All Forum Posts by: Greg L.

I have an offer on a multi with two 2 bedroom apartments and 4 rooms.  The building is empty due to management issues with the owner and is in fairly decent shape except for one apartment that will need some cosmetic work.  My inspector will confirm all of that shortly but I know I'm going to need to do a few things to get a Certificate of Occupancy.  So upon closing, the building may remain empty for 1-2 months while I do the repairs and put in a laundry, so these numbers are projected based on my knowledge of the rents in the area:

Annual Rent Two 2 Bedroom Apts                   $ 18,600 

Annual Rent for 4 Rooms                                    26,260

Projected Laundry Revenues                                4,200

Total Rents                                                        $ 49,060

Expenses:

1.  Taxes                                                               4,088
2. Water and Sewer                                              1,600
3. Insurance                                                          1,600
4. Vacancy & Credit Loss (6%)                             2,944
5. Repair Reserve (10%)                                       4,906
6. Electric                                                               1,800
7. Trash                                                                      840

           Total Expense                                                      17,778

           Net income                                                          31,282  

          Purchase Price                                                   134,250

          Cap Rate                                                               23.30%

          Cash on Cash Return After Mortgage                   91.17%

I'm always cautious in thinking something is a slam dunk and there will be some challenges managing the rooms, but there are only 4 of them.  Is this as good of a deal as I think it is?  

Thanks Ed.  I'll check # 2 with my attorney.  What's illegal about this?  The first and last week or the move-out fee? 

Do you think I need to bother with an on site manager?

I've been searching the past discussions and I know this topic has come up previously, but I have questions.  I'm considering the purchase of a combination apartment/rooming house in my local area.  The property is a licensed rooming house that's set up with two 3 bedroom apartments and 4 rooms. All rooms except one share a bathroom. All rooms have access currently to a common kitchen. I'm aware of increased the increased management that may be required, however, my thought is that with only 4 rooms, this might be a bit more manageable.  Here's what I'm thinking about doing to make it more manageable and enhance revenues.  I need to get some feedback/criticism:

1) For the rentals I currently own, I require that tenants pay in cash via deposit to my bank.  With bank alerts, I know as soon as the cash hits.  I'm thinking of requiring the same for the roomers to avoid weekly trips to collect money.  

2) To minimize the cost of turnover and to avoid getting stiffed on the rent, I will require all roomers to pay the first week, last week and the security deposit upon move-in.  I will also add a move-out fee to the contract that might possibly be waived on longer term stays.  I rent executive office space for my business and they routinely charge a move-out fee to cover cleaning/prep costs.

3) The Spanish working population is the target tenant.  I'm familiar with this population and can use my network to get tenants.  I find many are hard working but are in low paying jobs.

4) The current kitchen has a refrigerator and a stove.  I'm considering removing both and putting in coin washers and dryers for the entire building.  (Everyone including the apartment residents can access this area).  I'd buy dorm refrigerators for each room and a microwave.  All food prep will be done in their rooms---no hot plates would be allowed.  My thought is that eliminates issues with someone leaving the stove on, conflicts over someone grabbing someone else's food and issues over someone leaving the kitchen dirty.  An alternative would be to leave the stove but still put in the coin washers/dryers.  Feedback??

5) A set of house rules and a roomer/manager to enforce them.  With rent being deposited, all he needs to do his ride herd and report any issues back to me.  Obviously the rub is finding someone responsible enough to do that.  What have you done to find such a person?

6) Am I correct in thinking that only four roomers is manageable?   

I'd appreciate any feedback.  Thanks in advance.