All Forum Posts by: Michael D.

To be clear, I have 12 units, but only 4 properties out of state.

Financing multi-family is do-able, but it'll be a commercial loan most likely. You can get 20% down with reasonable terms, but you need to make sure that you have great cash flow and present the deal in the right way. Setup a financial model for the property, show good estimates for all the expenses.

Managing property is a completely different activity from investing in real estate.

Property management is much less risky, but the profitability is more closely related to your level of effort.
Investing is riskier, but your income can grow faster than the time you need to put in.

Some people want to do both. Many prefer to only do one. Many more get the two confused and blurred. Don't do that.

I own twelve units in AL and PA that I've never seen, so I can give you advice from that perspective.

You need to look at things at two different levels:

Strategically - Is this general area one that is likely to see economic growth? Are people/commerce/industry moving in or out? What is the overall public sentiment? How business/tax friendly is the area? How one-dimensional is the economy?

Tactically - For each property you're looking at, make sure you're getting good non-biased input from your agent, inspector and property manager. Lots of photos, frank discussions, and open-ended questions will serve you well. Do a lot of due diligence to understand the micro market right around the property, including rents and common practices.

If you live in CA, owning LLCs is very expensive - about $75/mo each if you don't make any money - more if you do.

I've been down the LLC road, and now I regret it.

I'm no expert, but what I should have done is just hold my property in my own name and have good insurance including an umbrella. In fact, I still need that insurance anyway even though my property is in an LLC, so why bother?

Also, my accountant advises me that with single-member LLCs judges have been ignoring LLC protection occasionally anyway ("If the IRS treats it as a 'disregarded entity', the court will too").

I think LLCs make more sense when you have partners (other members).

Another thing I haven't seen discussed in this thread:

How will separate meters impact the resale value of the building?

Would you get the same thing by using a RUBS system?

Ken, where is your building?

I don't mean to hijack the thread from the OP, but I have similar issues.

Suppose that it costs me $20,000 to put separate meters in my 9-unit building. Let's also assume that I only improve my cash flow by $200/mo overall, since I have to reduce rents accordingly if I don't pay water. Rentals in the area (Pittsburgh) seem to be split as to how they are handled, but most older multi-families like mine have the landlord paying the water.

In that case, do you think that the value of the building will go up enough to justify doing the work? Are there any other advantages or disadvantages to consider?

Sidenote: In this area water is lien-able, so it's common practice for the landlord to put the water in his name and pay the bill, then add that amount to the rent for the tenant when the unit is individually metered.

Sidenote 2: "Water" actually means "Water, Garbage and Sewer" in my area, and seems to be highly subject to random extra fees and taxes that local politicians love.

I can see you're in PA. I recently purchased a 9-unit in Pittsburgh, so I know about those water bills. From what I can tell $75/mo PER UNIT is about right (water, garbage and sewer are all billed together).

I'm looking at the same options you are, and I'm not sure what the right answer is. I'd like to have separate meters if I can. I'm not sure my cash flow would improve enough to justify it, but I think the building would also go up in value which might be okay.

I asked my manager about pro-rating it, and they said I'm not allowed. I also don't think that would really help all that much. I'd have to lower the rent accordingly, and the tenants still wouldn't have much incentive to conserve.

Let me know how things work out for you.

Super, thanks for all the advice.

Unfortunately I purchased it 4 months ago and therefore had an appraisal done at that time.

In a sense, what they are asking for is probably fair - it's worth what I paid for it.

What I'm afraid of is that maybe everybody else with more time or connections is going to get to keep a large under-assessment, and I'll be the guy stuck supporting everybody else. Is that fear justified? Are people being able to keep their 1/4-1/3 valuations?

How do you folks go about categorizing income and expenses on your rentals?

Do you have categories and sub-categories?
Do you track plumbing, electrical, etc - or just "repairs?"
Is there a difference between "repairs" and "maintenance?"