All Forum Posts by: Jeff Tracy

I think you may be doing pretty well if you can keep the total cost to $85K.  I purchased a triplex last year that needed a good deal of work and I quickly figured out that once you start getting your hands dirty you can easily go way over budget.  My advice would be to replace/fix the things that absolutely need replacing or fixing.  Anything you can salvage and get more use out of you should.  I was amazed at how new an old refrigerator could look just by cleaning it or how a toilet can be salvaged with a $10 kit.  You might find that you don't need to replace all 5 water heaters or replace all the bath tubs.  It sounds like you have a lot of work in front of you.

I pay the gas and water on my property and my property manager has a good way of dealing with it. If he and I agree to rent a unit for say $750 to account for rent and cover utilities, he tells the tenants that the rent is $700 and their portion of the utilities is $50 for a monthly total of $750. It's detailed that way in the lease and none of the tenants have an issue with it.

I was in the same position you were last year. I was about to pull the trigger on my first deal and I was talking myself out of it because I thought I was missing something. I ran the numbers several times, adjusting the numbers upward to account for vacancy, maintenance, etc. My budget was very conservative. I finally looked at it and realized that if I was completely wrong about my numbers and everything cost more than I had calculated then the property would be close to breaking even. So I took the plunge and made the purchase. What you will find out, and what I found out is that some of your numbers are wrong. I thought I had a few years left on my roof, but that was a $14k mistake. The previous owner renovated one of the units that looked to just need a good cleaning. It turned out the work was total crap and I had to spend about $1500 redoing some of his work. However, the ARV is about $15-20k more than I had thought. The rents bring in about $100 more per month than I had budgeted. My insurance is $800 less per year than my budget. My total repair costs will be about $3k less than I had budgeted and that's including the roof I hadn't budgeted! Like I said, my numbers were very conservative. The point is, if this is your first deal then you are likely going to be wrong about a lot of things because you don't know what you don't know. But, the education you get will set you up to to better deals is the future. As long as you are conservative with your budget and don't try to fudge the numbers to make the deal work then I think you are going to do ok. I'm willing to bet that you have done all your homework and that your analysis has put you in a position to be successful. Now you just have to take plunge.

The market in the greater Metro NY area is all over the place.  It's a huge area and your budget will dictate where you are likely to buy.  Within commuting distance to Manhattan you get a co-op for less than $100K or a house for over a $1 million.  It just depends on where you want to buy.

My best advice would be to look at maps of the Metro North, Long Island Railroad and New Jersey Transit and starting looking at towns on the train line that go into Manhattan.  Unless you plan to buy in Manhattan, your sister will be commuting. 

I'm currently operating under a seller financed deal.  It was a $69K purchase price, 10% down, at 7% interest paid over 4 years.  I can pay it off anytime with no prepayment penalty.  When the seller and I worked out the payment schedule we used the online calculator at Bankrate.com that spelled out what the payment was each month, how much would go towards principal and how much would go towards interest.  Keep it simple.

A more direct answer to your question is the interest is calculated on the average outstanding balance over a period of time, usually daily or monthly. It doesn't make sense for a lender to make a loan and give someone a flat interest amount on the total unless it's a crazy high percentage (25-50%?). If a lender loans someone $100K over 10 years and charge a flat 10%, they are making $10K in total interest or $1K per year. Looking at that as an annual return, the lender is only making 1% per year. 1% APR is a terrible return for the lender.

My first deal came from a for sale sign in front of the building. I got the seller to finance the deal. It wasn't on the MLS, but I think the seller may have listed on Craigslist.

I think you will see that trying to house hack in Westchester county and only spending $500 a month is going to be tough, unless you are willing to spend most of your nest egg.  Peekskill is one of the cheaper areas in Westchester, but a descent property in a good neighborhood will cost about $250-300k and the taxes will cost you at least $6-7k per year on a multifamily.  I live in Peekskill and my taxes are about $8500.  The further south you go, the more expensive it gets.  Wherever you choose to buy in Westchester I would plan on doubling your monthly out of pocket to about $1k per month.

Truth be told, I probably won't update this deal diary beyond this post.  I'm blogging about it, which can be found here:  https://www.biggerpockets.com/blogs/7199-my-first-...

I just purchased my first property and planned to do a lot of the work myself.  I plan to hire out the plumbing and electrical and do the painting, tiling and flooring myself.  I've worked on a few of my own homes so I've got the tools and the DIY skills to do the job well.

Below is a portion of the last blog post I wrote, but I wanted to share what I learned this weekend with as many people possible because I think there are a lot of people making the same mistake I started to make.  Here's the excerpt:

...I was working on tearing up the crappy linoleum floor in the kitchen when I had an epiphany. Why am I doing this? I could probably get someone to do this same job for $12-$15 an hour. Then I started doing the math. Since I have a full time job, I can only devote 1 1/2 days per week to working on the triplex. The building is 2 hours away from my home, so I have to book a hotel room if I'm going to spend the weekend there. Here's what I figured out when I add up my weekly costs:

$100 for hotel

$100 for food, gas, etc.

$550 per week in lost rent

$750 per week is what it cost me to own the triplex in both actual and opportunity cost.

5 days (normal work week) of my labor (40 hours) will take me about 1 months worth of weekends to complete. That 40 hours of labor I produce will cost me about $3K ($750 per week X 4 weeks). If I pay someone $15 an hour, I can buy 200 hours of labor with that same $3K. So, why am I tearing up linoleum?

I closed up the triplex, told my new neighbor friends I'd see them next weekend, packed my tools into the truck and drove home. On the way home I listened to podcast 139 and heard Fat Tony say something that's been on my mind for a few days; "I'm a business man, not a handyman." My goal this week is to figure out how to be more of a businessman and not a handyman.

Looks like my budget is getting re-worked this week.

Unless you can get an incredible deal and walk into it with a ton of equity, I would pass. You only have $326 every month to cover financing and profit. You basically cannot afford financing. If you paid all cash then your cash on cash returns would be minuscule. Finally, you would always have to self manage because there's no money left over to cover management fees. I wouldn't even look at this as taking on risk. You are looking at a property that will take a lot of your time and offer no reward. You would be working for the banks and your tenants for free.

Does anyone have a good recommendation for a property management company in the Scranton Pennsylvania or NEPA areas?