All Forum Posts by: Langdon Root

Good inputs, Steve.  Thank you.

Just spoke with a realtor in the town for the first time to see if my comps analysis is about right.  He told me a few things about the property that folks in this discussion thread may find interesting.  He had a friend that lived there a couple years ago.  He reported plumbing issues and some insect control problems (roaches...not uncommon for a house that rents to college students).  He also said he's aware the home does rent well and it has historically been a good money maker.  Factoring in the new roof/siding/windows the current owner already put in recently, he estimated this would be a "good deal" in the low-to-mid $60-65K range.  This is all taking place in Vincennes Indiana, BTW.  I have an appointment scheduled to walk through the house next week with a general contractor, HVAC specialist, and an electrician in tow.

What does my gut tell me?  The house will need some work and the low offer I make based on desired equity margins will be rejected.  Regardless, it gives me a good chance to meet a few key people in the area (also have appointments with a lender/realtor/and property manager) to continue building a network of people I can trust.  After all this, we may end up only purchasing a $35K turn-key duplex that is a lot less complex.  The education is phenomenal here!!  Trying to be patient and make my first "deal" a good one.

Langdon

Greg,

I'm not afraid to negotiate and I'm starting to formulate a plan around $55-60K for the offer, depending on how the walk-through an electrical work looks.  The impetus to the original question, is does the cash flow make it a good enough deal to pay the $80K asking price if she refuses to negotiate?  The seller isn't super motivated (as far as I can tell) and she has 30 years experience as a landlord.  Step 1 for me is to make an offer that makes me money at the signing table.  Step 2 is: how high can I effectively go in the negotiation and still have it make sense?  At what point does negative equity outweigh positive cash-flow?  It's a rhetorical question to some extent, but it's one I've been trying to wrap my brain around.  

If...If, I were to buy the place, the landlord said she'd ask the worst tenants (top floor) to move out as a condition of the sale.  Not sure if it's a month-month leaser or what, but that's what she said.  That would allow me a couple weeks to renovate the top floor before my son and a roommate move in (both attending college).  I wouldn't do any renovations to the middle or basement apartments until those tenants moved out at their leisure.  There are a lot of moving pieces to this thing.  I really want to dig into each one to make the numbers as accurate as possible before making an offer.  My gut tells me the offer will be too low and the owner will not take it.  In that case, I can chalk this up to a great first multi-family experience and carry the lessons moving forward.  Either way, I win!

Langdon

Lee,

Great advice and valuable insight from a "pro."  Thank you.  I don't want to pay utilities either and am interested in putting in two more meters if I do purchase it.  I've never done that before, so I don't know how to estimate it until I meet with a contractor.   I will walk through the house for the first time on 6 July and meet the tenants when I do.  I will do the walk-through with a general contractor so he can point out the things that need to be fixed right away to meet code (assuming it doesn't already).  How much does it cost to install a meter?  Do I have to have a separate furnace for each meter?  I'm sure this is a rudimentary question, but my minimal experience to this point has been with single family homes.  I'm told none of the current tenants are students at this time (young couples), but I'm sure students are always looking to rent there.  I don't intend to purchase the property if the wiring needs done unless the owner fixes it themselves before the purchase.  That way, anything found in the walls after pulling the sheet rock back is her responsibility to fix....either that or she makes it a much sweeter deal with a bigger profit margin.

Great to see another Hoosier on BP!  I'm 40 and intend to retire North of Indy in the next 5 years.  I'll keep in touch and treat you to a chicken fried steak someday:)

Langdon

John and David,

Really appreciate the interest and replies.  It's hard to fit all the details into a few small posts, so here are a few more.  The town is small, but the property is a few blocks away from a university.  There's also a major auto factory about 30 minutes away that make it likely the vacancy rate stays low for the property.  In addition, my mother and father live in the town and my oldest son is going to school there.  He has a roommate in mind and they will move into one of the apartments in the triplex.  So, my son will be "eyes on the ground" for a couple years and I will pay my dad (retired electrician and handyman) to manage the property.  I'm in the military and am never in one spot more than a couple years so I really don't ever have a "local area" where I can get smart and invest.  I already have homes in SC and Kansas, so I'm not afraid of dislocated properties.  They are both working out very well.  Getting perspectives from y'all has done a lot to help me see this deal from other angles.  I truly appreciate it.

Marko,

Great questions.  It's an old house (90 years) but the roof, siding, and windows were all replaced within the last 3 years.  The owner says the wiring will probably need to be redone in the near future, however.  I have an appointment to walk through the place on 6 July, but it's a tight window.  I live in Texas, am moving to D.C., and will only be in Indiana for a week to look at the place.  I'll have to get eyes on the place and talk to lenders within a couple days to see if this is a smart deal or not.    I intend to have a contractor and electrician walk through the place with me to give me a running estimate on the repairs they think will need to be done.  I should have enough info after that to decide what the offer would be.  I'm guessing the offer will be somewhere around $60K, but I'm trying to figure out how high I should go to capture the positive cash flow before it becomes a bad deal.  I suppose it's more art than science as to how much risk I'm willing to take.  

Not sure how much it would cost me to split the utilities.  I've never done it before and really have no idea if it's a hundreds or thousands expenditure.

Langdon

Good eye, David.

The current landlord is paying the gas, electric, and water bills at a tune of $550 each month.  The apartments are in an old Victorian home that has been split on three floors.  It's never been metered to track gas and electric per apartment.  There's definitely room to put that back on the tenants, but it would involve some upfront costs to set the building up for it.  No experience doing that, so I'm not sure what the cost to me would be before I could put it into effect.

Property tax isn't bad.  About $700 annually.

Langdon

I have an opportunity to buy a triplex in a small-ish town.  The owner is 80 years old and just wants to retire from landlord duties.  She owns it free and clear.  The list price is $80K, but after doing the comps in the local area for similar properties, it's value is $73K.  If you go buy the 10% discount rule in "Hold," then I should offer something close to $66K for the home.  I haven't walked through the place yet, but based on conversations with the owner it sounds like I'll need to make $10-15K in repairs.  After repairs, the property may be worth closer to $100K.  All that being said, all three units already have renters and the monthly gross income is $1800.  Using the BP rental calculator, I'd still cash flow about $400 a month if I bought the place for $80K and paid the repair costs out of pocket, effectively buying a "bad deal" by all intents and purposes.  So the questions:

Is it OK to buy a break-even or bad deal if the cash flow is so positive from the get go? 

Thank you for any and all inputs.  I'm fairly new to this. This would be my third property and first multi-home deal, so help me see myself BP family!!

Thank you.

Langdon

Belton is only 25 minutes up the road rowards I35.  A lot of Senior Enlisted and Officers choose the better schools and family environment in Belton over Killeen and surrounding areas.  I currently rent in Belton and it was very hard to find anything to rent...which tells me the rental market is strong.  Finding a good deal may be another challenge.  I'm about to move, but I kick myself for not buying when I first arrived 2 years ago.