All Forum Posts by: Ethan Lee

My business partner lives in South Carolina and I am moving to Jacksonville in a month. We both grew up in Delaware and started investing about 6 months ago. So far, we have a couple of properties bought/under contract in Delaware and a couple in South Carolina. The plan is to actively grow our portfolio in all three locations. We'll have boots on the ground in all three, and we like the idea of diversifying to protect ourselves if something goes wrong and capture some growth if one market appreciates. We're both competitive so we see who can find the best deals while pushing each other to work hard since we're 22/23 years old and both working full time jobs. In the end, being in three markets is more work but allows us be more selective and only move forward on great deals.

Turnover hasn't been perfect but could be worse. The units have a 5+ year tenant, 2+ year tenant, 1+ year tenant, and the last unit has been the worst with a few tenants in the past year including a recent eviction and new tenants about to move in. He did say they always have multiple people interested right away at the $650 - $700 range since it's at the low end of market rates for a two bedroom.

If the seller does not agree to fix the major, expensive repairs, we will definitely have a contractor in for accurate estimates before we decide whether to move forward or not.

The termite issue was found during a termite inspection, but since the house is older it sits very low to the ground and much of the underside of the house cannot be seen. To inspect and eventually fix, it will have to be accessed from above by cutting holes through the floor. This is my biggest hope - the seller will agree to pay to have that fixed and take on the risk of cutting open floors and having to fix a bigger issue than what is currently seen.

Yes, I'd have him continue managing it since he is familiar with the property and will hopefully give it extra attention since we're good friends. His rate seems a little high at 10% plus first months rent for new tenants, but since it's a rural area I'm guessing there's not much competition and it would be hard to find a quality replacement for cheaper. The maintenance issues worry me a little but I think a large part of it was the previous owner being fine with letting things go. This PM company has a maintenance guy on staff that can handle most repairs for $18/hour which seems to be a great deal compared to getting specialized guys in for $50-$100/hour. The property is located in the town next to where I grew up so my parents are still there in case I need them to step in and help with something.

I ran the numbers with all of the actual expenses back when we signed the contract and they looked great. I should probably run them again assuming this extra $10k in repair costs. 

I went back and forth between a 15 and 30 year mortgage, seeing benefits to both ways. The 30 would improve monthly cash flow by over $200 but the thought of having this property free and clear before I'm 40 (23 now) while still having good cash flow now is enticing.

Just to be clear about the last part - you're saying as long as the appraisal supports it, if the seller will not cover repairs, I should possibly increase the purchase price by 10k and make the seller pay for 10k of repairs in order to put that expense in the mortgage instead of paying for it upfront?

Hey BP nation,

I decided a few months ago to put my crash course education into action, jump into the game, and pull the trigger once I found a deal where the numbers made sense. I found a 4-plex and am under contract but am looking for any helpful tips and advice you can give.

Details: 4 units, each unit 2 bed 1 bath, all occupied, kind of a rough rural area in southern Delaware, fairly low income tenants/area, older building with some deferred maintenance issues, very close family friend is a broker and owns a property management company that has been managing it for years.

Numbers: $135k purchase price with seller paying $5k in closing costs, $2200 gross monthly rental income, I believe the most recent unit just rented for $650 - $700 (waiting for verification and exact number) which means market rental rates should equal $2600 - $2800 if I could get all units up to market rates. 15 year mortgage at 3.875% (just locked in with lender, really happy about this and lower than expected) and 25% down payment brings mortgage to about $750 per month.

50% rule: Current rental income of $2200= cash flow roughly $350 per month.  Optimistic market rate income of $2800  = cash flow roughly $650 per month.

2% rule: Current rental income of $2200 = purchase price of $110k. Optimistic market rate income of $2800 = purchase price of $140k.

So far so good as the cash flow is solid and purchase price is just under/right around the 2% rule.

What I need help with: The inspection report came back today and there are a number of safety issues and deferred maintenance that needs to be taken care of right away. The main things are some termite damage under the house, tree limbs rubbing the roof, a few minor leaks and electrical problems, and dozens of other smaller issues. Depending on the extent of the termite damage and whether or not it was treated (it should have been since the owner disclosed knowing about it but clearly did not keep up with maintenance), we estimate it will take $5k - $10k just to have the major issues fixed and safety hazards resolved, let alone actually improving the property to make it more desirable or able to bring in higher rents.

I am going to submit a list of repairs and try to get the seller to at least pay for the major repairs and the issues breaking code. My gut tells me he will reject all requests since he paid $130k for the property 5 years ago and cannot mentally get past "losing" on the sale despite making thousands over the years helped by not paying for a lot of necessary maintenance.

My questions: If the seller refuses to pay for repairs and it takes $10k to bring everything up to code, is this still a worthwhile deal at $145k? If he will only cover some of the cost, what would you feel comfortable agreeing to? What are your thoughts on this property as a whole?

Sorry for the long post but I wanted to include all necessary details. I look forward to your input!

That's funny, my aunt and uncle live in Ponte Vedra Beach too. I am hoping to move there in about a year and my parents are planning on moving there in 3 years once my dad retires. They're currently looking for a house to buy now, rent out for three years, then rehab and move into. Julian, I will try to remember to connect with you once I move down there if you're still looking for partners in the future.

@Account Closed do you mind sending the meetup information to me as well? Thanks!