All Forum Posts by: Joe P.

Hi all - I am about to embark on my first (true) rental property. I went under contract on an as-is duplex in Gloucester City, NJ at what I feel is about 10-15% below market value with the intent to buy and hold, renting out for cash flow.

I had an inspection done and I have some concerns from it. While its hard to get a sense from someone typing concerns, some of the findings include:

• Visible water in property basement on back wall
• First floor bathroom immediately above this back wall - it was an addition put on the property after it was built, and it seems like it may have either foundation or connectivity issues with the original house.
• Temporary Lally columns added in the basement and not secured with concrete footers -- the seller indicated the property was a laundromat and those were put in to help with the additional weight of the laundromat but the property has long since converted to residential.

• The boiler pressure regulators and backflow preventers are missing in the basement

I should mention I'm not that handy and items like this would be contractor-based, anyway. I'm just trying to decide if I walk away, or bring in my contractor to estimate repairs.

I think most properties in my area are older and they all come with problems. The lally columns and the bath bathroom concern me enough to walk away, but I'm curious what other buy and hold investors have encountered and what they stick through (or walk away from).

@Lana Lee no refusal - the seller is taking a job that requires him to travel and he didn't want to keep as many properties. My guess is he is selling the properties that are work for him or aren't performing as well as he would like. He mentioned he had a buyer who's financing fell through and it went back onto the market. There were also no pictures.

I'm the first person to be skeptical, so with an earnest money deposit that is refundable post an inspection, I think I am in good shape.

@John Leavelle I'm concerned about the 400 days as well, but the realtor never put any pictures up of the property. My realtor had to convince me to go see it - I'm glad she did. I suspect that drove down traffic with people thinking the same concerns; I almost canceled that day because I was concerned it would be a waste. Thankfully it was not. To answer your questions, the only thing that needs repair is a tub that needs reglazing, which current owner said he would do (and I would confirm). The asking was 109,900 and seller held firm at 102,900 (I came in at 95,000). Comps for the area are low, but there's a bit of room for profit at 102,900 - most 2-unit multi families come in around 110-115; I tried to buy a multi for 120 in this neighborhood that went for 126 and it was the nicer house on the block. Bottom unit is renter and the seller mentioned top will be rented as of May 1st. CFPD = cash flow per door, which ideally I'd like to be in the 100-150 range per month, at least.

@Account Closed

You know how this goes -- I found a property on the market for over 400+ days, no pictures, figured I would give it a shot and visit it. Sure enough, this appears to be a good option for an investment property. Here are the financials:

Conservative Financial View:

Sales Price: 102,900, 25% down (assuming 5.25% interest rate on 30 year fixed)

C Unit in C Neighborhood, increases in quality could improve rent by $100-$200 p/m, estimated.

Income:

• 2 units, total rent is $1750 per month / $21000 per year

Expenses:

• PITI: $891 per month (426 mortgage, 80 insurance, 345 taxes)
• PM: 10% / $175 per month (I will be managing for the foreseeable future)
• CapEx: 10% / $175 per month
• Maintenance: 8% / $140 per month
• Vacancy: 8% / $140 per month
• Water: Assumption is $100 per month
• All other expenses covered by tenants

The numbers

• CFPD of $84.50 per month / $1014per year
• CF of $129.00 per month / $1548 per year
• COCR of 6.57%

Value Add:

• Rents are low for this area -- rentometer, Craigslist, and 2 BR comps indicate 2 bedrooms should be in the 1000 to 1100 range per month.
• Increasing rent to even 950 per unit brings monthly income to $1900, COCR of 10.30%

I think my underwriting is conservative, and the expenses "saved" from PMing to start obviously add to the cash flow. At $1750, COCR is 13.37% without PM costs.

Any thoughts? I don't think its home run territory, but after seeing many properties over the past 4 months this seems like the best I can come up with.

@Rodney Reeves a separate account is fine, but it goes beyond that - you want to track those dollars. Its easy to see that in a year you spend $800 on maintenance from Home Depot, and called a plumber for $300 to fix a broken pipe, or had to replace freon in your AC unit for $200, or something along those lines. That allows you to project actual vs. expected and see where you need to adjust. 

You can accurately track utilities and adjust rent accordingly. Your tenants should be contributing to everything in a house hack, but you, as the owner and occupant, have a benefit to getting the lowest prices AND splitting those costs with others.

I would open a separate thread for house hacking and ask people what they do and don't do with their tenants, and that can help you develop a guidebook that you can refer to. Me personally, I operate well when I have a plan for 80-90% of the things that may come up. But do what works for you, but make sure you're treating this A) a business and B) a business asset that helps you meet your designed goal.

And finally, CONGRATULATIONS. I wish I had done this when I was looking for my first home, and if done correctly you can set yourself up with a producing asset that can help guide you along your overall real estate goals!

Good points, especially from @Nathan Platter, in this thread.

If you're in a major city you will most likely have at the least a business license and/or landlord license. In Philadelphia we have both of those and are renewed every year.

This brings me to my next point, which is track EVERYTHING. Track your expenses, track your income, anything related to this house hack -- it is now your business and you need to treat it as such. This isn't a "hey, you live here and give me money every month" scenario. You're doing this (I assume) to parlay all that money you save (or earn on top of PITI/Expenses/Capex) into your next real estate deal, so treat it like you aren't living there. Every dollar should be watched, managed, scrutinized, and evaluated.

Make sure you also (point #3) build a lease agreement with the incoming tenants. House hacking scares the hell out of me because what if you have a non-paying and/or hostile tenant? Now they have direct access to YOUR living quarters. PROPER and THOROUGH tenant screening should mitigate 99% of any issues, but the risk always exists - use professional means if needed. Spend money where you should spend money with the aim of a smooth house hacking experience.

I've been looking in the same areas as you. I've yet to find anything above COCR of 8% and have been looking very closely.

@Joe Norman I think you make some good points there. Sometimes in this age with everything right at our fingertips, we forget that hitting boots on the ground is sometimes the best way to get what you want. I'd love to get in touch with a wholesaler and I think I am part of a meetup group, I'm wondering if some of them may come out and speak with me. MLS deals don't seem like good deals. :)

I am working with a realtor but I think you're right -- they don't have experience sourcing deals for investors.

@Tevin E. Taylor I've been scouring Trulia/Zillow but I'd argue there isn't a deal to be had right now, based on my criteria, which is why I questioned my criteria. 

My niche would be properties that have been on the market for some time and perhaps need some light-moderate work to shine again. But really, any deal with good COCR is where I want to be. I want to fund this first purchase, to then fund the next one, and the next...

@Jackie P. no problem, understood. I used All-Star Electrical Services (PA030507), when my home inspection turned up incorrect breaker installation vis-a-vis the gauge wire. These guys were quick, fair, and easy to work with.

Here is their Yelp page (https://www.yelp.com/biz/all-star-electrical-servi...)

For something like this you may just need a repairman type. I use HoneyDo Home Services  and he does very good work. Matt's a super nice guy, very timely, gets the job done, and doesn't charge a full hour when its not a full hour of work. He can be tough to reach but he's installed and balanced fans for me in the past, along with a bunch of other odd jobs.

If you do decide to call him, I'd appreciate it if you'd tell him Joe Papp from 7th Street recommended him.