All Forum Posts by: Jack Barkow

Hello BP!

As I'm still getting more into things I'm starting to look at properties and ask myself (why hasn't someone already scooped this up?).  With that said I wanted to run one such deal by the community for further feedback to see if I'm missing something that wouldn't be immediately apparent without visiting the property.  So with that said here are the details:

2400 sqft 4bd 4 ba 4-unit property (all 1 bedroom units).  All  four units currently rented.  Listing price of 90k. 

This unit is not in a particularly great area, but that said it is 2 blocks from the city police station and 1 block from the city hospital as well as some nice places to go out to eat/for drinks in walking distance.

I'm estimating a rent price of 500-700 a month and using the 2k per month as the low ball for evaluating this piece of real estate.  

County records show this property was sold in 11/2015 for 50k.  For tax purposes this property is valued at 57.6k.  I'm not sure of the exact tax burden for this property.

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Expenses are as follow:

Taxes 2k annually (Just guessing here)

10% Property Management Costs (I'm excluding any placement fees at the moment)

8.3% Vacancy Rate

$800 Insurance Annually (I have never had property insurance so this could be way off)

$1200 for Misc Repairs

12%($2600) of income for Variable Cost PM Work

30YR Fixed Mortage @ 5% Interest & 20% Down= ~$400/mo

I'm neglecting to include any costs for mowing the lawn as needed

I will also need to purchase an umbrella policy for myself, which would cut into the returns on this property to some extent.

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All of that said I'm calculating a 14% cap rate and 40% COC. Cash flowing almost 11k annually. Am I missing anything major on this initial look? Maybe the owner is paying utilities right now or the home isn't set up for individual metering (I could change leases to be collective on water/sewer/elec in the future). Maybe this unit needs some serious work (its fully rented though so depending that would be one unit at a time and maybe not for some months/years depending on tenant history). Maybe I'm seriously overestimating the rents (I would have to ask the broker about the current leases and tenant history anyway so that can be verified)? Is there another issue that I could be missing that makes this go from a winner to a loser?

So as a potential future landlord I wouldn't allow it because as everyone above seems to agree on, the risk isn't worth the reward.  That said, I have a good friend who smokes and when I visited him his apartment didn't smell like cigarettes at all and he always smoked on the balcony.  Of course on the other hand just because someone says that they won't do something doesn't mean that they actually won't do it.

This sounds like a nice tenant, but if your unit is in a truly desirable area then I'm sure you won't have any problem finding a tenant with just as good qualities that doesn't smoke.  Also as a side note I've read that you should typically be wary when someone is offering to pay a massive portion of the rent ahead of time as not many people would do that unless they had a specific reason.

Thanks for all of the replies everyone.  The area that I'm currently renting in would not meet any of the x% rules.  Even the apartment that I'm renting (if sold at its current appreciated value and then rented) would cause the rent to need to more than double to meet 1%.  People buy in this area buy for a totally different reason unless they find a major gut job rehab.

All that said I don't really mind moving so that sounds like a better option especially with the better interest rate, potentially shorter commute, tax benefits, and better awareness of what my tenants are doing.

With regard to buying a place and living there so that I only have to put down like 5% of the purchase price is that really beneficial if I'm going to have to pay the extra PMI cost? Of course that can be calculated, but I would assume that the ROI would be minimal at best.

Hello BP.  I recently moved to the Chicagoland area and have been looking at getting into the rental market for some time now.  Since I'm confident that I will be here somewhat more long term than where I previously lived I would like to start to accrue rental properties.

The question is that since I was moving here I did not immediately buy a place so I'm wondering if it wouldn't be the worst thing to go ahead and start to accrue some rental properties while I'm still renting an apartment myself.  The way i see it is that it would be far easier to live in the place that I'm renting out (duplex/triplex/multiplex), but that it also shouldn't really make much of a difference in the scheme of things since cash flow is cash flow and I can throw the profits at my current rent payments and still technically manage to live for free/reduced cost.  Then, if a vacancy comes about around the time that my current lease expires move in or look to buy another property around that time that has at least one vacancy.  I don't want to miss out on the opportunity cost of just saving up money for another year (Realistically 6-7 months since I'm not buying something today).

What would you recommend that I do in this situation?

 Are you legally able to not allow smokers to rent a unit?  I was under the impression that you could only disallow smoking within the unit as a term of eviction or fines/lost security deposit.

Hey John,

I'm just getting started out myself, but as a past tenant and current renter it would be a MASSIVE deterrent to me.  I definitely agree that thats "bunk" as you put it.  Unless you are in an area with a very high rental demand I would assume that most people would just move on.

For example, if I'm looking at a potential place to live without any pictures I would think that the inside might be crappy.  I would also think that I don't want to waste my time to drive out somewhere to "find out" if it is the apartment that I want when I can just click on the next craigslist or apartments.com posting and probably find something that would also work for me and require less detective work.

Hope that helps and that you can get a tenant in there ASAP.

 Done!  Thanks 

Hello BP!  I've been thinking about getting into real estate investment for a few years now and now that I'm a bit more settled I want to get started (was previously living somewhere more short-term).  I'm looking to introduce myself and my plan in order to get some feedback etc.

A bit about me.  I'm 25 and single and just moved to Chicago in August.  I currently work as an engineer in the chemical industry (~7-5 salaried job).  I'm originally from Atlanta, but I currently live in Chicago and work in NW Indiana.  Work takes up a lot of my day so I think that the best plan for me is to buy and hold rental properties for additional cashflow.  

My Plan.  I've been saving up for a while now and I have what I would consider a sizable chunk of capital to use for part of a downpayment on a property.  I was thinking about buying a sizable multiplex(~10 units) in the next 6-9 months, but I was reading that once you get out of the 4 unit multiplex you switch into another realm (commercial real estate).  Additionally, I like living in Chicago, but there are some really great tax benefits to buying in Indiana and living there as well (No double dipping on state income + much shorter commute).  That doesn't include what I imagine to be much lower rates of property tax.  Right now my goal is to get my first property and move into it as one of the "tenants" and then move forward with the intent to aim for 100 units down the road (maybe more maybe less depending on where I am at in life and when I say that I have enough).

My biggest hurdles right now are finding that first deal, buying my first property EVER, and taking the initial plunge into real estate investment.

I still have a lot more podcasts to listen to and articles on BP to read through to gain more knowledge on everything.  What would be the best things to focus on getting started?  Deciding on a specific area, finding a realtor, looking for a mentor, building relationships with banks/lenders, etc.?