All Forum Posts by: Erik Mihlsten

Couple of thoughts! First...congrats on your first potential duplex! That is quite exciting. I have property in LA so I might be able to relate on the expenses front, Although, I think I prefer Sacramento pricing to LA pricing. Are you planning to buy and hold? 

A new roof budget of 10K is a solid estimate. I don't think you'll need to worry about the HVAC or Water Heater at this point, but that is all something a good inspection will be able to help you decide. Always try to find the most detail oriented descriptive inspector you can to absolutely tear apart a property. 

Not sure if you've talked to a lender yet, but for investment properties lately, they have been pushing more of a 25% down as opposed to 20% down. So you might want to verify you can get away with putting 20% down. 

Expenses kind of depend on the state of the property. We renovated our properties in LA and since the renovations, our expenses are nominal. This is great for 2 reasons...low expenses (duh) and we can demand higher rent since they are in great condition. Last year for one of our triplexes we spent a grand total of $200 in maintenance and repairs, which is about 2%. You are lucky one of the units is vacant. It'll give you an opportunity to fix anything red flagged by your inspector. Tenants pay for utilities (which you should definitely try to pass onto them). 

You know the area so you can estimate vacancy a bit. We have 6 doors in the LA area. One triplex we have had for 5 years and during that time we have had not a single vacancy. The other triplex we have had one vacancy for 1 month in 3 years. I still try to be smart and hopefully the other units can cover (most of) the mortgage if a unit does go vacant. 100 a month is a good number for lawn care. We pay 70 a month.

Nothing I have ever bought in LA (or elsewhere) has ever met the 1% rule or 2%, but every purchase I have made has had positive cashflow from day 1. Ex. SFR in SLC mortgage is $1212 + expenses (insurance, taxes - everything else is passed on to tenant, utilities, lawn care which i wrote into their lease as their responsibility to maintain) $200 and rent is $2400. Doesn't pass the 1% rule but i'm perfectly ok with the margin on this.

I will say, although I have been lucky with low vacancy and expenses, I am always very conservative in my calculations and err on the side of caution. Not something I want to cut close or play games with. The property you are looking at seems like a decent opportunity. Mortgage would be around 1350 a month + 60 insurance + 460 taxes + 200 misc. expenses brings you to $2070 and you are looking at a potential income of 2825 (and possibly more if you bring the other unit up to market rent or even just slightly increase the rent). That gives you a positive cashflow of almost $800. Not bad.

Happy to chat more if you want! Good luck!

Hi Armin! Property is on the northern tip of South Salt Lake (north of I-80) right next to Sugar House. Yeah I like the market a lot. We actually just placed another 2 offers today. Happy to talk more about it as you look to expand there!

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $360,000
Cash invested: $130,000 (including 40K for reno)

With all of the regulatory changes happening in California for multi-family properties and the high costs, we decided to expand our search to the supremely hot market that is SLC (a quick flight from LA). Found a charming 4 bd 2 bth SFR and placed an offer the day it was listed! That was definitely the key with this one given how crazy the market is in Utah.

What made you interested in investing in this type of deal?

Tax rates are low (especially if you have a long term tenant), properties are much more affordable, it just need a bit of cosmetic work, and it was in our price range.

How did you find this deal and how did you negotiate it?

Was referred to a great Realtor in SLC who has continuously send me properties. I then build a proforma for ones that I think look interesting. Utah is different from CA in that properties are not always on Zillow or Redfin, nor do listings get updated on those sites. So I would find a property I liked while scouring zillow, but on the realtor's MLS equivalent site, it would show it is either already sold or under contract.

How did you finance this deal?

Traditional lending

How did you add value to the deal?

Found the deal, built the pro-forma, managed the process and paid for it

What was the outcome?

A cash flow positive property! We listed the property before we had even finished all of the reno and the market there is so hungry that within a week of listing the house we had a signed lease for more than we had expected to be able to get for rent (more than double the mortgage). So I'm pretty happy about that.

Lessons learned? Challenges?

Honestly it was a super smooth project. Have a great GC in SLC that did the property on time and mostly within budget. I really like this market and will hopefully have another property soon there.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Redondo Beach.

Purchase price: $1,475,000
Cash invested: $750,000 (including 300K for reno)

3 Unit property each 2bd 1 bth - It was the ugliest house on the block and it was also in an area where there haven't been many multi-family properties.

What made you interested in investing in this type of deal?

This was the first investment property we would be buying. I liked the idea of a multi-family for the lack of reliance on a single tenant paying rent. With the goal of buying and holding, it gives a bit more of a security net. If, in a multi-family property, a tenant didn't pay rent or moved out, there hopefully is still another tenant or 2 (or more) that are able to help cover the mortgage.

How did you find this deal and how did you negotiate it?

Scouring zillow and redfin. Have a realtor that I engaged to help drive the deal.

How did you finance this deal?

Cash then after the remodel did an appraisal and took out a traditional loan.

How did you add value to the deal?

Found the deal, created the pro-forma model, managed the process and managed the remodel

What was the outcome?

Has been continuously rented for 5 years and is cash flow positive. Happily the modeling I did for it was spot on and has been cash flow positive from the start, well exceeding the monthly mortgage payment

Lessons learned? Challenges?

Reno budget, reno budget, reno budget. This was my first project and quite challenging. Still learning.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $1,435,000
Cash invested: $500,000

3 Unit property, 1-1bd 1bth, 1-2bd 1bth and a SFR (3bd,2bth)

What made you interested in investing in this type of deal?

This was the ugliest house on the block in a good area. It required a full gut reno, but the pro-forma for a "luxury" updated property was very good. Happily, it has exceeded expectations on Monthly cash flow.

How did you find this deal and how did you negotiate it?

I spend a lot of time scouring Zillow, Redfin etc and found the property that way.

How did you finance this deal?

Traditional lending.

How did you add value to the deal?

I found the deal and managed the deal. We also managed the remodel and the rental process. We still hold the property in our portfolio and manage it ourselves.

What was the outcome?

A happily rented property that is positive cash-flow! There are limited issues since we worked hard in the renovation to do everything right and get ahead of what could have been future problems.

Lessons learned? Challenges?

Just learning more about budgeting for a renovation. That has been a constant learning experience.