All Forum Posts by: Sam LLoyd

Sounds like where I was at 10 years ago when I got my first duplex.... difference was no kids at the time.  I think it's a great idea for getting started.  I would not overlook triplexes and four plexes if you can afford them in your area.  Keep in mind, with a owner occupy low down loan, you probably won't be making extra money, even in a 4plex, but it will decrease your living expenses considerably.  The key is to turn that freed up money back into investments, not just get a nicer car or go on vacations.

If you find a plex you are interested in, put the numbers up here so we can look at the deal.

Not to mention, if you live in it long enough, you don't have to pay taxes on the gains.... if I'm not mistaken... so how do you figure that in?

What I would do is look at the house as if it were a regular flip.  If you can flip a house in 6 months then figure on 6months of holding costs.  That will give you a decent offer.

That being said, if this house is where you want to live, and it's a deal that might not come around again, I'd be tempted not to factor these costs into the offer since, like you said, there are significant other benefits.

Hello from the slightly colder town of Wasilla, here are my thoughts:

Owwer occupy the 4plex... great idea.  A year later, buy another 4plex.  If you move into a big condo in Anchorage (never a good rental... I run two of them), you'll have to explain to the bank why you want to move back into a plex... might get tricky.  On the other hand, I have a nice 3bd ZLL with brand new windows and carpets for a BP only price of...

Soft market?  Great.  I'm excited about it.  Every single one of you guys that is worried about the market softening up... that's fine.  More for me.  I see the doubt about the future and the economy, as well as the increasing interest rates, as an indication that there are going to be even better deals available in the near future.  

As far as 4-plexes in Anchorage.  I've looked at them, but I'm trying (and failing a lot), narrow my farm to out here in the valley, so I'm not as familiar with market rents and such where you are.  If you're ever out this way, I'd love to talk shop... I work  on 76th, but never like to stay in the big city longer than I have to.

@Jean M.  Take a good look at market rents in your area before deciding you can raise rents.  Also, if you come in raise the rent to or above market on 4 tenants, and one of them moves on, you'll be out hundreds replacing them... so I wouldn't count on raising rents without knowing for sure that they are low.

@Joseph Shevy  I have a calculator with fields for taxes insurance, maintenance, vacancy, ect...  I don't know these numbers, but I entered ones that would be realistic in my area, and it looks like I came out below the 50% rule... I was looking at $30/month, which gave the 5% returns.

So, nail down these variables.  Also, I owned a 4plex in New York, so I skewed the numbers based on my experience regarding taxes and maintenance.... though I know there are huge differences in different areas of the state.

On the other hand.... I've rented to cat owners, and never had a problem in 10 years.  I try to have a pet fee of 20-50/month because of the very real cost of scratching.  I have had messed up carpets that have needed to be replaced sooner than they should have, but it has always been due to dogs or kids.

@Sarah D.  I think you are on to something.  Rent to responsible, clean people, and their pets will be clean and cared for responsibly.

As far as allergies go.  I am not allergic, so this is not an issue.  If there are pet stains in the carpet/pad, I paint the floor with Killz to get rid of the smell and germs before putting more down.  I have had highly allergic people not want to view the property since there have been cats there before, but allowing pets opens up the market to a lot more tenants than it turns off.  I'd say more than half of my tenants have at least one cat or dog, and I have great tenants (10 doors, from an efficiency to nice 3bd condos).

Wait, Only Three?

Wow, that's a tempting deal since you'll be into it for so little money, and the note has such good terms.  The cash on cash return (by my calculations) would be less than 5%, however, if you added your principal pay down (phantom income),   it would be a 17 or 18% return on your investment, and that doesn't include any other phantom income such as depreciation or being able to write of the interest payment.

So.  If you are planning on a long term investment, this seams like a viable option to get into it with little money down.  If you have to make more money/month... move on, though I don't know what else is available in your area.

Here's the biggest decision maker/breaker:  What is your vacancy rate and maintenance cost.  If it is a newer building with very little maintenance, and you hustle as a manager in a market that has low vacancy, and you pay yourself for management, you could be making $175/door... not bad.  If vacancy floats around 10% in your area, you have to hire a manager, and the buildings are older with windows and roofs needing to be replaced in the near future,  you'll be losing money every month.  So, get us the maintenance and vacancy numbers for an more complete answer.  

I did the same thing about 10 years ago.  End of the story is I still own a couple acres with the best view ever, but I'm paying taxes every year, and my equity is tied up.  So, instead of being an asset, the vacant land is only a liability.  I've found someone who wants to trade the land as a down payment on a 7 plex that is a cash cow.  However, we're having a hard time convincing the lender that this is a good idea, so I'm hustling that end of things to see where it can go.

So, I've had several years to think about it.  Here are the options that I've come up with.

1. Keep the land... hopefully you are not paying much tax on it... hopefully taxes are lower than inflation.

2. Build on it.  If you're not a builder, this is easier said than done.  Maybe you could partner with someone?

3. Sell it.  Yes, you might take a loss, but if you can get back close to what you put it, it might be worth it to get your money moving again.

4. Sell it owner finance.  This is a good option because if you can find a buyer, you might be able to ask higher than market since you're carrying the note.  So, this is a good option since it gives you a return on your money, but not as good as getting cash and reinvesting in something with cashflow.

5. Trade it to someone for something else.

I know my advice sounds like you made a mistake and need to get out.  Don't take it personal... just pretend you are watching me send a note to myself 10 years ago.

@Chris Mason That is interesting, and might help to explain the headaches.... so the different way that they were calculating DTI depended on how they were classifying the properties. I will go so far as to assume someone was screwing up, since they were not all in agreement, or internally consistent, but knowing how it is supposed to work helps clear this up for me. Thank you.