All Forum Posts by: Keith B.

You can independently verify the rents on Rentometer if you would like. Try to find as close a comp as possible on one of your units. A local agent can be great for rental rates, but the agent you are buying from is biased to sell you something. For my clients, I always send them the source of my information so they don't have to take my word for it. 

It is interesting, and unusual in my market, that they are all empty. Hopefully there is a good explanation for that and it's not that they couldn't find tenants. 

If you are under contract, you should be able to get the past leases, rent roll, and utility bills now. I would be curious how recently the units were rented and for how much, compared to your target. Theoretical market rent and tenants actively paying rent are two very different things.

Your upfront costs are going to be substantially higher with no tenants. You need to factor for advertising, lease signing, background/credit checks, etc. If you are going to manage it yourself, plan on time for interviewing tenants and doing walkthroughs. 

If you are going to rehab the property before you lease it, you need to plan on carrying costs for the time it takes you to rehab. Normally, I would recommend rehabbing units as the leases expire, but you won't have that luxury. You may want to consider getting at least some tenants as quickly as possible so you don't get buried in rehab costs and carrying costs simultaneously. 

Regarding the calculations, I guess my point was that you should shift from running numbers hypothetically for calculation purposes and start using real numbers so you can see what you are getting into. I have clients that have a hard time making this switch. As investors doing research, we spend so much time running hypothetical numbers that it can be hard to realize we have real numbers that we can use. At this point, you want the cold, hard truth. 

Right now, you don't have any cashflow. 

I think $1,000/month cashflow on a $600k unit could be great, but you have a long way to go to get there. Right now you are walking into a 100% net monthly loss. 

I'm not trying to scare you, it could be a great deal, just know what you are walking into. Your cap rate and cash-on-cash return are currently negative, until you get three tenants and start collecting some rents

Congratulations on your investment! So many people never take that first step toward actually buying an investment. That's the scariest and hardest part. Well done. 

These are a few things that struck me when I read your post:

While it's good to be careful and analytical when running your numbers, the specific details you gave above regarding cap rate, etc. aren't accurate. I'm glad you are analyzing them and becoming familiar with how one factor impacts another, but at this point you need to start using the actual, hard numbers. 

Get a copy of the rent rolls and leases. Plug into the calculator what people are actually paying. Get a copy of the utility bills and other expenses and plug in what you are actually going to pay. 

If you are going to live in it, you need to throw out the rent for one unit. Do all of your calculations with the actual rent for the other three units. Are they all currently occupied with some significant time left on the lease (6+ months)? If so, that makes life easier in terms of predicting cashflow. Make sure you spend time carefully reading the leases for the other units. Have your property manager help. 

Get a handle on your rehab costs. If you are using the BP Cashflow Calculator, you want to put as accurate a number as possible in the "estimated repair cost" category. You need to spend some time with your inspectors and contractors to find out what the property needs on day one. 

If you are going to back out of the contract, it will be for something they find in the inspections. Go over the place with a fine-tooth comb. They will definitely find problems on the property, but not everything is a deal killer. You just want to know what you are getting into. Also consider how you are going to repair occupied units, if necessary.

Finally, it's not necessarily bad to pay asking price. Some of my best deals have been for asking price, and some of my worst have been for less than asking price. The question is if the deal itself makes sense. You have no control over what someone chose to list it for. 

I hope this helps! It's tough to switch gears from analyzing a theoretical property to actually writing a prospectus for a real investment. Let me know if there are any other questions I can help with and good luck!