Hi Jason,
I am not nearly as experienced as many on BP. I have only owned a few buildings, including two multi -units, one was in Portland that I sold right before the 2008 crash. So I know the peninsula fairly well. So I'm going to be the Debbie Downer here, because I'm an older, cynical woman with more than a few tenant/contractor stories in the Portland area.
To start with, here are a few questions - because I'm not sure of your strategy. What is your intention in buying the building?
Are you planning on a buy and hold? If so, what do your numbers look like now considering financing and expenses (more on that below). What will your numbers look like over time? Are you anticipating rent increases? Expense increases? Will this building make you money or cost you money?
Are you going to live in and renovate? If so, do you like the neighborhood? Do you like renovating? Do you like living in an apartment while you are renovating? Do you like living in an apartment while renovating surrounded by tenants? (I actually did this in Portland, and liked it, but it's not for everyone)
Are you planning on selling in a few years because you are hoping it will increase in value and/or you will make it more valuable through improvements? If so, will the neighborhood support his? I don't know exactly the area of the building, but if it's near Maine Med, but I would not count on appreciation. It's definitely improved over the past 10 years, but this is likely the peak of the market.
Other questions:
Are these 1 BR refurbished units renting at 850, or are they older 2-3 BR units renting at 850? If you haven't been in the building, and laid eyes on the tenants - do so. Stable tenants may mean "tenants-who-won't-leave-cause-no-one-else-will-rent-to-them", or great tenants.
Okay, moving from questions to advice:
Even if you are planning on self-managing, put in the budget whatever you would pay a property manager (8 % rent costs, possibly 10% in Portland). DO NOT LEAVE THESE NUMBERS OUT. Trust me - I have self-managed for 2 years, while I did major renovations/repairs on a big multi. I am about to sign off to a property management company for my building as of July 1st. Whenever I think of this, a smile breaks out on my face, because it feels like I will be taking a major vacation for the rest of my life now that I'm not longer on call for repairs/dealing with bookkeeping/dealing with tenants. And I thank myself daily for only buying this building with those property management costs factored in, so now I'm ready to let go, the building will still make me a profit.
Plowing - and sidewalk shoveling. Not sure if the building has parking (and if it does have -parking that is a plus. If it doesn't, it will keep the rents lower. Portland requires landlords to clear the sidewalks in front of their buildings. That means you either: 1) do it yourself, which is really a fun time, 2) pay/beg a tenant to do it, 3) contract it out - which may be tough, especially if you don't have parking that will be plowed out by said contractor, or 4) ignore it until the city fines you/tenants/neighbors complain.
Put in money for repair expenses - DO NOT ASSUME that they won't be needed. Numbers I've used for old buildings are 10% rental income for repairs, and 5% of rental income for cap expenses. It's great that a lot has been done - but old building/steam heat/old pipes means plumbing work eventually. How's the Electrical? Old building. Stuff happens. Windows? Porches? Foundation? Do not let yourself walk into anything without planning for stuff that is unexpected, especially in an older building. Repairs are tougher, because the old buildings aren't constructed typically/have plaster lathe/weird plumbing runs. Repairs will be more expensive because they take more time. Another challenge in Portland is that finding good contractors/repair folks in the middle of the development boom means that you, as a single property owner, are not a priority and it can be hard to find folks to do smaller repairs/quick fixes. If you do buy the building, get the name of every repair person the seller has had work on the building so that you have a number to call. Then immediately start collecting recommendations from other landlords for additional plumbers/electricians/handymen/painters from , because they are tough to find, and the good ones won't be cheap, and they won't be available quickly. Avoid the bad ones at all cost. Don't do a deal without a great and thorough property inspection. It's fine if it needs stuff - but you need that list of what it is.
Do not run numbers assuming every unit will be filled every month. Deduct 10% of income per year... turnover time between tenants, evictions, apartment renovations...
So... by adding in funds for potential repairs, cap ex, property management...these numbers do not scream "BUY THIS" at me.
My philosophy- and others may disagree - is that with older buildings at high New England Prices, considering the costs of repairs, taxes, etc, that a building better be able to pull in a lot of cash to make sense for a buy and hold. After running numbers for about 50 buildings through spread sheets during my search, the only ones that made any sense in cities in Southern Maine were buildings with 4 units, that pulled in a boatload of rent - usually due to their size (3 BRs).
If you haven't been running numbers already, it's a great exercise in spotting deals. It takes a while to develop an eye, and you need to target locations - so that you can compare rental income/costs to buildings in the same market. BP folks were very generous sharing their spreadsheets, and other advice, with me.
Good luck!
Tammy
