All Forum Posts by: Brent Rogers

I bought the property in January.  I immediately had problem with the heat in the HVAC.  I spent $2500 on a new furnace.  The property has two HVAC units that heat and cool the two sides of the house as it once was a duplex.  I used a company that is not the one recommended by my property mgmt company only because the other unit was installed by this company in 2014 and still under parts and labor warranty.  Big mistake.  I am now having A/C problems.  With both systems set on 72 one side cools to 72 and the other hits 80.  Given both systems are under complete warranty I called this company in to fix.  I traveled to the house and was present.  They charged me $140 for visit and diagnosis.  The repair guy walked in, looked at the return vent and said "there is your problem".  The return ducts were really dirty and needed duct cleaning.  I asked how much.  $800.  I said wow and are you sure this is the problem because I would hate to pay that kind of money and it not be the fix.  He said he was "absolutely sure" and never looked under the house.  Ducts were cleaned and it had zero impact. I called the repair guy.  Repair guy came back out.  I was not there this time as I am out of town owner.  I called him after he left from second visit.  He threw around a number of reasons why it might not be cooling but basically said the systems were running fine and he didn't know why it wasn't cooling.  He also denied ever telling me cleaning the ducts would fix the problem.  I called the owner.  He talked to the repair guy.  He called me back.  He sided with the repair guy and demands payment for the duct cleaning after I told him I am not paying.  He says he is putting a lien on my house.

A tenant was standing there when the repair guy told me he knew for sure this would fix it so I have a witness.  I told the owner I will see him in small claims court.

I do not want to go legal route unless I have to but what course is best:

1) pay the $800 and part ways even though my units are still under warranty

2) wait and see if he follows thru and then lawyer up

3) get a lawyer to send him a pre-emptive type of letter

4) something else

I hope to own more rentals but hope this is not indicative of things to come.

Like others on here I am finding the SF market to be tough right now.  I am a newbie who got started last year but have seen the deals dissapear quickly in 9 months.  I look in 4 - 5 cities within five hours of me.  My first deal is turning out to be awesome with almost 10k per year cash flow and 18% cash on cash return.  It is 3 hours away but I have great property management near a major state university.  However I have been unable to find anything close to this in 9 months of searching.  It is somewhat comforting to see the more experienced buy and hold investors having the same problem.  I want to remain disciplined and not buy just because I want another property.  I have precious cash to make a few deals but want to use it wisely.

Anyway here is the deal I am considering:

Home in historic and trendy area of mid sized southern city where I live.  House built in 1920 but seems to be in good shape and well maintained.  However the unique feature (and I don't know if this is a positive or negative) is it has two kitchens.  It once was a duplex (2BR / 1BA down and 2 BR/1.5 BA main level) with a kitchen on each level.  Each floor has seperate entrance but it's all on one HVAC / water and indoor stairs connecting.  It is currently used as a rental by previous owner who no longer wants to be a landlord.  It is not on market and is being sold by owner.  Verbal agreement on price at 140k with current rent at 1600/month.  Current tenants leave in a few months.  I think it will take about 5k in improvements to continue as a rental.  If I manage myself I think it wil cash flow well but not as strong as property one.  My biggest concern is the tenant profile for this place given the two kitchens.  It is near a small college and the area is popular with working millenials as well as college students and staff.  Renovated houses move quickly in this area if priced right and a handful of flippers seem to very active renovating the area.  Where I am going with this is I can't decide if I should look at this solely as a rental or consider the flip possibility.  If flipped I would remove one kitchen and upgrade the other making it more attractive to a family.  The bathrooms are already renovated.  If I flipped the math would be 140k purchase, 20-25k renovations, sell price around 200-210k.  I would also have realtor and holding costs of course.

My tprimary thinking is buy and hold as a rental.  If renting becomes tough down the road convert to single kitchen and sell as single family.

Opinions?

Thanks for the helpful responses.  Here is a little more info in response to your questions:

Why am I buying and what am I trying to achieve?  I had to retire early from corporate executive role due to health reasons.  I have a fair amount of capital in stocks and similar investments but feel like that investment train is slowing down and could possibly correct negatively so I am looking to diversify into real estate.  I enjoy real estate as well and "the property hunt" keeps me busy.  Bottom line is I have time and some money and I'm learning.  

I bought my first SF property a few months ago and would like to diversify another 150 - 200k from equities to real estate.  I am more interested in cash flow than future sale gains but a blend of both is acceptable.  I woud like to hold my properties 10 - 15 years unless circumstances changed.  

The first property I bought at this SEC university for 270k is a 5BR that currently rents for $2750/month and should provide 15-17% cash on cash returns not counting equity from future sale.  However I seem to have entered the game on the tail end of the good deals in this area.  Even my college property investor specialist is telling me I might want to look at other nearby tier one college towns that still have these opportunities.  Her firm also does property management for me at 7% which is very good  from what I have learned.

The apartment deal is actually 8 units and is being offered is as follows:

7 1BRs currently renting between $600-$700 

1 3BR renting for $1200

All pre-leased for 2015-2106 school year with rent roll total of $5750/month which is a $250 increase over current.

She feels rent could easily increase to $6150 - $6300.

Asking price is $713,000.

I feel like $625k is fair price but it does not sound like that will fly.  I think that should be my top end unless I am missing something.

The positives on this property are the location and the probability that it will stay 100% rented as everything walking distance to class stays rented unless you require a ridiculous rent.  There are a few newer and nicer 1BR places around campus going for $1,000 / month.  Leases are for one year even if students are only there for nine months.

Thoughts? 

My college town investor specialist agent is trying to convince me to move on a 12 unit deal near a major college university campus.  In fact it is prime location where kids can walk to class and restaurants.  It is 100% occupied and pre-leased for next year with some increases in rent.  She feels the units are somewhat under rented at current rates.  At the current proposed price the complex struggle to break even on a cash flow basis at best putting 20% down with a 20 year mortgage and 35% expense ratio.  This would require a 150k investment so the cash on cash return is pitiful in my mind.  Is this as awful as it seems to me?  I am new but interested in apartment complex investing but I would think it's all about cash flow that increases the longer you hold?  

In terms of the "one 1% rule" is anything below that something to walk away from without any further consideration?

Do what David said.  Interest rates are still so low.  You should be able to buy multiple properties with the 300k and get very favorable rates (assuming your credit and other underwriting criteria is in good shape).  Borrowing at 3 - 5% and getting returns at 10 - 15% is how money is made in most markets.  There are a few exceptions (like S.F.) where cash flow is tough and you make your money from appreciation.

I live in the south and it's all about finding cash flow and maximizing the difference between the borrowed rate and the return rate.  Any price appreciation is gravy.

I am in the Chattanooga area as well and also having trouble finding good deals.  I have bought one rental in a college town 3 hours away but cannot find anything in the Chattanooga area.  I look at the coveted North Shore area every day and there is nothing but flipped, high price small houses.  I did flip a home last year as a passive investor so my first year consists of one flip and one good purchase.

I do have some cash to invest if I can find a reasonable deal so if any of you locals have any ideas and want to talk let me know.  I have been reading a lot about apartment complexes and it has me interested.

seem to stink for real estate investors! I live in Georgia, grew up in SC and have been exploring the possibility of buying MF rentals near USC. However the property taxes seem to be outrageous for a "non owner occupied" home versus "owner occupied". I'm talking 4 times as much in some cases. If I understand it correctly the rate applied against total millage initially appears to be mildy different (4% vs. 6%). However owner occupants do not pay the additional school tax. Only non-owner occupants pay it. Additionally owner occupants get an exemption on the first 50k or 100k of value. So if you live there with kids your property taxes do not pay for schools? If you do not live there you pay for their chidren to go to school? This seems crazy.

Is this a SC thing or do other states discourage investors like this? I don't see how investors can make any money in SC.

I am struggling with the same question as the original poster.  I do have one 5 BR student rental SF under my belt should be very strong (just bought in January) with projected 17% Cash on Cash return albeit on a 30 year personal loan.  Walking distance to classes at SEC school.

However I am having trouble finding another one as deals are hard to find.  My "investor specialist" has been showing me MF deals around other major universities and some look very attractive.  I'm looking at a package deal now with all recently built units from multiple complexes.  10 units total.  All walking distance to campus.

I have the cash for 20% down payment but it would be all I could do for a while (maybe a long while).  I look at the cash on cash return and it is not a whole lot higher than my single 5BR house but that's apples to oranges I guess comparing a 30 year mortgage at 3.75% to a 20 year at 5.25% or whatever commercial is going for now.  However a $1.25M purchase is a whole lot different than a 275k purchase!  What kind of cash flow should one expect from a $1.25M multi-unit purchase with 20% down?  What kind of mortgage terms will I get (excellent credit) and where is the best places to look (somewhere local to the properties?)?

I feel like I am good with analyzing $$ but do not understand apartments/condos like the old buy/rehab/hold houses.  Almost everything I read says "the more under one roof the better" but is that really true?  Is MF with 20 year mortgages really more about future resale with smaller cash flow while SF with 30 year about current cash flow and less about future resale?

Thanks Judah, Michelle and Devan.

To answer the questions you posed:

The rents are a little low for the area and it is felt they could be raised.

This is one of only a few complexes that are walking distance to the university.  There does seem to be newer ones further out.  They also charge higher rents.

The 35-40% is meant to include everything except the mortgage P&I.  They have provided a 2014 statement showing 38% expenses.  I assume I could ask for the detail behind it to see what is missing.

All of the college property rentals in this area rent for 12 months even if the tenants are only there 9 months.  Having two kids recently do this and paying for 3 months wihtout them living in it is one thing that got me thinking about this as a good investment.  Some students are able to sublet to someone for 3 months but most (actually their parents) have to eat the 3 months.

I do understand what Michell is saying about college students being hard on a property.  My single unit rental is ia 5BR in a prime location at a very large university (UGA).  WHile I know the students can be hard on it I also know it will always always always be rented as you can walk to class and restaurants.  The properties requiring a bus hop or drive are not as certain to rent.  Also I do not expect to have to deal with late payments or evictions due to financial hardships as their parents are paying.

What I am hearing is this is an ok deal but nothing to turn cartwheels about.  I also received a bit of negative news as the GA lender I have established a good relationship with will not do a loan for me in SC.  I hate to have to go thru all that again and find a new lender.  Plus I worry about my credit falling further the more activity is pinged against it.  RIght now it is very strong.

I am considering another idea that could be used for this property or something similar. Are any of you familiar with Self Directed IRAs? I've read about them. I could turn my IRA into a SDRA and buy this place with cash. All of the income and expenses would have to flow thru the IRA and I could not pull any money out until I am 59 1/2 or later. I am almost 57. I need to run some financial models to compare leaving this money in stocks/bonds versus buying something like an apartment complex. Off the top of my head it sounds like it could be something to consider. I guess commercial rates are 5 - 5 1/2% and I would be saving the interest and closing costs from that. All of the net income would be moving into the IRA and I would not pay taxes on anything until withdrawn. I think the current cash on cash model is 7-8% net positive cash flow without factoring profit from future sale.

I think with a SDRA you cannot take depreciation on the property as it sort of becomes meaningless given nothing is being taxed until withdrawals after retirement. If the property is sold the proceeds must go into the IRA.

Sorry $7,600 is annual cash flow. 

I did grow up in that area but I've been away a long time so do not pretend to "know it". I have researched a little more in the past hour.  It is closer to campus than most complexes and backs up to Lake Hartwell.  I do not know if it has dock access and stuff.

It was built in the 80s.  I believe they were originally sold as sperate condos but now seem to be owned together as a complex.  All are accessible from the ground floor as no units are on top of each other.