All Forum Posts by: Keith McKenzie

Well, besides the tough tenant it is starting to look like a bad deal as well.  We had the inspection today which came up with 10 immediate concerns.  a number of them were issues I did not count for which tells me i did not evaluate it very well during the initial walk-throughs.  My next step is to go through the inspection report when I receive it later today and determine what I will send back to the seller.  I am sure it could be a good deal at the right price.  However, with numerous structure issues, electrical and heating issues, it may be a dead deal.  We shall see.  

Question:  when I submit it back to the seller would you typically ask the seller to take care of the larger issues, like structural issues, new furnaces and new electrical service or do you ask for a price reduction?  All the major items will need to be handled by licensed contractors or technicians so I do not see saving any money if I did a price reduction and handled it myself after closing.  I like to have control in most situations to ensure the right people are hired and the right solutions are implemented but I can see a benefit to asking the seller to deal with it.  Any thoughts?

Thanks for the replies.  This week will tell me a lot more about both the financing and the tenant.  

I should have added more about my walk through and first interaction with the tenant to give a little more info.  The unit was pretty rough. A lot of stuff in every room with some areas stacked pretty high with garbage bags.  Not sure what the bags contained but there were a lot.  There were cats, not sure how many, and you could smell them along with a strong smoke smell.  The tenant was pleasant when we spoke during the walk-through but it has been a different story when we tried to secure times for walk-throughs and for the inspection.   I am not sure if there are other reasons behind the issues but I hope to have some more time with her during the inspection.  

I am waiting for a response from a lender in Duluth regarding a 203k loan.  I hope to get a clear picture of my financing options in the next few days.  Any additional advice on how to proceed would be much appreciated.  I do want to have as little out of pocket money in this place once done but I do want to do a lot of the rehab myself.   

@John Woodrich, good points for reason to keep the tenant around.  I am hoping to see the lease today or tomorrow so I should be able to confirm some figures soon.  I still need to learn a little more about the Section 8 process though.

For the financing, I am currently working with a local bank on a 90/10 interest only construction loan. It makes me nervous to be honest, as the refi within 12 months will go to a 75/25. My goal was to leave the refi with no or very little cash in the place but I am not sure the ARV will hit the price point I am thinking. The only saving grace I have right now, for that plan anyway, is that I have a friend who is an appraiser in the area and has agreed to look at comps to get a good since of what the ARV will be.

Have you used the 203k loan or have any experience with it?  It was a consideration but this bank seems to be pushing their product and I have had a lot of good feedback from others in Duluth who have used it. 

Thanks @Dan Vleck, good points.  I guess she has been there for a number of years and the place is still standing so can't be that bad...  Thanks for reminding me what is important.  

And on your note about signing leases while on the market.  I just shake my head...I have had to cancel two deals on single family homes that I was going to live in while renovating because of the same issue.  

For the last year I have been searching for a small multi-family property to purchase so I can owner occupy one of the units...House hack it, as Brandon would say. I have been looking in some specific areas of Duluth, Minnesota, where I currently live and work. One triplex came on the market recently which I now have under contract. 

The question(s) I want pose here today is around the current tenant situation at the triplex and get some feedback on what to look for and how to proceed in due diligence. 

Currently two of the units are vacant in the property. One is gutted and needs about 10k worth of work and the other is nice enough for my daughter and I to move into right away. Pretty much the ideal situation in those two units.

The third unit has a long term (4+ years from what I understand) section 8 tenant paying lower than market rate rent with all utilities paid by the owner. I found out about the tenants section 8 status and current lease (which was just resigned on June 1) when I was touring the property.

So with the current tenant, is there anything I need to watch out for or dig into? To be honest I have a little bit of a negative view of section 8 just from what I have read and heard from others. I understand how it works but I am not sure I would want to owner occupy and be stuck with that for a year. I would assume that I could not renew when the lease is up next year based on income requirements, but I am not sure of the normal terms that go along with section 8.

Well, with all that, I appreciate any and all advice, feedback, questions, etc. Thanks!

@Rashad K. thanks for the suggested book.  I actually purchased that book on Monday and have been burning through it.  The resources that come with the book seem like they give me a great foundation to work from.  

@John Woodrich, yes great question on why Rochester.  I am from Rochester and have owned properties there over the past 12 years.  My brother-in-law is a commercial agent in the area and helped me put together a deal to sell my SF townhome to my current tenant and 1031 into the 4plex.  I would have exchanged to something in Duluth but the inventory in my price point at the time was minimal and, what was there, did not hit the numbers I was seeking.  Even with the PM costs, the numbers work for this 4plex.  At least so far...  I did just give the OK to install a new boiler in the place...Ouch!

My interest in self managing brings my brother-in-law into the picture.  He, along with another responsible member of my family in the area, will be my local contacts for the tenants and will handle the emergencies along with show the property when needed.  I am working through a few items to make sure I am legal in doing this before I actually make the jump.   I tend to head to Rochester at least once a month anyway to see family so it really hasn't added that much additional travel...  I am using the next few months to to judge the situation.  As I put together my management systems I will be able to ask myself how that would go in a good situation or a bad situation to see if this all makes sense.  If it does seem to be more than I originally planned for, I may stick with the local PM.  

Hello from good old Duluth Minnesota. My name is Keith McKenzie and I currently own a 4plex in Rochester Minnesota. Rochester is three hours south so I am using a local PM to handle the property for now. I plan to transition to manage it myself over the next few months but I have a few systems to get in place before that can happen. Besides learning about property management and how to do it correctly, I am also looking to purchase a multi family in Duluth for a house hacking adventure. I hope to continue my progression with additional purchases of small to medium sized multi family properties over the next five years until cash flow exceeds my current desk job. I do not have solid plans after that point but I am excited to learn about all the other avenues one could head down…

Well, I look forward to meeting other investors and property managers here on the forums and/or at local meet ups.