All Forum Posts by: Matthew W.

@Jay Hinrichs I know, I thought the same thing. He manages and does the repairs for about 12 different properties for this owner.

@Jaysen Medhurst thanks for the notes. No lawns, but snow removal question is unknown. Property manager charges hourly rate, not flat %, but I used 10% for the analysis. If I bring CapEx up to 7.5%, I would have to acquire the property at ~$73,850k to hit 15% c/c return.

@Jonathan Emery I used this formula: Gross Operating Income - Operating Expenses - Debt Service = Cash flow

@Jason V. would you use 10% across the board (Prop mgmt/Repairs/CapEx)?

I'd be interested in attending too

Hello Everyone,

I want to get some opinions on this deal. It is for three units - a duplex and a SFR. I went and saw the properties this past Friday. Turns out they are all Section 8. Tenants pay gas/electric.

Duplex

1 BR on first floor. 2 bedroom on 2nd floor.

Listing Price: $96k

Closing Costs: (5%): $4800

Down (25%): $24k

Finance Assumption: 25 years @ 5% = $420.90/mo = $5050.86/yr

Income

Rents: $650 + $750 = $1400 = $16,800k/yr

Vacancy (10%): $1680/yr

Gross Operating Income: $15,120

Expenses

Property Tax: $2500/yr

Insurance: $526/yr

Property Mgmt (10%): $1512/yr

Repairs (6.5%): $1092/yr

Water: $400/yr

Garbage: $324/yr

Supplies/Misc: $300/yr

CapEx (5%): $840/yr

Total Operating Expenses: $7493/yr

NOI: $7627/yr

Cash Flow: $2576

ROI: 7.57%

C/C Return: 8.94%

SFR

3 Bedroom, 2 bath.

Listing Price: $60k

Closing Costs: (5%): $3000

Down (25%): $15k

Finance Assumption: 25 years @ 5% = $263.07/mo = $3156.79/yr

Income

Rents: $950 = $11,400k/yr

Vacancy (10%): $1140/yr

Gross Operating Income: $10,260

Expenses

Property Tax: $1942/yr

Insurance: $430/yr

Property Mgmt (10%): $1026/yr

Repairs (6.5%): $741/yr

Water: $400/yr

Garbage: $324/yr

Supplies/Misc: $300/yr

CapEx (5%): $570/yr

Total Operating Expenses: $5733/yr

NOI: $4527/yr

Cash Flow: $1370

ROI: 7.19%

C/C Return: 7.61%

I met with the property manager. He told me that the tenants of all three units have been there for about 5 years. He's almost never over at the properties - very quiet. Actually only charges an hourly rate, but I'm budgeting for 10% anyway.

When I saw the properties, it's pretty clear that the current residents don't care much for how they live. It seems to me like there will be work to be done if/when tenants move out. However, both properties passed the Housing Authority's inspection recently.

Honestly, the thought of Section 8 concerns me a bit. It was pretty sobering to see the units. One of them had bunk beds for kids - the sheets and mattresses were old and dirty. It was kind of a depressing experience to walk through them.

The currently owner is in his mid-80's, but told me he is "not distressed" - and he's happy to hold on to these "money makers" as he has for the past 30 years. Seems like he's indicating that his asking price is firm - though I think the prices are a bit high considering work that will have be done in the future.

Any advice on negotiating this would also be appreciated. 

Thanks!

There are a few more things you need to consider. What are property taxes on both of the properties?

Do you have money for a downpayment?

For your father's house, see if he would be willing to finance the loan. You can give him a downpayment (which he can use towards the purchase of his new place). If you put 20% down, and finance the rest at 5% for 15 years, your monthly payment to your father is $854.06. At the end of 15 years, you will have paid your father $180,730. (20% down + interest + principal)

That's just one option.

As for your mother, maybe you could do a similar thing, though I don't know the best way to structure it while she has a mortgage already. There are plenty of people on here way smarter who know better.

Hi Chrissy,

I'm in Rockland County too! I'd be interested in talking with you - I may be able to assist. Let me know.

Best,

Matt

Hey @Bryan Lawless. Sorry I didn't respond earlier - I didn't realize that I wasn't automatically following the thread.

Here is a great post by J Scott that can go into much better detail about all the costs he generally runs into, and things you may want to take into account.

https://www.biggerpockets.com/renewsblog/2010/03/1...

Yeah, that was the idea on penalty points. I think ultimately you want to have your contractor's financial interests completely in line with yours. If you make money, he makes money. 

As for how to write the agreement plan - I don't know exactly what the best way would be. I think the best insurance would be to make sure you buy correctly. Everyone here says you make your money when you buy, not when you sell - I would probably agree. But maybe there are different options you could also pursue: If it is 50/50 than he should reimburse you for any loss taken. Or a lower percentage split for no liability in case of a loss?

Wanted to give this a bump....anyone for Rockland / Northern NJ?

@Nick L., yeah that sucks. Damaged equipment is definitely a concern - can't say that it never happens.

CCI does the mag stripe system as well as credit card types. But it still may not be worth the upfront investment.