All Forum Posts by: James Mc Ree

@Jered Sturm - Were you offered 4.25% on a 5+ multifamily property for 30 years as described in your OP?  That's a great rate if for 30 years.  The image you recently added showed rates up to 25 years.  My limited shopping experience is good commercial rates often aren't for those long time periods.

Jim.

You can get some rent information from the MLS via a real estate agent, in addition to the above sources. Zillow and other sites will have some too of varying quality.

Municipal governments may have properties tagged as rentals or owner-occupied if they conduct regular inspections, but that is inconsistent in Pennsylvania.  You could try calling your municipality's office to see what they could provide.  You may need to file a FOIA request.

I don't know of any source for occupancy rates since leases begin and end according to whatever is written on the lease and that is not filed anywhere.

Jim.

This was a good posting.

I think you went light on the mortgage interest rate.  4% Is closer to Fannie/Freddie residential rates than commercial rates.  You also skimmed over some costs: utilities, insurance, property management, property taxes, maintenance and capital upgrades.

You make a good case for multi-family. One feature you might want to add to your posting is a comparison of multi-family to SFR (4 or fewer units). You might be able to put that into a simple table that recaps your multifamily points and how they relate to SFR. It could draw out the differences to further clarify, "Why multi-family (versus SFR)?"

Thank you!

Jim.

@Sergio Ali - How did the tenants get into the property?  Squatters?  I was assuming the tenants got in there with a lease with therms that allow it to renew month-to-month.  Is that not the case?

Jim.

@Rich Baer - I have never heard that a house must be lead free to buy it occupied or not.  What is the purpose of vacating?  Virtually every house built before 1955 contains lead in the paint.  In Pennsylvania, the buyer and new tenant receive a brochure about lead.  Vacancy is not required.

@Sergio Ali - It is a wonderful thing to buy a rental with tenants in place *** IF *** the tenants are good.  They do have leases from what you wrote.  They are just running month-to-month.  You could ask them to sign a new lease with you which would be a good idea.  You should also ask them to sign a document showing how much they have deposited and make sure it matches what the seller says, just in case they have inflated memories in the future.

Jim.

You could also save yourself a lot of research time and ask the inspectors to refer you to the specific code violation.  I have found my inspectors to be knowledgeable of the code and willing to ask their superiors if something is unclear.  @Derrick Williams gave you a great review of the documentation to read and that might be a lot of reading.  Section 8 has their own rules, as I am sure you know.

Your situation with carbon and smoke detectors may have more to do with the layout of the property.  In my borough in Pennsylvania, we are required to have a smoke detector on every level.  In one property, I had one on the main level, but it was on the "far" side of a door that led down to the basement.  It couldn't protect the main level unless the door to the basement was open, but was literally on the main level.  The inspector required another one in the dining room which adjoined the kitchen.  I had planned to put one in anyway and forgot about it.

It is unusual to require a smoke detector in a kitchen due to cooking.  I can see that if the kitchen is the only room on a level.

Jim.

@Ming Lim - Yes, I do consider mortgage pay down.  I track cash flow for working capital and total return which includes mortgage pay down assuming I can get that equity back someday.

Jim.

I buy 3/1 SFR rowhomes generally in the $70-$80k ARV range. I bought 2 with 75% LTV mortgages up front at 4.5% - 4.625% and bought 2 with cash, then refi'd 1 of the cash properties with a 75% LTV mortgage at 4.875% (I could have gotten a better rate - lesson learned.) I plan to refi the other cash property at year-end. My long term cash flow expectation is around $250/mo each with good years being double that.

The mortgage approach gives a yield advantage. I think more about risk. Folks in the last decade who bought all those 125% LTV no-doc "Liars Loans" for inflated home purchases thought they were geniuses. Then the bond market imploded. Many were foreclosed upon. All was good until a financial storm came.

I protect against risk with an operating cash cushion sufficient to pay the 3 mortgages for 3 months and handle a $500 repair with no income whatsoever.  Is that good?  Maybe: For me, it means I lost all 4 rents from currently occupied properties in the same timeframe and can't find a new tenant for any for an extended time.  My longest vacancy was 3 months.  I think that is safe, but am not 100% certain?  (Risk scenario: 3 Of the 4 are on the same street.  What if a neighboring home becomes a drug house?  I have a location concentration risk.)

I have separate savings that can keep me running effectively indefinitely, but I don't want to rely on that.  I keep my real estate investing funds separate from family savings and operating funds.

I think I am good with mortgages until I reach 10, the Fannie/Freddie limit.  I might be done with mortgages at that point as the cost of money significantly increases and durations shrink for commercial loans, but I have about 5 years until I get to that point.

Jim.

Consider if you want to perform property management across 3 states and pay 3 states' worth of income taxes, versus 1 location and 1 state.  It doesn't seem like you get more beneficial experience from leasing 3 locations of 50 mobile homes each versus 1 location of 150.  3 Locations probably will consume more time.

Jim.

I recommend you learn to be your own property manager for your first property.  There shouldn't be that much of a time commitment and you will learn a ton which can be applied later if you decide to hire a property manager.

The standard move-in ask is for first and last month's rent, plus security deposit.  Section 8 does not allow the last month's rent.  Your property manager or realtor will want some or all of the first month's rent for commission for finding you a tenant, assuming they find your tenant for you.

Jim.