All Forum Posts by: Josh Layhue

I found a property near my home that is in a decent area. I live in an area where cash flow is fairly easy to come by but appreciation is low. The deal consists of two buildings on one parcel of land: a triplex and a duplex. The numbers look like this:

Property price: $47,000 (our offer)

# of units: 5

Monthly Rent: $1,900

Expenses (assuming 50% rule): $950

Down Payment: $10,000

Monthly Debt Service: $287 (20 years at 7%)

Monthly Cash Flow: positive $663 ($130/unit)

I've had the place inspected and it will take some money to fix it up. We can afford the renovations if we decide to purchase the property.

Estimated cost of renovations: $15,000.

To me, this seems like decent deal... but I'm still very new. What's your opinion? What am I missing?

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Wonderful book. It's very rooted in basic exercise and nutrition.

I'm from a little south of Pittsburgh (Uniontown to be exact). I'm just getting started in the real estate investing game and I'm looking to start some strong working relationships. I have an interest in investing in Pittsburgh, but I don't spend a lot of time there so I don't have a lot of familiarity with the market. I'd love to talk with you about what's going on in Pittsburgh!

Geez... I'm learning just how much I have to learn! I thought that T & I was included when using the 50% rule. I know taxes in that area are cheap... probably less than $1,000 a year, but I'm verifying that today. I definitely forgot about paying all utilities while doing the rehab + T & I. We still should be fine on tax reserves, it will just take longer to get our money back so we'll have to get it rehabbed ASAP.

As for the loan, I know that several of the banks in this area don't want to give more than 10 year loans to businesses (we'd be buying it under our LLC). I'm still shopping around to get the best mortgage should we go through with this. Thanks so much for your input.

Excuse my ignorance, I'm still learning. By "holding cost during the rehab and initial lease-up" do you mean the time that we're going to be paying the mortgage while fixing the place up and waiting for it to be rented?

Assuming that is what you mean, we do have cash reserves to cover that time.

I did choose $400 for the rental price after renovations to be conservative. Thanks for the advice on looking at other rent in the area. I am checking the local paper online now to see if there are any other rentals in that area that I can use to verify the rent.

Anyone else have input on the rest of the numbers? Thanks again!

I don't know the entire story, but I know Trump spoke of buying a distressed property that turned out well for him. Supposedly the building had very few tenants (and bad ones at that) because there were crime problems in and around the building. Trump hired a security company to clean the place up and patrol it to make the place safe. Then, cleaned up the existing apartments and fancied them up a bit. The vacancy supposedly went to almost zero.

I think the key is knowing why the place is vacant and having a solution to that problem BEFORE you buy instead of trying to figure out the problems and how to fix them afterwards. Listen to the experts, though... I'm just a newbie!

I'll try to keep this as concise as possible. There are two "houses" being sold together. One is a duplex and the other is a 3-unit (2 downstairs side-by-side and 1 upstairs). The houses are next door to each other. It is a bank foreclosure that I've walked through and it is in decent shape. It needs carpet, paint and other superficial work... and lots of cleaning. I'm going to have a contractor/construction friend of mine walk through it to check for structural problems. Now for the numbers. I was told that the units were bringing in $425 per month. I'm working on verifying those now.

Asking price: $64,900
Annual gross rent: $24,000 (assuming $400/unit)
Annual expenses: $12,000 (using 50% rule)
NOI: $12,000
Down payment: $13,000 (a little over 20%)
Loan amount: $51,900
Interest rate: 7% (In my area, we can easily get 7% with 20% down)
Length of loan: 10 years (operating as LLC, so probably have to do 10 years)
Annual debt coverage: $7,236
Net income: $12,000 - $7,236 = $4,764

I believe these numbers to be conservative. The properties probably need $10,000 worth of work and the real estate agent made it VERY clear that the bank would accept less than $64,900.

Does this seem like a reasonable deal? What else do I need to know before making an offer?

Thanks in advance for your help!

I definitely think it's a good idea to help build to suit for the tenant. My concern is more about whether or not to spend the money to rehab the upstairs apartment or to just rehab the commercial space and start trying to rent it ASAP.

Nothing personal, but I have to disagree with you giannyny. I am new at this, so take it for what it's worth. Pittsburgh is not doing well right now from a job-market perspective, but if you are looking for properties that provide cash flow you can definitely find some there. I'm far from an economics guru, but traditionally Pittsburgh has not done well because it is based around the steel industry and other non-technical businesses. The technology boom hit and Pittsburgh never caught up. They have been adding more and more tech jobs in recent years so there is hope for the area. Great area for cash flow, not so good for appreciation. However, as I mentioned the area is somewhat looking up so that appreciation may be right around the corner. I'm sorry to hear about your bad experience, but keep your eye on the area... you don't want to miss out on some potential profits!