All Forum Posts by: Jordan T.

This probably won't help except as an interesting story.  I listened to a podcast today (Old Capital Lending podcast #1, I think) where an apartment buyer in a high crime area took all of the leases to the police department and had them run the social security numbers.  A couple of days later, the police blocked the exits and took away 15% of the tenants in handcuffs, solving a lot of his crime problem right away.  

In another complex, he had video cameras up throughout the complex, and when a large fight broke out in the parking lot, he evicted all the tenants involved in the fight.

Hey - the red flag right away is that the listing appears to confuse effective rents with net operating income.  It's easier to break it down on a per-unit basis...basically $100k per unit with rents of $947 per month.  

Using the 7% cap, it's saying about 38% of the rents go to pay expenses.  That may be accurate purely from a recent cash outflow perspective, but additionally you need to accrue an estimate for the lumpy vacancy, repair and capex expenses that are inevitable in the long run.  

Doesn't look like a good deal.

Well, I guess I should have asked you about that first!

Garner and southeast Raleigh should still be alright for cash flow, while western Wake is more for appreciation right now. Johnston County is growing really fast, might be good to look out there as well.

Hi @Doel Gonzalez, I used to live in Knightdale....the area is growing up so fast that there's no reason for you to look more than 30min away from where you live.  There aren't many screaming deals, but there are still decent values if you look hard.

Start by looking at hundreds or thousands of deals on the MLS....know what areas look like good values, drive around and get to know the neighborhoods. Bookmark the listings you like, see what they sell for. Learn the realtors that get a lot of the investment property listings. Get to the point where you have an intuitive idea for what deals look good, so that you can pass on the 99% of mediocre/crappy ones, and only investigate the attractive few.

You need to learn to value deals better than the realtors, because their incentive is to complete a transaction and move on, unless you have a demonstrated capacity to do several deals in the near future.

Consistent income is important, but you always need the working capital to keep you going in a worst case scenario.  Think about having to evict a tenant that missed a payment, paying the court costs to take care of that, replacing paint and carpet when the tenant moves out, and then taking a couple of months to get a new tenant in place.  Adding the mortgage costs in the interim, you're looking at a few thousand in costs.  What if that happened during a slow period in the e-commerce business?

Real estate is a wonderful business.  Step one is building the cushion to handle that adverse scenario, step two is getting that first property and building up additional savings through cash flow, and step three is to add properties and spread out those low percentage events so that you truly get consistent income.

Peter,

Fair value for duplexes and good income producers are two separate things.  Duplexes are valued on comp sales and not income generation, so if the rehab costs aren't too high you may be paying a fair market price, even if it doesn't cash flow very well.  It sounds like your duplex is in a good A or B+ class area, as the rents are decently high and you'd be paying up for the location.  

However, you are not buying the best investment for your money.  With vacancy and repairs included, you're likely to get a single-digit cash flow rate of return.  Do not assume appreciation in your calculation, as it's beyond your control and the 6% broker commission will eat a chunk of it.  Do include the principal paydown, though.  

In metro areas of NC, your solid cash flow investments are unlikely to be in areas where unit rents are $1k+ per month.

Thanks @Brandon Turner and @Gino Forte, I appreciate it.  I'll start catching up on those things this weekend.

Did you pull the trigger?  On your first deal, just make sure you're confident that you won't lose money...that the furnace/HVAC/roof won't cave in immediately, that you can get the other unit rented out quickly, that you can find a competent, aggressive property manager.

Also, while you're turning over that one unit, you might try to tenant proof it as much as possible...take out the garbage disposal, and someday when the carpet needs to be replaced, put in laminate floors. 

@Nadia White From what I've seen, that REIA seems to be the popular one to attend. I'll try to be a one of the next couple of meetings.

That's good to know @Nadia White. Once I understand how to evaluate deals better, I'll have to get on your list. Do you attend any of the local REIA's?

Thanks, @Dmitriy Fomichenko, I've already enjoyed reading many of the topics thus far.  I'll definitely start adding to the keyword alerts to make sure I get the updates.