All Forum Posts by: Fred Engh

Was it identity theft? You mentioned fraudulent checks (like he was handy with a computer).

Did you actually see his license? Was there ever a fraud alert on him (like the real guy had his identity stolen)?  It does seem so odd that someone with credentials would be such a poor tenant. 

I'm sorry you had a bad experience. Thank you for sharing.

I researched companies. I sent quotes to 3 companies. 2 online and 1 local. I scoured BP for referrals (they are more valuable than Google ads).  The lead I received was from a post 7 years ago. 

I'm rehabbing. I wanted builder's risk insurance and liability coverage. I think many companies use this as an opportunity to sell you two policies. I actually had to read the quote twice to see that they actually included liability in their quote (look for this when receiving quotes). 

The other thing I would advise when evaluating plans is length of coverage (monthly, semi-annual or annual) as many require the entire payment upfront and the remainder may not be refundable. Pigeon holes you in. What happens if you have your flip for 7 months on a 6 month policy? My policy is month-to-month. Look for this!

This company is geared towards investors. They gave me a specific quote in a few days, but I think they have an option for "I need this tomorrow."

Details:

$25k purchase price. Insured for $52k. $2,500 minimum deductible on theft/vandalism (others have $1k). 

I have to have a smoke detector put in during rehab even though no one is in it, but I'll go ahead and do it. 

They quoted me $55 a month. First and last upfront. $110 and I was insured. When I got that quote, I quit looking.

I used National Real Estate Insurance Group. 

NREIG.com

I'm originally from Vancouver. Down there ADUs were rare, the city issued a handful of city infill permits a year. With the increase in housing costs, they backed off and were issuing dozens a year. Although it's not your area, it is a good read on ADUs in Vancouver:

https://www.columbian.com/news/2018/oct/15/adu-int...

My thoughts: because there may be specific requirements you don't meet, it doesn't mean you can't ask for a variance.

I'm curious about the septic. Have you thought about using one septic for both units?

You should check out the brochure on Puyallup ADUs. It's not as in-depth as you'll need, but it's a good start. 

http://www.cityofpuyallup.org/DocumentCenter/View/...

You're either going to have to start researching codes or pay for the advice, that choice is yours (I like researching issues for free myself). 

I agree with @Kwame Darko that mh tend to go down in value. 

This is a 2014 MH, or was that the year it was put in the park?

I would not exclude a mh merely because it is a mh; however, I would compensate for the fact it goes down in value and the tenants may not be as desirable. For me, that means a double digit cap rate. You have this. 

CapEx tends to be higher on a mh, that's why I asked if it was built in '14 (which the 7% you had should be good). If it's older then I'd budget in a higher number (say 10%).

I don't know market rates in your area, just be sure $900 is accurate. 

Can you make the tenant pay utilities? 

Many people make money in different niches. Renting out a mh that people overlook merely because it is a mh that produces great numbers is an investment worth considering.

Buy! Buy! Buy!

 J. Scott has a great rehabbing cost estimate books. It's written to investors and aspiring investors. It's not written to the "get rich quick" audience. It's more of him sharing his wealth of knowledge than trying to make money from books (which is what many books are trying to do). He actively contributes here on BP. I think he's coming out with a second edition, but the first is definitely worth reading.

The devil is the in the details. Numbers are beneficial. 

If I understand correctly, market price is $10k less than what he owes on it? 

What are the rents going to be?

If you're going to buy and hold, I wouldn't be TOO concerned about limited appreciation as @Charles Soper stated. 

The question to ask is: if you're spending x amount of dollars, what does a comparable triplex buy you? What are the tradeoffs? More work to be done (not move in ready)? A slightly worse part of town or lesser rents? Those are some of the questions I'd be asking myself to try to quantify the industrial area. 

Have you thought about a HELOC?

CapEx is how much you set aside for capital expenditures (say 5%) to replace major things like a roof or HVAC. Sometimes they will use unrealistically low numbers to artificially inflate the cap rate.

You also have operating costs to manage and maintain the units.

Property taxes as well.

Then an expectation of vacancy.

After you deduct all of your expenses you have your cap rate. I have seen places in Seattle listed with a cap rate as low as 3%. 7% is common. 

Yes, the 50% rule is related to that (I'm not sure how accurate it would be in a multi-plex). Or, 50% of expected expenditures will be the gross rent.