All Forum Posts by: Joel Palmer

Hey guys!

I recently bought a 4-plex of townhomes for $130k.  It was grossing about $1750/mo and fit all my criteria, and overall looked like a great deal, so I moved forward with the purchase.

My strategy so far has been following the BRRRR strategy of buying a property cash, fix it up if/as needed, get tenants in, and get a traditional mortgage on it. Usually they'll appraise for a bit over what I purchased so I can essentially get all my cash back out of it and do it all over again.

Well this property just appraised for $98k, so the most I can get out of it is right around $80k, meaning I have to leave $50k of cash in it!  Not cool!  Granted this means my payment will be a bit lower so I can essentially pay it off quicker, but it really puts a damper on things.

Have you all dealt with a low appraisal?  Are there ways of getting better appraisals, or other ways of getting my cash back out of it?

Thanks in advance!

Joel

@Nick B. Gotcha, makes sense.

@Kurt Bender Good point about determining on actuals, and I would certainly need to do so upon further study.  Up to this point, I've only had a vague idea, hence why I was going on %, but now that I have much more detailed info, I can certainly get more precise!

Thanks again!!

Whoa, sorry!  Thought I was going to get email notifications when replies rolled in, but I guess I forgot to turn that on...  Sorry for disappearing, but thanks to everyone for your replies!

@Corina Eufinger Good points on the non-unit maintenance.  Tried to factor some of that in by assuming the per-unit maintenance would be a little lower, but I'll inflate that a little more.  Also thanks for the heads up on cheaper PM costs for multi-units!  Wasn't aware of that, so thanks!

@Nick B. THANK YOU for such precise numbers!  That's super helpful to get some more precision on my numbers.  The Payroll line - is this for an on-site property manager or admin assistant to be in the complex office?  In other words, I'm assuming for a complex of that size, you'd want someone on-site all the time, right?

Thanks everyone!

Hey guys!
Trying to do some research on what the expected number for an apartment complex would run.  I've run across a deal that has gotten me thinking, but I don't have a lot of solid numbers in my mind.  I doubt I'll be able to move forward with the deal (a LOT bigger than what I've been playing with!), but it at least gives me a chance to figure out some hard numbers in advance.  Consider this a good thought experiment :)

I've so far invested in just single family rentals, and usually my expenses are right around 35-40%.  Which from what I hear is a relatively normal average.  So I have those nailed down pretty solidly.  I've seen 50% tossed about for apartment complexes, but again I'd rather figure out some solid numbers here.

So here are some real numbers, and I'd love to get some input/advice on them.

50 unit apartment complex, averaging right around $550/mo/unit.  

Actual Gross Monthly Income: $27,610

Current occupancy is 96%, but I'll use a much more conservative 10%.

Vacancy: 10% ($2,761)

Maintenance is probably the biggest unknown.  This particular building is in decent shape and has been maintained well enough, though it's had very little capital improvements recently (potential for increased rents with some rehabbing, but not going into that here...)  But then I'm assuming there are things like landscaping and other general building expenses that I'm not used to factoring in.  Take a stab at 12%?

Maintenance: 12% ($3,313)

Insurance and taxes are relatively decent around here, so I'm going for 8% for each.

Insurance: 8% ($2,209)

Taxes: 8% ($2,209)

Management would definitely be hired out, and I'm assuming I can stick with my usual 10%?  (My SFRs I've gotten 8% with my current company, but I'm guessing they'd want to charge the full 10% for a medium size complex like this).

Management: 10% ($2,761)

So my biggest unknown and question for you all is about utilities.  Does the landlord/owner usually pay utilities, or do the tenants?  It's a relatively large expense if indeed the owner has to pay.  I've just discovered RUBS - I'm assuming that's something I could potentially add for each unit.  If I did, how precise would that number have to be?  Could I just make up a number, say $40 for the smaller apartments and $50 for the bigger ones and call it a day?  Or are you required to be very precise about it?

Again, just taking a stab at a number here, and going with $95/unit, but then look at charging each unit $40 for utilities, coming out to $55/unit, or basically 10%.

Utilities: 10% (2,761)

So total expenses are coming out to 58% ($16,014) including utilities, or 48% ($13,253) without utilites.

From the $27,610 gross monthly income, that results in:

Net Income: $11,596

The current asking price is $1,450,000, which also results in:

Cap Rate: 8%

So my 2 main questions are:

1. Are my numbers even close to being right?  If not, what'd I miss?

2. Is this a reasonably good deal?

Thanks so much!
Joel

Wow, you all are full of great information!  Thanks especially @Paul Timmins for the help on property managers.  To me that can make or break a deal.  I have a manager here who is willing to handle literally everything - even up to almost flipping a home.  But I gather guys like him are hard to come by...

@Christy Harris, I'd definitely be interested to see what you've got in inventory.  I'll PM you my criteria and we'll see if anything fits!  I also know a couple people in the area who are also interested, so hopefully something will work out!

Thanks again everyone for the great info!

Wow, lots of good responses, thank you all!  Indeed Huntsville does have a pretty good market and I'm still going to keep investing locally.  

Jared and Joe, great information on the HSV market, and one of the reasons I do want to keep investing locally.  Part of the reason to invest out of state is to simply learn how!  I'm always open for new learning possibilities and there's nothing better than experience.

But you certainly do have good points about adding burden to it.  My day job is a project manager, so I'm relatively experienced managing managers.  But yes, it will be a bit trickier out of state, but something I'm very interested in learning.

Jay, thanks for all the good info on my questions.  I was hoping that would all be the case; much appreciated!

Hey everyone! Long time lurker, first time poster here  :)

I'm a buy-and-hold investor in Huntsville, AL, and I'm looking to diversify a little bit location-wise. I own 2 rentals here and the Huntsville market has been pretty good.  But I've always wanted my investments to be location agnostic, so I want to get to the point where I can pick up rentals in any state as long as the numbers are good.  I've gotten a pretty good system down for buying rentals locally (use cash to buy, get a mortgage on them shortly after, rinse and repeat [plus a lot of little details, but that's the gist]), but I had a few questions for buying out of state rentals.

1. Mortgages - I have a very good relation with a banker here.  Should I try to use him, or is it best to find a mortgage broker that's in the city where I'm buying?  I know I could ask the banker guy, but that seemed to have a little conflict of interest there...

2. Property manager - what's the best way to find a property manager in another town?  One property I'm interested in is in Independence/Kansas City, MO if anyone knows someone good!

3. Closing - do I have to be physically present at closing, or is it possible to do it from afar?  How does the logistics of that work?

Any extra advice is greatly appreciated!  I know I probably look like a bit of a newbie on this, and honestly I am when it comes to out of state stuff...  So any help would be awesome!

Thanks!

Joel