All Forum Posts by: Glenn Clapp

As a new investor, I'm looking at property managers for single and small multi-family properties in Salt Lake. Fee schedules range from very inexpensive to pretty pricey with fees on fees. I'd like to hear about the members here experience and get an idea of what you have found to be reasonable rates and excellent service. 

Glenn 

 Or, "Real Capitalism" the banks would not have failed in the first place. They would not have been making such crazy loans because their money was on the line. There's be no Fed, and we'd still be on the gold standard, you'd shop for your own health care and it would be competitive, and tuition would costs would be within reach; on and on where the free market has been manipulated because "we" demanded it and then we blame capitalism when it doesn't work out the way "we" wished it did. 

Thanks everyone, and you are all correct. I was missing quite a bit and re-ran my assumptions with your feedback through the Bigger Pockets calculators with some variations on the amount of cash I would put in. 

The 40K in rehab is more than repairs and is largely to raise the quality of the units up a notch to where they would garner some more rent and be more in alignment with the neighborhood transitioning into a better neighborhood. Even as it is, it is probably below market a bit.  

At any rate, the feedback has been great! It gave me exactly what I was hoping for and I'm doing some serious re-thinking.

I'm pretty new here and would love a 2nd (or more) pair of eyes on the following:

I have started due diligence on a 4-plex in South Salt Lake, Utah built in 1899. Purchase price $315K. Rents are  2- 2 bedroom 1 bath units at 750 and 2 1 bedroom 1 bath units with one at 550 and the other at 500 per month. The tenants pay the utilities. It is all separately metered both power and gas. It is fully occupied and all tenants are month-to-month but most have been there 3-years or longer.  I would put 25% down. Loan at 4.875%

The agent estimates about 40K in rehab would increase rents. One unit needs electrical, there is some siding (Aluminum) that needs to be repaired. There is a crack in the cement covering the stone foundation that is being investigated. I'll probably have the sewer line scoped as tenants report slow drains and the seller disclosure also commented on this. The exterior staircase to the upper unit needs to be replaced. 

The inspection showed no moisture except a slight leak in a kitchen sink drain. All plumbing has been replaced with PEX and a central control manifold. All but one unit has good electrical with appropriate GFI. Roof is 10 years old, water heaters and furnaces are also about 10 years old mid-efficiency. Cooling is with tenant provided portable units or window A/C units.  Inspector was quite surprised about the property's condition. Lots to fix, but not as bad as they had expected-- not even close. 

So, modeling through the rental calculator shows good >$1K/mo positive cash flow day-one and if rents increase, it would be quite a bit higher after the estimated $40K rehab. The current valuation on the county tax roles is $345K. Agent estimates that after rehab FMV could be high 300's to low 400's.

My questions:

What questions do I need to be asking at this point?
It seems like a good deal to me, but it is my first multi-family. Is it as decent as it sounds?
What other things should I be doing as part of due diligence?
What kind of cash-on-cash return or net-operating-income or other metrics should I be focusing on and what should I be shooting for?

Thanks 

Glenn

Hi Karen,

Good point that an investor may be interested in the property with the tenants in residence. I'd been assuming it would not be of interest to an investor since My wife and I remodeled it and sort of over-remodeled it before we moved. We did things that are a bit over the top when it comes to a rental, but hey, the tenants like it enough that they'd rather buy it than move besides that few people enjoy moving. Still, I can let a new owner worry about that as long as the tenants maintain a showable condition and do not obstruct access for showings-- not that they would, but you never know. 

 Thanks Dave, that is as I understand it from my reading this weekend. I appreciate the clarification and details. Great advice on the lease option. I read also that you must never ever mention a "credit" or other implication of any sort of equity position for any portion of the rent that could in the future be applied to reduce the final purchase price. "Consideration" was the suggested language. My preference is to sell, but I'm in no real rush as long as I can pull out sufficient equity and then sell later and maintain cash flow. 

I have put in offers on two properties to 1031 exchange with the sale of my occupied single-family property. I have a sale clause in the lease and have asked the tenants to vacate before I list the property. The tenants expressed an interest in buying the property. They have asked if I would be interested in seller financing.

I am open to most any creative ideas that gets everyone what they want. For me, I want the cash out for the down payments on other properties plus rehab and I want a 1031 exchange to defer capital gains.

I would like to hear some recommendations form those far more experienced than I on what options would be best to consider and structure.

If I do seller financing, I would expect a down payment of some realistic amount, but if I do that, can I also refinance to pull out the cash I need for a down payment? What would that mean for a 1031?

If i do a lease option and refinance, I expect a 1031 would be deferred until I sell the property if the tenants exercise the option in say, 2-3 years, and that may be OK, but I may not be desiring to do a new purchase at that specific time and would then risk having to pay capital gains.

What other options might I have? What might work best for both? Right now, the single family rental is 100% paid off with no debt of any kind. 

Thanks,

Glenn