All Forum Posts by: Josh Layhue

Another engineer chiming in here...

I just started a real estate investing company and our goal is to hold long term rentals. We talked to a few lawyers and they all suggested an LLC due to the tax benefits and liability protection. I'm not going to claim that I know all there is to know about this (I'm FAR from an expert on it).

I've also heard mention of "liability insurance" as a way to mitigate your liability as opposed to relying on your business entity to do so. Liability insurance is something I'm currently investigating and I'd be more than happy to hear from someone that may know something about it. If not, I'll share what I learn when I get there.

I like the suggestions. Have you had experience with renting commercial and residential units to business owners? I thought it may be hard to find someone that is looking at relocating both their business and their home, but I am very new at this so I don't know that for sure.

As for the noise issue between the business and residential areas, both floors have high ceilings (12 feet). If I were to keep the upper floor residential is there any way for me to insulate well enough to prevent noise (and smells) from circulating between floors?

Lastly, it may be a good thing to make the upstairs office space too. I didn't think of that option. I was going residential because I thought it would be easier to rent in my area, but again, I don't know that for sure. Hmmmm... something to think about.

Thanks again for your input and I look forward to getting more feedback. Thanks!

Alright... here's the deal. Keep in mind that I'm a total newbie and this is my first deal so I'm open to any and all suggestions.

I bought a place for $65,000 in foreclosure. There is 2000 sq. feet of commercial space on the first floor that is in pretty good shape. Probably about $5000 worth of rehabbing based on some quotes I have received. Also, there is potential for an apartment upstairs, but it would take a lot to rehab it. I've gotten estimates of about $45,000 to do the entire upstairs. Keep in mind that it needs wiring, plumbing... everything.

Here are some more numbers for you. The commercial space we should be able to rent for anywhere between $1400 and $2200/month based on similar properties in the area. Also, we have a 10-year mortgage at 7% with 20% ($13,000) down. So...

Purchase price: $65,000
Gross annual income from commercial unit: $16,800
Operating expenses (50% rule): $8,400
NOI: $8,400
Debt coverage: $7,245
Projected net income: $1,155
ROI: 5.68% [NOI/(down payment + closing costs + $5,000 rehab costs)]

I probably should have mentioned that the previous owners had an offer of $112,000 that they turned down about 6 months before we bought the property in foreclosure. The market here is pretty slow and very low cost... it's a small town. I'm guessing the building would be worth $100,000 after we fixed it... assuming we could sell.

Next, I looked into what would happen if we rehabbed the apartment also. There is a major lack of nice rentals for individuals that are making a decent amount of money in this area because of the recent influx of high-tech jobs. The apartment living space is about 1000 square feet and, based on other rents around town, we could conservatively pull in $600/month for the apartment with an upper limit of near $750. Here are the numbers I came up with:

Purchase price: $65,000
Gross annual income from both units: $24,000
Operating expenses (50% rule): $12,000
NOI: $12,000
Debt coverage: $7,245
Projected net income: $4,755
ROI: 7.28% (NOI/(down payment + closing costs + $50,000 rehab costs)

I also believe that rehabbing the apartment will push the value of the building up to around $130,000.

So... time for the question... do I rehab just the commercial unit and start making money ASAP or do I rehab the apartment too? Any advice you can provide is greatly appreciated... I'm struggling since this is my first purchase! Thanks in advance.

I live a little south of Pittsburgh (30 to 45 minutes). I am also investigating that market but I am very new to investing. If there is anything I can do to help, let me know! Maybe we can trade some knowledge... I'm looking to learn.

I'll try to answer the three questions that I remember...

(1) Is the first purchase a commercial/residential?
Yes, the building is currently a commercial property that needs a little fixing up with a very old apartment above it. The apartment will need a lot of work (wiring, plumbing, the whole 9 yards) while the commercial area is in fairly good shape. Some drywall and new flooring and we should be good to go.

(2) What made me decide on that for our first purchase?
We basically made a low-ball offer on the place after running some numbers. I'm a numbers guy and had been looking at the properties around town and evaluating them. We got the place for $65000. Other similar properties have sold for over $100,000. They actually had an offer for $112,000 a few months before we made the offer and declined it. They thought they could get more and then they ended up going into bankruptcy. It is 2000 sq. feet of office space and rents in the area for similar properties are between $1600 and $2200/month. I think it's a decent deal... but... again... I'm very new so I could be wrong. It should take about $5000 to get the commercial area ready to rent (based on a quote from a contractor/friend that can do the work for us). We got an estimate of about $50000 to fix up the upstairs and downstairs. We can get between $600 and $750/month for rent from the apartment.

(3) What am I waiting for on the rehab?
I don't know! Actually, there are a few reasons... most of which deal with my inexperience. The people that we bought from were going through bankruptcy. We didn't know this until after we made the offer. When they left, they left EVERYTHING in the building. There was literally still change in the cash register. So, we are working on getting everything out of there. I made the mistake of trying to do it myself with help from a few friends but realized after a couple of weeks that there was WAY too much stuff in there to try to haul out with a pickup truck. We are getting a dumpster this week. I have NO idea why it took me that long to realize that I needed a dumpster, but I won't make that mistake again. Secondly, we are having a hard time getting a good quote on doing the work required to make the apartment habitable. There is a ton of demolition to do in the apartment and we need to do that before we rent the downstairs because of the mess that will be caused from the demo and the noise that will be made... we don't want to make our commercial tenant unhappy. And, we have to get all of the junk out before we do the demolition. We also don't want to spend a bunch of time/money doing demolition upstairs if we decide that it's going to cost too much to redo the upstairs. So, again, it comes down to indecision... do we fix up the upstairs and downstairs or just the downstairs?

So... in summary... I'm in a little over my head! Haha. And I've been a little indecisive in making repairs on my first property. I need some help and that's why I ended up here! Any advice is greatly appreciated.

The book "Investing in Duplexes, Triplexes, and Quads" by Larry B. Loftis is a great book for beginners. The book seems to lay out a pretty basic plan of investing in rental property while making it easy to understand. I am very new to real estate investing so take this recommendation as you will, but if you are getting started I would definitely recommend it. The only complaint I have about the books is that he makes a lot of things sound very easy... I think this is common in these types of books. I would give the book 8 out of 10.

Hello all. I'm from a small town in PA about 60 miles south of Pittsburgh. I've been reading about real estate investing for about a year now and made my first purchase about 2 months ago. My dad, my brother and I started a business through which to do our investing. Our first purchase is a commercial building (maybe a little too much for just starting...) with a VERY old apartment above it that I'm hoping to fix up and rent. The area around here is looking pretty good. Lots of cheap houses, lots of businesses (high-tech and retail) moving into the area and not a lot of investors. Anyway... I'm a complete novice, learning as I go. My full-time job is as an electrical engineer, so I understand the numbers... if only that were all I had to know!

Well, I'll be around. I've been reading posts daily and would like to thank all of you for your input. The discussions are tremendously helpful. And thanks for starting this whole thing, Josh!