These are all good questions. I be glad to answer them all.
1. You Asked: the seller didn't know how to determine the value of his property, and was ripping himself off;
1A He knows the value and is selling all his properties and rolling it into a 1031. But when you deal with these kind of properties not ever one can say I have the money to buy it and the bank is not willing to just hand over money they look at it if it making 0$ if you can afford to pay the bills due to the market now. Not to mention he is motivated and wants to retire out of state to somewhere down south. also keep in mind he still making a profit because when he bought them many years ago he still making money off them even if they are not to market price
2) You Asked: you had the ability to reduce expenses to a point where very few owners can; or
2A Right now it is in talk. Once he agrees to go down on the price then yes I will get the exp report. All units have their own meter but there is still the house meter and waste costs. that is unknown.
3) You Asked: the seller is extremely motivated for some reason and is willing to practically give away his property.
3A See answer 1A. It is in talks he has not agreed to the price yet however I been buys his other property so with that and the limited market odds are in favor of the seller. Also keep in mind he still making a profit because when he bought them many years ago he still making money off them even if they are not to market price
4.You Asked: I'm guessing it's none of these, and that you are actually being too conservative in your pro-forma estimates. First, if expenses are coming in at much less than 40% of gross income, that should be a red flag. And it looks like yours are coming in at less than 25%.
4A I don’t buy property that has expensive higher than 40%, I also go for property that where the renter pay their own water and power, if they don’t have the meter then it worth to have the meter put in because your play with a risky unknown if you don’t. Now the waste cost in water I don’t have yet that is why it was left at 0.
5 You Asked:- Is the 10% vacancy the total income loss? For example, if you have 10% vacancy, and 10% of your tenants don't pay (and have to be evicted), that's actually 20% loss. Too many buyers don't figure total loss when considering vacancy;
5A At this time it is fully rented, however I allow myself to set money aside for a 10% vacancy so when one does come open I am prepared for it. It has a great location and will be easy to fill.
6.You Asked:- $1000 per year in total maintenance seems *very* low. Does this include deferred maintenance and reserves for capital improvements (new roof in 10 years, HVAC replacements, etc)?
6A When I take over a property I bring everything up to good shape. If I think it cost me 25 k in repairs I double it. Since I doing all the work it become allot less. With that being said that is why I guessing low on Maint cost. If it wasn’t for that a Landlord should always figure repairs in as 6-7% of their income to keep the place in good shape.
7 You Asked:- Do you plan to spend any money on unit turn-over? What happens when someone moves out? Don't you need to get the carpets cleaned, the walls repainted, the bathroom scrubbed?
7A That is all me! Just my time to get that done. Why outsource when you can do it yourself. You can buy a professional carpet cleaner for around 5k. In the long run you will save money. I am also debating about putting purgo wood floors in some units. Yes the cost upfront is a bit more but it easy to clean and gives the apt more appeal to the renter. If a section goes bad 1.75 a sq ft. I still thinking this one over.
8 You Asked:- - Is the water sub-metered for this property? If not, you'll be paying for that.
8A Yes
9 You Asked:- - What about trash/sewage? Are your tenants paying that? Probably not, so you need to factor that in.
9A Yes you are correct I just don’t have that number yet.
10 You Asked:- Who is going to do the general upkeep of the property? Will you be picking up trash, mowing the lawn, landscaping, etc? It's not factored in, so either you're doing it or it needs to be free.
10A Once again that is all me. The investor I work with I do a 50/50 and part of that is me keeping the place up and maintaining it.
11 You Asked:- Are you going to advertise the property to find tenants? Or will they magically find you and come beating down your door? If you plan to advertise, there will be a cost associated.
11A HA your funny. Well once again that be me and since I already have all the EQP no need to buy new signs. I also set up a referral program for if a renter has a friend move in and is accepted they get 25$ worth of quarters for the Laundry room :) I know this may not work in all building but that how I do it on my other property and seems to work out well.
12 You Asked:- - $25/month in accounting fees seems low, but let's assume it's correct. I imagine this doesn't include tax consulting and tax preparation fees. Are you a tax professional or do you plan to hire one to help you keep some of this money?
12A It’s all about networking!!! I know a CPA that will do each of my properties for 300$ for 10 or less units.
13 You Asked:- Will you be consulting an attorney to handle any contractual or legal issues (evictions, leases, purchase agreement, etc)? If so, factor that in.
13A Once again it is about networking. You can do your own evictions thru the court house and depending where you are the cost may very ($50 or less) I never had to evict someone yet thank goodness but my lawyer told me how to file it. You can find Legal lease agreement's all over the web and customize it to what you want to say. My buddy that is a lawyer looks it over for 100$ makes whatever changes then I use the same lease over and over. The purchase agreements are usually straight forward. If there is allot legal talk in it that a red flag to me. Also your realtor sees more of these than a lawyer does. But my buddies will do it for 100$ He charges the avg Joe allot more and makes a mint!
14- You Asked:- The insurance estimate seems low to me...have you verified this yourself, or are you trusting the current owner's pro-forma?
14A this is still in talks so I took my other property figured out the % on that one and may a guess on this one. You are correct I am not 100% sure yet until I have a agreement with the seller to lower the price. Once that is done I have my INS guy go check it out.
15 You Asked:- Will you be doing the property management yourself, or hiring that out? If you're doing it yourself, do you have the time/energy/skills to do it successfully? What if you decide at some point in the future that you want to hire out the PM role...you should factor in those costs now, just in case.
15A It is all me, and for the things I not sure how to do I have good friends that been in the business for 40 years willing to teach me. Once again networking really does help!! I am a young buck and a hard worker. It my business and when you hire someone else to run it I am afraid they run it to the ground if you’re not careful. Plus I know all my renters and keep a good relation with all of them. This also helps build long term renters. This way they know you’re a working Joe and not some rich guy that they try to take advantage of.
