to buy a rental?  How long would it take you to make that in rent on the current place?

thats the thing, not sure if I want to deal with another rental, maybe looking to just cash out and try some other business ventures 

 
what about turning it into an Airbnb in a luxury location your family could use for vacations?

Always have nerves. It is natural. But as someone once said, worrying never changed anything, only actions do. Pick up the phone, take action.

I agree with @Ronnie Galindo. Inform her that her lease will not be renewed at the notification period and she will be expected to be vacated by XYZ time and date. Do not put it in writing, but if she asks, just tell her you want to give the place a facelift so you can get a higher rent or some other reason that has nothing to do with her. Never put the reason in writing. You want to safeguard yourself against any frivolous lawsuits if she thinks she is being targeted. Have an expectation that you may not get your last month rent and you may still have to evict her. 

Quote from @Jim K.:

The only thing to be careful about when you find random PEX fixes in an older houses, usually in an exposed basement, is the chance that someone grounded power outlets to copper or steel water supply lines up on another floor in some random remodel way back when and these outlets lost all  grounding when the PEX went in. You tend to see that sort of thing when big old houses get converted into duplexes by people of questionable ability and maintained by those with even less.

 I have had to fix this as well a couple times. Once when an HVAC guy almost electrocuted himself! The other time is a house I am currently working on and the ground was tied in at the outside faucet. When I replaced that with frost free and the plumbing to it with PEX, I had to reroute the ground back to the other side of the basement to tie in to the main shutoff which was still copper. This was also an instance of paying a contractor to go away. Electrician was upgrading my panel and was supposed to do this as part of the upgrade but stole a bunch of my supplies instead. Grrrr. 

Quote from @George Kopp:

- If you were looking at buying a house or investment, and you saw a random area of PEX, would it make you worry that the house is filled with plumbing issues and that what you see is just one visible problem amongst many problems hidden behind the walls?
 

Welcome to every house I own. I used to sweat my copper, then briefly did cpvc, and finally bought some PEX tools. Outside of perhaps sweating a new copper union to go into PEX, basically every repair has been PEX the last few years. The pro plumbers I have used pretty much do this too unless it is say a water heater connection, stub out, or such. My personal house, built in 1995, has Quest polybutylene, cpvc, copper, and PEX. With original Quest plumbing, I know it is only a matter of time before failures occur and I replace anything I work on. This has changed with my changes over the last 10 years of living here. Aside from the "what the heck" factor of looking at the ceiling in my utility room, it all works. 

@Gabe G. As of right now we are still staying on the 2nd Tuesday of the month at the Greater Masonic Temple. If there are changes, my monthly announcement will include them. (Sorry I missed this last month, not sure why it didn't flag as needing response for me.)

I have a venture with some friend that I am going to be the PM for. I have a handful of my own places and have used Tellus (free) and Rentec Direct (paid) for managing them. 

The new venture will be a separate entity than my current personal one and I will need software for managing tenants there. As this is new, keeping costs low is imperative. I don't want to use Tellus again as the mobile only option w/ "invest with us" mantra they have has not been smooth since they added that "feature."

The software can't be the same instance of Rentec Direct due to needing different IRS data / reports.

Needs:

>Tenant maintenance portal w/ communications
>Tenant payments online (must include auto late fees)
>Accounting tracking per unit 

Currently I am kind of looking at the 3 options below:

Option 1: ERentPayment.com (payments + Maintenance but not communications) and Stessa ->Only cost is per transaction
Option 2: Avail (all 3) ->Free version, though accounting is a new feature & doesn't look like communications; $5/unit isn't a bad price for when ready to move to that level
Option 3: Iannago (all 3) -> Free (trans costs). Cincy-based startup. Seems nicer than Avail/more robust. Reporting not as nice as Stessa. 

Hidden option: Use Innago w/ Stessa to have access to the better reporting since both are free.

Any thoughts out there on these options/products? Any oddball situations you have seen that they couldn't handle? 

Just to jump on top of the others, getting someone on the schedule may take months. I did one two years ago and it was 2 days disruption (really only about a day, but it spanned overnight).