All Forum Posts by: Jeremy Bartlett

@Basit Siddiqi

Thanks for the info on the conventional mortgage.

We are planning on self managing while we live here, but because I am looking at this as a long term investment I am planning for when I move and will no longer be able to manage it. I don't want it to work for 2 years, and then move away and have the mgmt. fees kill me.

The $5137 provided were simply the operating costs - they did not include savings for capital expenditures, maintenance, vacancy, or management - which is where the cash flow turns negative. While living in the property, it looks like without saving for those things I would pay $400/mo in addition to the money needed to make renovations and other improvements. Do you know what it would cost to separately meter the units? I feel like that would start cutting into my cash on cash return pretty quickly, but I've never done it before so I'm not positive.

@Maurice D.

Thanks for the response. I think it'll boil down to taking a look at the property to see if there is wiggle room in rents. I have a 4plex just down the road from this guy where 2/1s are occupied for $1200-$1300/mo - so there may be wiggle room to make it work.

I need a quick sounding board... a 5Plex just came across my desk and it seems to have potential, but there are a couple variables in there I haven't dealt with before that could make or break the deal...

Specs:

Purchase Price: $525,000

Operating Costs: ~$1550/mo after PITI

Total Monthly expenses: ~$5137

Unit breakdown:

   Unit 1: 4/2, 1270 sq/ft rented at $1500

   Unit 2: 2/1, 760 sq/ft rented at $925

   Unit 3: 3/1.5, 1300 sq/ft rented at $1350

   Unit 4: 2/1, 760 sq/ft rented at $925

   Unit 5: 4/2, 1276 sq/ft rented at $1400

All units have been renovated except for unit 3 - which I would make my residence to fix up while there. The numbers don't really work under this structure, but my thought was making both 2/1 units an Airbnb... Using $95 a night and assuming 50% vacancy that increases their income to ~$1450 a month each.  

First question, if I purchased it with a conventional loan and made it my primary residence, would I still be able to purchase it using only 5% down? Or is it considered a commercial property that would require 20-30%?

Second question, I would be living in it for 1-2 years and then will likely move and need a property manager. Typical charge is for 10% of rents - but if I am running an Airbnb out of 2 of the 5 units, do they collect payment for those units? Or, would I be able to limit their fees to my 3 long term units in that building?

Third, operating costs seem to be outrageous - utilities in 2017 cost them $20K! Gas payment is the big killer - averaging $800/mo that the owner pays. Water a close second at $560/mo. It has baseboard heating, but can anyone think of a cheap way I would be able to cut those expenses in half?

Fourth, does anybody have a rental right now that mixes Airbnb with long term tenants? What are your thoughts on how it is working? Do your tenants view it as a pro or a con?

Fifth, this building is currently owned by an LLC and it showed a $15,000 net gain for 2017, but when I ran the deal through the BP calculator it came up as a money pit, and I am skeptical about the monthly cash flow. Again, making the Airbnb work and raising rents it shows strong potential - but because of its high purchase price (normal for my area) the 5% for vacancy, 5% cap ex, 5% maintenance, and 10% management equate to $1500/mo which is really what I feel like is killing the deal. The two are contradictory, what is BP's take on the discrepancy? Does it sound like it may be worth investing in?

Need help understanding estate sales. A duplex popped up that I am interested in as an owner/occupy.

It is listed as an estate sale priced $50K under tax assessment at $450K. The numbers really only make sense if I can get it between $385-$400K.

Is there usually wiggle room in estate sales or are they pretty hard to negotiate down? Would be using conventional financing at 5% down - would that be a problem?

@Mark Allen @Gino Barbaro, I am also interested if you are still willing to shoot it over!

@Erik Anderson you are correct. This is a mil to mil couple, Army/Air Force. He is getting out this year, and her commitment is up Sept of 2020 - this is their last assignment and they are riding out their time until they separate and move. Their dog I guess is just bouncing around houses in New Jersey right now and they are looking to give him some stability.

@Mary Mitchell thats a good point, I appreciate it. At a minimum I have them on the hook until June 1 because they would be breaking the lease for no valid reason. A 15% hike is not normal, but we recently finished renovations in the unit and we inherited the tenants, so we are riding out the lease until we can bring it up to the rents we are planing to charge for their unit.

@Kenneth Garrett I allow pets in our single family as well. This is a 4plex that we are house hacking. We don't allow pets for the tenants but we ourselves have a dog and 2 cats living with us. I was thinking that we could charge them $200 refundable pet deposit to bring them up to a $1400 deposit, and then charge $1350 for the rent +$50/mo pet rent thereafter to match the deposit.

@Mark Ainley I appreciate the backage from your firm's experience. They are good tenants, just military in a tight spot for their dog, which I can appreciate.

I appreciate the feedback everyone!

Looking for some general advice:

We have some tenants who are really great - military couple, clean, quiet, pay rent on time, etc. They are wanting to break their lease 5 months early because they have a dog who is currently bouncing around New Jersey from home to home and they want to bring him up here (Alaska). I have already explained that breaking their lease would result in the forfeit of their security deposit. They offered to bring us tenants to replace them, I explained that they would have to pay an application fee and pass our background check before we agreed to let them take over.

My question is, if we allow them to have their dog they have expressed interest in staying put until Sept of 2020. Is it worth going through the advertising/tenant swap out just to avoid our otherwise ideal tenants having a dog? We were planning on raising rents from $1200 to $1350 when their lease expired June 1. If we charged $50/mo pet rent on top of the base rent increase, is that worth having the security of two years of reliable rents at slightly above market rates? Should I get them to sign a 2 year lease when we finalize this conversation to ensure that will be the case?

I would double check your insurance and tax numbers to make sure they are accurate. Whitney is right about management - if you are managing it yourself that's fine - but make sure you include those costs if you end up moving again and will need to use a property manager once you move. If you plan on selling, would a cash investment that large be worth investing for a quick turnaround? That will depend on what your strategy for this investment will be.

Also take a look at your after repair value. It says your initial equity will be 130K? Are you confident that a new roof and siding will up the value 50K from what you paid for it? A property is only worth what someone is willing to pay for it, and each sale is a marker towards its true value unless serious work is put into. Just make sure you are using accurate expectations and not inflated excitement in using these numbers (I have certainly been guilty of doing the same thing to some properties).

I would argue that both are good options - just know that investing in one vs the other commits your future to whichever you choose. If you are convinced that Vegas is going to be where you end up, then it certainly makes the most sense to start building assets there sooner than later. Just find the right deals and limit your cash flow bleeding as much as possible.

Travis:

Something I also struggle with is not getting stuck on a deal if the numbers don't make sense. Sometimes I really like the house and really want the deal to work, but the numbers simply don't, so I have to move on and wait for that one that does. Is there a reason you need this particular duplex to work vice waiting for another one?

Also, it never hurts to put in an offer where the numbers would make sense. The worst the sellers can do is say no, right? Sometimes they might just say yes and you find yourself in a winning situation. Good luck.

I agree with above sentiments of Anchorage. Very stable market so long as you are willing to put some money/effort into making the quality of life for your tenants stand out above the rest (it is not a very high bar). Our 4plex here is rented at $300-$400 more per unit than everyone else on our street because of simple updates we asked for in our offer for the property (new flooring, countertops, paint, etc). The new housing in Wasilla is beautiful but finding a tenant is going to be more difficult because of the commute and the opportunity to buy for so much cheaper in that area. Consider South Anchorage as it is beautiful and a lot of shops/money is down there, and lake homes/proximity to ocean is not too much to ask.