All Forum Posts by: Ed Matson

@Daniel Dietz - CapEx is not normally included in Op Ex, and thus not in NOI. Management and major repairs like carpet replacement and turnover painting, etc. are. We look at expected cash flow and return on capital more than NOI, although NOI/Cap Rate is a nice number to compare properties on an apples to apples basis. We budget for CapEx based on the condition of the building and our expected hold period. And we use this budgeted number as if it were an actual expense to calculate cash on cash return.

@David Smith - You have described a property with a 24 CAP. I've never seen one. A small MF with Op Ex 1/3 of rents including management? Normally its about 1/2. If it is indeed such a great cash flower, why do you want to try to add value in a poor town with little/no appreciation? I think the posters above all make good points.

@Derek Morrison - I wish

@Derek Morrison - I consider the tax treatment when I compare alternatives.  Passive rental income is taxed differently (depreciation) than flipping income or interest income, so it absolutely makes a difference.

And if all fails and you need an attorney, call Venoal Fountain at Hirsch Levy, & Fountain in Fairfield. 

I agree with Jason and Sam, rough estimate of 50% op ex is closer to the mark, especially if the property is to be professionally managed.  Very roughly, I use the following estimates, depending on the property, its condition, and the caliber of tenant.

Vacancy 5%

Repairs and Maintenance 10%

CapEx 5%

Insurance at actual cost - in m y area it would be about $1600/year

Taxes at actual cost

Any legal expenses for setting up an LLC?

Tax prep costs ?

@Sami Green - CT has a variety of markets.  I have some familiarity with Fairfield and New Haven counties.  I’d be happy to give you my two cents if you like.  PM me if interested.  We have rentals along the Rt 8 corridor, in “The Valley”, but I grew up in upper Fairfield County.

Post 1980 construction condos have worked better for us than century old triplexes. Better quality tenants and fewer repairs. It is difficult to find condos where the numbers work, but if you do, they can produce solid returns with less work than other types of properties. We own four units in one complex. It is well managed and HOA costs are reasonable and predictable.

Without knowing the class, condition, vacancies, location, and upside potential of the property it is hard to say whether this is a good investment.  However, the rental income at 100% occupancy is less than 1% of the asking price, so unless the rents are substantially below market, it may be overpriced. Also, the rents average $440/month/unit, so I'm guessing this is a C or D property? If so, you'll be taking on extra risk, work, and headaches and deserve to be rewarded better for that.  Maintenance and repairs at 5.7% of rental income?  That's pretty low.  Depending on the property, 10% might be closer. A property manager will cost you 8-10% of rental income for full service. Insurance and taxes look low too.  You should verify ALL of these numbers.

We operated a three family in Amity/Westville until quite recently. A far better neighborhood than parts of Fair Haven. We were getting $1130 for a Section 8 tenant in a 2 BR. That's about market rent, which is what Section 8 pays. $1650 per unit in Fair Haven? Maybe for a condo on the river. Check Trulia, HotPads and Rentometer for rents in Fair Haven. I did yesterday and couldn't find anything near $1650, even SFH. They vary fairly significantly depending on which street/area. Fair Haven has some high crime sections. Section 8 won't pay higher than market rent. Finding Section 8 tenants is not that hard, you just have to indicate you accept Section 8 in your ads. There's a substantial amount of paperwork and extra inspections, but the rent comes on the first without fail, at least the portion covered by Section 8.