All Forum Posts by: Christopher J Lemmon

I am a part time investor with a specified niche aporoach. I buy 1-4 units properties in Wyandotte County KS where I used to live. I know the community, rent rates, and housing prices. I turn them over to my Dad who still lives with 2 minutes of my target neighborhood and he manages them for an agreed upon percentage of the rents for total management. I am able to be out of town and hands off except for large repairs after the purchase. 

I want to buy more buy and hold duplexes, but I recently lost my W-2 job. I have cash set aside for reserves and a new down payment and I will maintain on my other rents until I pick up a new gig. 

I am curious what other investors have done in this kind of situation if they want to keep buying. 

I have 3 brothers who l could be partners on an investment. Teo live in a market with crazy high standard of living costs. So housing prices in KC sound like child’s play to them compared to where they live.

I need a partner to take out an investment property loan mortgage to do another duplex or triplex or fourplex since I don’t have the W-2 income to get another one right now. I see several deals I want to make a move on, but I am unsure how to fairly structure a deal. If one partner is putting his credit on the deal to make it fly with the bank but I put up some or most of the down payment, what’s a fair split on the rent profit at the end of the year? 

What’s credit worth? 

In short what should I offer if the other partner is just using his credit to make the deal with me? 75\25 split? 50/50 or 80/20? 

What does the seesaw look like? If I put up all the down payment, what should I cut them in for?

Also, I am the knowledgeable one in the family pricing the deal and showing them how we evaluate each potential investment, what’s that knowledge worth? 

Anyone else who has done partnerships have thoughts? 

I am only considering doing this with my immediate family as partners, my brother/brothers and Dad as manager since he is already managing all of my units. 

Thoughts? 

@Peter Sinclair -- That's a good question. Its not going to make any real different in this neighborhood. The values hold at about 85K-100K for a duplex. The septic would a large investment. But its not gonna change the value much at all.

If you think about it, the person living there really does not see the septic. They just want the plumbing to work. 

Its not like I am putting in a new 25K kitchen. So my opinion is that it would not increase the value much if at all. 

As an update, I decided to cancel this contract. Here is why: The property uses a septic system for sewage. I knew this going in, but I found out more about such systems from my inspector. The system was showing signs of age. The life expectance of septic systems according to my inspector is about 40-50 years. This duplex had an original system. The owner also owns another duplex across the street. That duplex's septic had just failed and he replaced it with unlicensed sloppy work. A previous buyer had backed out of a contract to buy both duplexes because of this. 

I choose to offer only on the one where the septic had not broken down yet, but it was old.

As a due diligence, I decided to call around and see what it would cost me to replace the old system should it break down like the one across the street. The plumbers I talked to informed me that I would need to install two new tanks to be up to current codes. The tank installation was from $13,500-16,000 per tank. So that would leave me with a repair bill of, $27,000-$32,000. I felt that any potential benefit or profit from buying the duplex was out weighed by the risk if when that septic system would need replacing. I might pull in $5000 a year in profit, on it, and I would be looking at a huge downside risk on the septic. I decided to cut my losses at the cost of the inspection, thank the inspector for his advice and time, and move on. 

What one company told me was on duplex’s you have to install two 1000 gallon tanks. The cost to replace one tank is $13,500, so $27,000 if when when the tank fails. For a duplex that only costs $83,000 and with rent at $575 x 2 = $1150 monthly I am leaning toward backing out of the contract. Seems like too great a risk if it were to fail.

Does any one have experience with septic tanks. I am under contract on a property with one. The owner also owns the duplex across the street too. He just had to replace the septic tank on that one, but he has not one the one I am under contract on.

I don't know much about them and want to know what I might be looking at if it goes bad and I have to replace or repair it?

Thanks for any comments or advice? 

Does anyone have experience with septic thanks? I am under contract on a duplex with one and I want to know how expensive repairing or replacing it might be?

Terra Firm Inspections Tim Trickel Google him since they Block posting contact info.

@Jordan Decuir — That’s a good point. I have make ready included in management costs. My manager does not get paid unless someone is paying rent in the unit. So he is motivated to clean and make the unit ready to fill it as he wants it filled as much as I do. Some management companies actually force more turnovers so they can charge makereadies, that’s a terrible deal for the investor. In all honesty, not everything hits every unit every year. 

@Bo Kim Thanks bro! Totally, I read a book on each. One investor recommended SFR the other recommended multi family only. I think generally duplexes are more bang for you buck, but there is a lot to consider. If you can pick up a SFR cheap it could be a real winner. In my market prices have edged up and so have mortgage rates, but there are still a few cash flowing deals left. Good luck on you first deal! And feel free to post questions about possible deals. I like commenting on other people's deals too.

@Bo Kim I did not use a turn key company. This deal was on the MLS. I have considered the trade offs of SFR vs. Duplex.

Here is my take on the trade offs. 

SFR — advantages, generally better appreciation, tenants do not fight, fewer things to "referee," tenants take more responsibility generally when they have control of the whole property. Tenants stay in SFR longer than in duplexes or apartments. There are a lot more to shop for, duplexes can be hard to find in some markets.

Disadvantages - more risk only one income stream when you go vacant, cap ex cost more because it’s not shared by two or more income streams, generally lower cash flow than a multi family. 

Duplex 2-4 unit 

Advantages - better cash flow, less stress for the owner, one tenant can pay the payment while you turn the other unit, gives more income streams, if you own 2 duplexes that is 4 units, if you own two SFR it's 2 units, if one is vacant and you loose half your income. With duplexes the risk with vacancy is spread over more units.

Disadvantages — low appreciation, tenants do get into conflict, more tenants expect you to pay for the snow to be cleared and the grass mowed. More likely for people to move out because they want more space or don’t like the noisy tenant next door. Harder to find duplexes, triplexes, and 4 plexes. 

I have 1 duplex and 1 fourplex right now. I am trying to buy a second duplex. I have priced SFR, but not bought one for investment yet.

Chris