All Forum Posts by: Elena Casey

@Joe Marquardt

We are in Bangor, Maine. If you are anywhere close to Bangor, you won't have any trouble keeping it full. You will have to screen out unqualified prospects carefully. You will have a lot of people who want a place they can't afford, but there are just enough who do qualify, and have sufficient income, so it will be fully occupied without any problems. That has been our experience in this area. Our properties have increased in value over the past five years about 40%.

Go for it!

Paul, good to see someone from Maine being active here! :-) We're in Southern Maine (Biddeford, Sanford, Springvale, Kennebunk, Wells) area! Obviously Kennebunk and Wells are kind of out of reach but Sanford, Springvale and Biddeford are a bit more reasonable. This particular property was in Springvale. Unfortunately, the offer was rejected. I'm overall okay with it though. Gave me a practice run on analysis and other aspects of making an offer. 

@Elena Casey consider running the numbers at the higher rate.

@Elena Casey if you’re financing the purchase with a heloc, your heloc better have a rate lower than 8% which is your cash on cash return. If it doesn’t you’re losing money.

I agree numbers do not tell the whole story.

First the positive, if that property was in my market and in a C class or better area with no significant deferred maintenance and no other issues, I buy it in a second. I suspect your vacancy estimate is high so that will help the cash flow. In general, smaller LL of smaller unit count structures have less vacancy than complexes with larger number of units. I doubt the vacancy rate in your area is as high as 10%, but even if it is I suspect you will have a lower vacancy rate. It is in part because the value of 5+ units is based on the NOI and therefore the value is maximized when the income is maximized and the expenses minimized. Higher rents is top way to maximize the income. They have more incentive to optimize rents that the <5 unit RE which should strive to minimize vacancies.

Now the bad, your maintenance/cap expense is too low.  I am not a fan of basing it off a percentage of rent.  You have ~$2600 allocated which is just over $100/unit per month.  That could suffice for a large unit count complexes but is going to be short on a duplex.   A water heater has an expense of ~$8/month (~$1100/12.5 (years)/12 (moths/yr)in my market.  I suspect this is close to what it is in your market.   So the water heater by itself is almost 10% of your allocation and a water heater is a low cost item.  Roofs, plumbing, electrical, foundations, kitchens, bathrooms, HVAC, and hardscape are costly.  The less expensive items also add up.  PM fees in most markets when including all charges is ~10% (not as low as 5%).

I think you have a fine first RE investment.  In addition, I suspect you will learn a lot and be in a position to have a great second RE investment.

Congrats.

@Elena Casey exactly what I was thinking on the Management fee. Also, that interest rate is the HELOC? is it fixed or moves with Prime?

Congrats, first one under the belt. And you can always go back in a few months to see it's status. 

Good job. An inspiration! 

 Thank you @Daryl Bennett. I think the most intimidating part is not knowing what I don't know. Being a newbie is definitely nerve-wracking because of self-doubt due to lack of mentorship or experience. :-) 

 Don't lose hope. It's better to make a decent sensible offer and get rejected than overpaying. The next time will be easier!

Good luck!