All Forum Posts by: Karl Butenhoff

@Scott Painter Wondering what the outcome of this was? I am currently going through the same thing. The city is charging me the base $73/month service fee on all 8 units even though there is only a single meter on each 4 plex. Plus they charge metered usage on top of that. Thanks!

Hey @Michael Ablan I am currently dealing with the same issue. I have two 4 plexes in a really small town that I just bought and each one has a single water meter. The city currently charges $73/month base rate for water/sewer service plus usage. Since there are 8 units, they are multiplying that base $73/month by 8, even though there are only two water meters. This makes the water expense extremely high. What did you figure out in your situation? I’m not even sure what the city is doing is legal. Thanks!

@Erick Sembrano Small world! I went to the UofM for both undergrad and grad school. Good luck pursuing an elevation certificate!

@Erick Sembrano late to the thread here so maybe you already have this figured out, but just wanted to add my recent experience. I purchased a property along the Mississippi River in MN that the owner never had flood insurance on because they owned the property free and clear, however, there was an elevation certificate on file with the county. With the elevation certificate, we paid around $1000 per year on a $500,000 house, which I thought was reasonable. After moving into the house, I did some research and found that the elevation certificate had the primary structure high enough above the base flood elevation for our flood zone that we shouldn't need flood insurance. So I submitted the paperwork through FEMA for a LOMA and paid something like $100 and about 6 months later they granted the LOMA which removed our house from the flood zone so our bank no longer requires us to carry flood insurance. It was a very straight forward process and definitely worth the effort.

Just recently we purchased another house next door to ours, which is in the same flood zone, but did not have an elevation certificate on file. I shopped around for flood insurance and on average got quoted around $8000 per year for a $180,000 house. Obviously that was not going to pencil, so I had our county land surveyor survey the property for $250 in order to get an elevation certificate. After doing so, our flood insurance dropped to $600 per year.

Moral of the story, it is definitely worth your time and money to get an elevation certificate if you plan on holding the property long term, or even a few years based on your base elevations and the elevation of the structure in question. Hope this helps!

@John Woodington If the soil looks really dense and dark it could be more of a silty, mucky type soil with poor drainage, which means it won't be the most productive soil unless it has tile drainage installed (which definitely adds value). As far as a simple multiplier, no, farmland is typically valued based a productivity index which is related to soil types and past yield production history. If you know those things about your farm you can do a google search to find recent land sales in the area with similar soils/productivity to better value your property. As a general rule of thumb, decent farmland is going on average around $5-6000/acre.

As far as the hunting ground, I would do the same thing and look for recently sold non-buildable hunting ground around the area and see what it is going for. $2500-$3000/acre is ballpark, but that number could be higher if it's decent hunting ground within an hour drive from the cities. 

@John Woodington

I live in MN and work in the Agriculture industry. Here is a helpful link for you to get a good idea of what you should be getting for tillable acre rent. https://extension.umn.edu/farm...

The average per acre rental rate in those counties ranges from $200-225. The $3000 you are getting renting 40 acres puts you at $75/acre. You mentioned there is a river on the property, this could possibly mean that the crop land has sandy soil, which is less productive if not irrigated, and therefore could be driving your rental rates lower. Even with that said, $75/acre is very low.

Like Zach mentioned, ROI on farmland is quite low right now due mainly to low corn and soybean prices (which is most likely the crops your tenant is growing on your land). If you know what the average corn and soybean yields are for your land for the past 5 years, you can easily get an accurate rental estimate. Hope this helps!

@Zach Westerfield Thanks for breaking down your numbers. Based on your numbers I got a 43.5% expense ratio (4429/10190), which is right in the ballpark of what I was estimating as most likely, so that is good to see. 

For your contract services number, I would probably up that to around $200/month to be conservative. The property is in the upper midwest, so snow removal can add up. 

@Randall Weatherall Thanks for your insights. I am thinking along the same lines as you of trying to either get the price down so the numbers look better without just paying interest (since I would like to have principal pay down prior to the 10 year balloon if I happen to not see any appreciation) or go to the negotiating table and try get a better interest rate. But the last thing I want to do is buy something just for the sake of buying, so I will only pull the trigger if I can get better terms than laid out above. 

@Charles Large I couldn't agree more about marketing units. I have had really good luck getting well above market rent on my current units by staging them nicely and having professional looking pictures. If you have a lot of units with the same floor plan, staging can work very well to target a certain tenant demographic.

Thanks for the input!

@Zach Westerfield: Yes, $9570 per month. Acquisition costs should be minimal, around $5K max for lawyer to draw up the contract, title work, and an appraisal if I order one and they would come out of pocket so I should have accounted for that in my underwriting. I have cash on hand that I would hold as reserves. My strategy is a long term hold so that is my main concern if I do interest only payments and the property does not appreciate in 10 years when the balloon is due, however, the cash flow is not good doing the 30 year amortization. I will most likely have enough cash available to pay the down payment in 10 years if it doesn't appreciate, but that is not something I want to have to do. I always like to underwrite conservatively as well, but a 54% expense ratio seems high for this property giving its age and current condition as well as cost of local labor, but I definitely would rather overestimate. I just don't want my being too conservative to cause me to walk away from the deal without digging in and negotiating further. 

@Charles Large Thanks for your thoughts. I agree with your value-add sentiment for sure, I just haven't been able to come across a true value add opportunity that the owner wasn't wanting top dollar for. Inexpensive upgrades are exactly what this property would need to increase rents since most things have been upgraded in the past 5 years and self managing and doing a lot of the repairs and maintenance myself to keep expenses down is the main reason the numbers would look better on this deal. Without self management, the numbers start to look pretty tight which makes me nervous.

@Steve Morris Yes the owner's stated expenses are very low, that is why I ran scenarios with different expense ratios to try to account for everything that was missing.

@Ray Johnson I appreciate your insights. The units would not need any major updating, as they have all been updated within the past 2-5 years. The units are in the same, and some cases, better condition as other units nearby that are renting for 10-15% more. The main cap ex thing that I need more info on yet is the condition of the furnaces and A/C units because I am assuming most are original. Same thing goes for the laundry as well, as you mentioned. So that may be some leverage for me to get the price lower. The 1.2 million asking price was just what he threw out to start, I may be able to get him down to closer to 1.1 million.