All Forum Posts by: Michael Andrews

I am under contract on a 12 unit MFR and trying to more accurately estimate reserves for maintenance and capex. I am tentatively planning to buy-and-hold the property to build up the downpayment on the next property and continue growing until I have 50 units. Obviously this can change with new opportunities to trade up, so I am not sure if I should factor reserves based on a longer term approach or try to capitalize on income from a well maintained property to grow my portfolio.

The property is very well maintained and has 12 1-bed units, common halls (carpeted), and a common area (carpeted) with some seating and small kitchenette. Each unit has newer laminate wood flooring, newer water heaters, new vanity/sink-top, newer one-piece tub/shower surround, and older but immaculately kept appliances. The roof and gutters are brand new, the exterior is 90% brick in great shape, and 10% vinyl siding that looks brand new, there is a small parking lot, and the common areas are dated but in great shape. Unfortunately it is baseboard heat throughout (including common areas). All the tenants are 55+ years old and take exceptional care of their units. GRI is $5,785.00, purchase price is $412,000.

For reserves I am wondering if I should try to shoot for a certain dollar amount based on a percentage of rents, or based it off the value of the property?  Should I continuously set aside fund each month forever or maintain that fund at a certain dollar amount?  Or maybe some other method that I am not aware of?  

I have tried reading through the forums to get a consensus, but after doing so I feel like there is no consensus and everyone has a completely different approach and metric so I'm fairly confused as to which direction I should point myself.

@Andrew Johnson I won't really know if the asking price is vastly above market value for the property because I don't know the extent of the repairs needed yet, but based on basic number crunching it shows the rents are far too low to support the value the seller intends on extracting from the sale. Maybe I am just surprised at how many properties pop up in good condition with inflated prices and low rents I was looking to see if an investor could use CAP rates to push an offer, but it seems that's not a viable option for 4 units or less. I certainly don't want to look like a fool, which is why I asked the question in the first place, to get some education on how to approach a deal like this, so thanks for the answers.

@Amanda G. Love it, thanks for the great advice!  I actually found a lake front property doing exactly this a few years ago and contacted the owners to see if they were interested in selling.  Can't believe I didn't translate that thought process to acquiring rentals.

@Scott Schultz I have enough cash to purchase $400k - $450 of mortgage backed assets, so I'm primed and ready. I keep hearing I need to look for deals that aren't on the MLS but I haven't been able to discovery an alternative method for finding deals. I am focused on finding 4+ unit apartment buildings, so that limits my scope dramatically. If you have any good suggestions on where to look for deals off-market I would love to chat.

@Andrew Johnson Very interesting, I hadn't considered equity as a potential.  As a new investor I am looking for cashflow and cannot afford negative cashflow as I start out, so I figured I would tackle the seller with the numbers showing how this property is a terrible investment at anything higher than $100k.

@Jonathan Twombly I am going to tour the property today, so I will know more about it's condition and adjust my figures accordingly.  It is very eye opening as a new investor to see 99 in 100 listings priced so outrageously over priced it's laughable once you do the numbers.  Thanks for the advice, I will use all the tools available to educate the seller on the deal and hopefully get them down to a price that makes sense for an investor and not a sucker.  

I am looking at a 4 unit building that is severely hampered by low rents for the area, which is an indication the seller has not raised rents in many years. Each 2 bed / 1 bath unit has air conditioning and is a block from downtown, which should fetch $600-$650 per month, but the current rents are on average $415 per unit totaling $1,655.00 per month in GRI. After getting their profit/loss sheet the property shows an NOI of $591.

They want an astounding $189,000 for a property which would break even at around $100,000 with a 30 year 4.5% note. Assuming the seller accepts a $100,000 price, there are two units with leases coming up for renewal at the end of April, which could be bumped up to the proper rent and push this property into positive cashflow and show a 15% COC ROI. Once the other two units are renewed at the proper rent it would push COC ROI up to 30%.

If (and it probably won't happen) I can get the property for $100,000 showing the CAP rate only supports a purchase between $88,000 and $118,000, with break even cashflow at $100,000 is it worth it to wait two months for positive cashflow and up to year for the full potential of the property?

I am looking at purchasing my first rental property, however I was planning on using a conforming residential loan to get a fixed rate for 30 years to increase cash flow. I am wondering if the income from tenants and expenses/deductions on the property can flow through an LLC if it's not owned by the LLC?

@Ola Dantis Where would one start looking for creative off-market deals?  I'm just starting to develop a network, but I am really not sure what kind of professionals to engage with and what leg work I could even expect from them to help find deals.  

@Anthony Dooley Your method is so simple and efficient, I really like that.  My only question is how do you get to a 40% expense ratio?  Is that just your intuition or is that a standard metric you've generated from your own deals?  

Check out TenantCloud, it's much less expensive and has some nice features of the bigger cloud solutions.