All Forum Posts by: Ian Skelton

@Shawn McKee

I haven't done any project big enough to use a GC. I try to do smaller projects that I can sub out myself. But I have had Zeno Moore recommended to me before. Also, I have spoken to Wells Anderson before and I know he does flips himself so understands the process. But he told me that he likes to work on cash funded remodels not construction loan funded remodels. He says that dealing with the bank is usually a pain. 

So, I'm not sure how big your project is or how it is funded but I would call both and talk to them anyway.  

@Curtis Bellenot Where are you getting 12-15% cap rates? I see them in rougher neighborhoods C-, D... I am looking in B-, C+ and seeing 7-10%

Also, I see you are a wholesaler, and I could use a good wholesaler since I work full time. How do I get added to your list?

@John Smeltzer I will agree with Curtis that Savannah is a good rental market depending on your goals and types of properties you are looking for. We have several colleges and universities, a military base, historic downtown and we are close to a beach (Tybee), and of course regular everyday rentals and "ghetto" rentals if you are looking for that.

Agent: I have been using Carl Lucas with Keller Williams

Lawyer: Steve Jackson (Mcmanamy, Jackson) 

Property manager: Pam T Properties

My personal opinion is to beware of property below 60k, as the neighborhoods are usually pretty rough...  although some are ok. Your best bet is find properties you think you might be interested in and drive the neighborhood during the day. If you feel ok with it try again close to dark (but not quite dark) and if you still think the neighborhood is ok then look at houses there. Personally I try to stay in the 60k-90k range because the areas are better (but that's my opinion) 

All that being said... I am currently looking for another property and have seen some already occupied rentals and some fixers in your range. But remember to figure in management fees, and an estimate for ongoing repair expenses. 

@Alec B Calzada

You're welcome. I've learned a lot too.

@Richard Lindman

Agreed, I don't consider appreciation either only income for class C. Looking at public records for these 4 plexes (there are probably 30 or so in the area) the sale prices are all over the place regardless of the year sold (there is no clear trend of values going up or down) so I suspect they are generally selling based on income, condition and motivation of the seller. But I also see many that have been under the same owner for several decades which makes me think they must be decent income properties if you buy them right...

@Cody L.

I try to keep it simple but have a terrible habit of over analyzing things :-)

The main things I look for are net income (how much I get to keep per month) and COC return since the faster I get my money back out of a property the faster I can buy another. But, at the same time I like to try to think through all the costs of buying and owning a property to see if it is actually worth it both now and in years to come... But maybe I am over analyzing again :-)

I am going to see if I can get the price down a good bit. If not then I'll find another property that meets my needs.

@Richard Lindman 

Vacancy - Wow, very helpful breakdown. Yes, I was thinking of vacancy in terms of a straight percentage (like SFR) not in terms of a certain number of units being empty a certain number of months... I will be doing it your way from now on.

As for make ready costs, I was generally lumping them in with maintenance/repairs but I should really break them out and figure them with the vacancy like you showed.

So It looks like I need to pay less than 150k for the deal to be decent (income around 100/unit COC about 11.5%)... and less than 140k for it to be good (income around 115/unit COC about 14%)

... I'll see what I can work out.

Thanks for the help,

Ian

Ok I have more info on the 4 plex(s)...

But first @Richard Lindman 

1. Condition of the roof looks reasonably new at least less than 10 years. The furnaces are unknown at this point since the seller won't allow anyone into the occupied units (doesn't want to bother the tenants with people who aren't serious) until the due diligence period only the empty unit. Also the buildings are brick so at least lower maintenance there

2. They were built in 1978

3. for vacancy see below...

4. I do have reserves. I try to keep at least 6 months reserves for mortgage and utilities payments as well as having reserves for maintenance and cap ex

5. As to type of renters this is a section 8 type are but also there is a university nearby so you may get students as well.

So the info:

First, 3 almost identical units have sold this year at 163k and one sold for 180k

Second, I have one of the sellers financial summary for 2015 & 2016

Building 1

GOI: 2015 = $ 26,339.00     2016 = $ 23,470.79

Expenses (without mortgage) 2015 = $ 13,086.61      2016 = $ 9,695.64

Annual net: 2015 = $ 13,252.39      2016 = $ 13,775.15

Current rents: (4-27-17) A – 625 B – 600 C – 600 D - VACANT

Building 2

GOI: 2015 = $ 26,309.60     2016 = $ 20,792.80

Total Expense (without mortgage) 2015 = $ 6,811.16    2016 = $ 8,597.79

Annual net: 2015 = $ 19,498.44    2016 =  $ 12,195.01

Current rents : (4-27-17) A – 625 B – 600 C – VACANT D - 600

Note: I would only be buying one building.

The main thing I notice is if you look at gross income it looks like their 2016 vacancy rates are quite high in both buildings. (GSI should be in the 28k-29k range with rents of 600-625)

It looks like a decent deal at around 165k (mortgage payment around $914) if I could keep vacancy and expenses in check (I'll be using a good PM)

Anyone with more multi-unit experience see anything good/bad in these numbers.

@Terry Lao It was several experiences. I had some tenants that stayed for 3 years, many stayed for 1 (a lot of students) and one year it turned over 3 times (again students) but I had no vacancy (I like to think I had mad skills to pull that off ;) I did discover in that time that I hated property management especially while trying to work a full time job. So I tell people that sure the PM takes 10% of my money but they give me back 100% of my sanity. That's pretty good ROI.

And yes, I did get quite skilled at disassembling and reassembling a stack washer/dryer... and removing socks and other unmentionables from the discharge pump. Its funny now when I think about it but at the time it was just nasty.

@Dave Visaya Thanks.

Hey BP. I am learning analysis and want some second (third, fourth) opinions on a Brick Quad with (4) 2 bedroom 1 bath units. I would probably call this a C+ area. This is a buy and hold. Also, thanks in advance for reading all this...

Asking: $195,900 (obviously I try to get it for less, but I start with this price and see where I am)

Rents: $600 - $650/m per unit (estimated)

Taxes: $2,210/y (2016)

Insurance: $2,000/y (estimated)

Maintenance: 10% = $240/m

Cap ex: 10% = $240/m

Management: 10% = $240/m

Vacancy: 5% = $120/m

Mortgage: 30 years at 5% with 25% down = $790/m

Money borrowed from a HELOC = 20k = payment $100/m

So...

Gross Scheduled Income = $2400/m ($28,800/y)

Expenses = $14,290 (tax + ins + maint + cap ex + mgt + vacancy)

Net Operating Income: $14,510 (GSI - Expenses)

Debt Coverage Ratio = 1.9 ((GSI - tax - ins - mgt - vacancy) / debt service)

Debt Service = $9,480/y + $1,200/y (HELOC)

Net Income = $3,830/y OR $319/m which is $79.75 per unit

How does this look? What have I missed. Also, I will say that one concern is that the cash I need to close is somewhere around 52k (ouch). Very painful but doable (have to borrow from a HELOC)...

So cash on cash is: around 7.3%

It pretty much takes me out of the market for a couple years to recoup the cash invested (If I horde money like Scrooge). So is it worth it or should I keep looking for something cheaper that gives better cash flow and better cash on cash. I think it starts to look decent at 170k or less & 650/m. At what price would you (BP community of investors) buy this or would you...

Hello BP. Ian Skelton from Savannah, GA

I've been "investing" (notice the quotes) for about 12 years, but didn't know what I was doing. So long story, short it went fairly badly. From calls at 2am to unlock the house because the tenants were drunk and locked themselves out to a call to "let me know" there was water bubbling up from under the sidewalk out front (yep, that was expensive). By 2016 I was fed up with it and sold my rental and got out of real estate. 

But... It pulled me back in... I cooled off for about 6 months and thought about it and decided that people do make money in real estate so I must be doing "something" wrong. I started reading everything I could find (which includes BP - where were you in 2005?). Well, I figured out that I wasn't doing "something" wrong, I was doing everything wrong. I didn't know how to analyze, or screen tenants or better yet hire a property manager to take care of that for me. I didn't know about cash flow or hundreds of other things. 

So... I have just closed on my "first" (since I started over) property. And we'll see if I have actually learned anything...