Hi Everyone.
Thank you all so very much for our responses. They are all invaluably helpful. I am sorry that this is such a long response, but I wanted to address each of you. I read through all of the Massachusetts Landlord Tenant laws and after being a bit dismayed at some of them, I made sure that I understand what needs to be done, especially with the security deposits.
@Douglas Snook. Once I saw these responses, I contacted my agent and told her that I need to present the estoppel agreements for completion by the tenants. I will also let her know that the tenants as well as the current landlord need to sign and confirm the information contained in each.
I will also go through the leases and letters again for information about the security deposit and last month's rent. It looks like the current owners charged a cleaning fee as opposed to a security deposit, but I will confirm this. If just a cleaning fee, I will need to find out how that is handled with regard to the security deposit law. They may have done this to avoid the security deposit law altogether. I also did not see anything in the lease regarding a last month rent collected either. I will be sure to check on and confirm this information ASAP. I will include the requirement of the completion and receipt of the estoppel agreements in the P&S as well as confirmation of the existence of or the lack of security deposits/last month rents. I agree about my real estate agent. I do not believe that she is as experienced with investors as she had claimed (my fault for not checking further with references from her), but thankfully I have all of you, and this will end up being her first and only transaction done with me in the future. She has been helpful and kind, but definitely does not have the "investor" type information that I need.
@Clint E. I truly wish that my cash flow could be higher, but as I stated in an earlier post, there truly has not been one property in our area that even cash flows at all. Those very few that do cash flow at all are always way less than $100 per door. This was the best I found thus far. My area is highly priced, and this was a good price for what I am getting and where. Not a "deal", but the best I could find (condition, location, price) after months of looking and analyzing as well as the fact that I am not a cash buyer.
The numbers.
The tenants have separate utilities (meters, heating units) and pay for the heat and electric to their units.
The price is $382,000
Expenses:
Insurance: $1,000
Water/sewer: $1275
Electric: $658
Trash removal: $900
Landscaping/snow removal: $1450 (My husband and son-in-law are landscapers/plowers (and very talented general handymen), so this amount will not be close to this)
Real estate taxes: $3847
Vacancy rate: 8.3%
Maintenance and repairs: $1200
Advertising: $150
Administrative: $150
20% down payment: $76,400 with 5% interest rate - $305, 400 mortgage amount - mortgage payment $1641
Rents are: 3BR - $1325; 2BR - $1050 and 1BR - $975. All tenants have been there for at least two years (haven't been given any further information). In this area, once the leases end, the market rent is approx. $1650; 1400 and 1050.
With regard to raising the rents, I will not be able to do anything with these tenants or their rent amounts until the end of their current leases in Feb 2019, April 2019 and July 2019. Just have to wait for the leases to end (probably raise in manageable increments if the tenants are worth keeping). These units are all in good, clean, rentable condition (from what I saw during the walk-through)
I would love to find something with better cash flow, but I don't see that happening in our area unless it is something that will need a lot of work. I don't think I am ready for (if ever the renovation route).
Our area is selling very quickly. Multis are flying off the shelves, and this one had multiple offers on it a few hours after it was shown to us. I don't see an issue with my having to resell if the need arose.
If the inspector finds anything major, we will need to renegotiate or I will walk away. You are right, it is a tight cash flow if something major comes up. Although, I know and am prepared for the fact that anything can happen any time - inspection or not. I am hopeful that the inspector will do a good job and warn me of anything big or small coming soon or in need of immediate attention. I also have some cash reserve saved.
@Dan Smith Thank you for another helpful, great response. I told my real estate agent that I need to see the rent rolls. See above comment for the security deposit information. However, I will also be sure to get in writing from the seller the status of any security deposits (if any) and if there was a last month rent collected from any of the tenants. And, if so, I will also ask them to pay any interest due to the tenants per Massachusetts law, so that I am only collecting from the landlord the security deposit itself. However, as I wrote above, I saw in the letters that the landlord included with the leases that they collected a $300 cleaning fee and no mention of a security deposit. I will check on the laws regarding that fee to determine how that is legally treated, if at all.
Thank you all so much. If I missed anything in my responses to your awesome responses, forgive me. I didn't want to wait any long to respond to you, and it is quite late at night after a long day. I will be going over all of the information I have received from the current owner with a fine toothed comb again along with all of your information, so that I can list out everything I need to do in my next steps.
I could not do this without you all! I am deeply grateful for the caring and content included in these responses. I am not going to move forward with this if anything major comes up with the inspection that the owner will not renegotiate. I am not afraid to walk away. There are always others out there, but it may be a long time where I find cash flow like this in this area, unless I wait until some sort of down-turn in the future. Once these current leases end, I can raise the rents a bit. The market can definitely bare an increase on at least two of them. The cash flow will be better starting with the first lease's end in February and the next in April.
You are all wonderful. Thank you! - Liane :-)
@Clint E.