All Forum Posts by: Drew MacDermott

@Jason Chambers We are all here for each other, so ask any and all questions you may have!  If you haven't already, setup a few keywords for yourself like "Webb City" or "duplex" or even your name, whatever you may be interested in.

Don't forget to introduce yourself in the New Member forum and to check out the BiggerPockets Ultimate Beginner's Guide to Real Estate Investing here.  Looking forward to seeing you around the forums!

@Neddrick G. Just off the bat, make sure you account for high vacancies.  2 rooms vacant for 3 months a year is around 17% vacancy, based on my quick math.  You are renting to students per semester - will the rooms be vacant during the summer?  Your tenants will only pay $2000 each per semester, so it sounds as though you will be responsible for paying all utilities as well (heat/AC, electricity, lawn care, etc.).  As a percentage of monthly rent, budget 10% for maintenance, 10% for property management (even though you may manage on your own, you need to pay yourself), and a percentage for vacancy, as you see fit in this situation.

 As far as your strategy, it seems like it can work.  Also, ask seller for all documentation including rent rolls and all expenses.  If you don't have a property analysis worksheet yet, go download one in the FilePlace, under Resources here on BP.  This will help account for all costs which you need to include.  When analyzing a property as owner-occupied, run the numbers as if it was fully rented without you, 3 tenants paying $2000/semester.  Do the number work?  If yes, live there a year and then move out, as you mentioned.  Sounds like you are on your way!

@Jason Chambers 

As @Troy Sheets and @Jerry W.   explain, the 2% rule is a starting point and a rough figure to find properties for sale in your area .  2% is generally a high rent/purchase price ratio, at least in my area.  As you will find in your research on BP, many people go by 1% or 1.5%.

You have to do your due diligence in your area to find what the Market Rent is.  In your analysis, you use $1,350 rent per month. To achieve a 1% rent/purchase price ratio, you would need to purchase the property for $135,000 ($1350 / 0.01).  To achieve 1.5%, purchase for $90,000 ($1350 / 0.02).  

This property is a 2 BR 2 BA duplex, one bedroom one bath each side?  I want to be sure $1,350 is an accurate TOTAL figure in your analysis.  Will you be living in this after purchase?  Will you, as the landlord, be paying any utilities or will tenants pay everything?  Include these in your estimate.  However, unless you buy this house for less than $100,000, it doesn't seem to cash flow well.

listing                $169,000.00

cash to close      $11,129.00 (Approximately 5% Down Payment + Closing Costs)

Total Loan Amount $157,871.00

Monthly Rent $1,350.00

Insurance $101.00

Property Taxes $95.00

Vacancy - 10% ($135)

Management - 10% ($135)

Maintenance - 10% ($135)

CapEx - 6% -Create list of large items (roof, flooring, windows, etc) with their Service Life and Expected Life Left and calculate the monthly CapEx cost for this house. Through my research on BP, many people have found their historic Maintenance AND CapEx to be 16%.

Expenses Subtotal $682.00

NOI $668.00

Monthly Loan Cost $799.91 ( 4.5% interest, 30-yr loan)

Cash Flow $(131.91)

I hope this helps!

BP Community, PM me or let me know here if my thought process makes sense.  I have been reading the forums, listening to the podcasts, and researching properties in my area and am also creating my own property analysis worksheet to find good deals.  

Also, are you working directly with the Seller's agent?  They won't necessarily be working in your best interest.  If you can, try to find a buyers agent to work FOR YOU, not the seller.  The seller generally pays the commission, so in this case they would pay 3% to their agent and 3% to your Buyer's agent.  It's a win-win for both of you.

@Aniket Thakur is your offer only $15k less than the listing price based on the cost to replace the roof?  Since the current owner is absentee and 'tired' of the property, you should be able to negotiate a better price than only the roof.  He seems to be in a hurry to offload the property with that many price drops in 4 months.  Try offering 15-20% less than asking price.  This will get you into the game with 15-20% instant equity as @Nathan Emmert was discussing.

Thanks for all your responses!  I wanted to reply to you all, even if it has been a few months since we settled down after our fiasco in late August.

The property management company would not back down from moving the tenants out for us, most likely to save the time and energy of an eviction, and the fact that the lease may not be valid as @Ann Bellamy and @Greg Powers mention.

With four days before we moved across the Northeast, there was little time to find another 2-br.  There were also not many apartments that met the expectations for both myself and my fiance.  Of course, I'm not so picky.  I contacted another complex we liked for availability, but they had nothing at that time.  Our options were slim.

We attempted to negotiate with the property management company for 50% studio rent, free storage while in the studio, and help moving once a 2-br opened up.  Our case went up to the "Regional Manager" in New York City.  After all was said and done, we only got free storage out of the deal and stayed in the studio for only 6 weeks while we waited for a 2-br to open in the same complex.  The local property manager was gracious enough to originally offer to help look for an apartment for us at another location if we wanted, however this complex's location is perfect for us and we wanted to stay, even if it meant waiting for a 2-br.

This is a great reminder for both tenants and landlords that any number of situations and surprises can arise during a lease.  The best course of action for both parties is to follow the local and state laws.  As a landlord, it doesn't hurt to offer your sympathy and a little help in a situation like this.  As a tenant, asking for a discount or concessions never hurts.  The answer is always "No" until you ask.  Ultimately, we were pleased with the outcome and grateful for the help the property manager offered during our entire transition to New Hampshire.

Thanks again for your responses and insight!

Welcome to BP, @Jay Groleau !  

Hello BP!  I have a personal rental question to pose those of you in the New Hampshire area.  My fiancee and I are moving to NH in four days, on Aug. 31.  We now have a predicament with an unnamed apartment complex regarding our lease.  

At the end of June, we signed a lease with a $500 deposit to hold a 2BR apartment.  It is a great apartment and we were very excited when we landed this unit.  We then began a 2-month cross-country trip, one of our dreams, through July and August before starting our new jobs in New Hampshire in September.  

On August 15, the property manager informed us they were bought out and we would have to sign a new lease before moving in.  They told me in an email the original lease will not stand because the company got bought out before our move-in date and therefore we are required to sign a new lease.

On August 27, we received an email stating the previous tenant in our unit had a sudden employment change and now wants to stay.  In both the original and new leases, a 60-day notice is required before moving out.  In our scenario, the previous tenant must have given a 60-day notice in order for the unit to be available to us.  The property manager has asked us to move into a Studio Apartment until they resolve the situation.  We have also sent a $1652 check as payment for the day of Aug 31 and the month of September last week.  It has not been cashed yet.  We are all-in currently at $2152. 

1) Does the new property manager have to uphold the original lease?

2) Would the new tenant have any rights to now stay in the unit, given the 60-day notice?

3) Would you have any other suggestions?

Thanks for any help!!

Drew

Welcome to the site, @Nate Boda !

If you haven't already, read the Ultimate Beginner's Guide to Real Estate Investing (http://beta.biggerpockets.com/real-estate-investin...).  This guide is amazing.  You may want to initially gauge a property using the 50% rule (http://www.biggerpockets.com/renewsblog/2013/06/14...) . If I can paraphrase Brandon Turner, the rule says over time 50% of your income will be spent on expenses, not including the mortgage. Find the total monthly rent and multiply it by 0.50 to find average expenses per month. The difference will be your NOI which only then do you subtract debt service (i.e. mortgage). After debt service is factored in, shoot for at least $100 cash-flow per unit per month, or $400/month in your case. If this rule passes, you can take a closer look at the actual expenses and continue due diligence. $100 may be too low for your strategy.

The cash-on-cash return will be a metric you decide on for your personal strategy.  20% sounds like a great number to shoot for starting out though.  My suggestion is to define your goals, exit strategies, and your WHY.  Why do you want to start investing? Retire early? Travel? To provide for your kids and family? Thrill of the chase?  Whatever it is, write it down and think about it everyday.

Start connecting with people on this site, too!  Keep asking questions and learn everything you can.  Once you've done that, the biggest step is actually jumping in and purchasing the first property.  

Good luck!

My friend and I (50/50 owners) are debating about selling a 800SF SFH in Old Town, Maine which we first bought and renovated 7 years ago (Spring 2007 or so). We lived in this little bungalow during college and began renting it out upon graduating. Thankfully, we have had great tenants and no catastrophes. The property is located next town over from a university and is conveniently situated near bike trails leading to the university. We aren't losing any money and we have reserve funds now to pay for any emergencies that arise in the future. The main issue with selling is I'm not sure how the market has recovered in this old mill town and if we will break even. One other issue is we both now live 2 hours away from the property, so it is a inconvenience to get up there quickly. I have a family member near the property who can help manage emergencies which is a plus. My first step is to have an appraisal completed this spring as we have not had one done since purchasing the property. I'll try to lay the numbers down as best I can for you:

Purchase Price: $68k, 100% financed. (We probably paid more than we should have in hindsight after renovating)

Mortg. Ins: $275

Closing costs: $3000 estimate from my memory

Reno: $12k - Gutted the house after finding open ended wires in walls, incorrectly framed windows, no insulation in exterior walls. Reframed windows, insulated everything, laminate hardwood floor downstairs, carpet upstairs, updated kitchen & tiled bathroom. It all sprouted from wanting to move one doorway before moving in!!

Property taxes: $1300

Insurance: $900

Water/Sewer: $500 avg

Current rent: $900/month + All utilities except w/s. May increase rent depending on if we sell or not.

After the tax man comes, we currently make $1,400 annually.

Please let me know if you need more information. I'm open to your insight, comments, questions, and ideas.