All Forum Posts by: Michael Andrews

@Mike H. You hit the nail on the head with the 2-4 bed units, they are priced so high and the potential rent is too low to make it profitable. I have nothing against SFR other than the units available on the MLS in my area are all incredibly expensive, and the market is really slow since I started looking four months ago. I would prefer the CapEx/maintenance benefits of MFR long term as I plan to buy and hold until retirement and beyond.

I have also not been looking at larger homes with 4-6 bedrooms as I was unsure if there is a demand for rentals with that many beds and costs above $1000 outside the student area (where those large homes are also priced astronomically high), but I will put some time into seeing if that demand exists.  Thanks for the tip!

@Todd Dexheimer Thanks for the breakdown, but let me be sure I understand your train of thought.  I would look at each one of those expenses separately and determine the number of months until replacement, then divide by that time to see the monthly cost per expense, then add 10% on top of each of them to account for the unforeseeable?  

For example the roof would cost $6000 to replace, and it needs to be replaced in 10 years (120 months), so the monthly cost would be $50, and add 10% on top of that to make $55 per month saved for the roof. 

And after all this is added up to a monthly cost this would be my CapEx budget, or would this be my maintenance + CapEx budget?

And it sounds like the best advice is to keep the maintenance costs included in my analysis even if I plan to do the work myself so I can see the true cost of the property.  

I recently found a property that showed great on paper, had great cashflow, and from the pictures looked great with new siding, a steel roof, new laminate flooring, and brand new furnaces for both units.  Upon visiting the property we find that the low resolution photos that made the interior look somewhat decent did the property no justice.  The floors were extremely unleveled and the new flooring was already coming apart, in one unit a previous landlord spray textured over every surface of the property including the thermostat/door knobs/trim, in both units the kitchen and bathrooms were falling apart and barely above usable condition, the staircase in one unit was obviously illegal it was so steep, and the walls/ceilings in both units were a mixture of poorly cobbled together panels, cracked lathe & plaster, suspended ceilings that should have been replaced a decade ago, and entire surfaces made from something I couldn't determine.  

Being brand new to REI it threw me into a tail spin as to whether this property was even worth continuing to look at, and what kind of rehab I would even want to attempt to bring the property up to "my standard", which I quickly realized I don't have fully defined.

So the question is, what qualities about a property's condition are a definitive must for you to continue with an evaluation (e.g. the floors must be level) or what is your "standard"?  How do you go about determining what features of the property to focus on repairing (and in what timeline)?  And how do you evaluate the cost of doing those repairs quickly and efficiently during the upfront analysis?

@Todd Dexheimer How are you getting a repair/maintenance number of 10% and a reserve of $250-300/month?  I have heard so many different perspectives on how to save for reserves my head is spinning, so if you don't mind qualifying your strategy I would really appreciate it.

My plan was to do my own maintenance as I've been subcontracting for a friend that past four years and have a ton of valuable experience helping him do odd jobs that translate well to rentals, so I am not sure how much I would need to save for maintenance in that scenario.  I am also curious how people look at capital expenditures and whether or not that budget is part of paying for maintenance replacement items, or just for big ticket items like roofs and furnaces.  

@James W. My goal is to buy and hold for the long term with retirement income in mind. I am currently employed full time with good W-2 wages, so my REI business goals are to invest in properties that I can do the maintenance on myself while hiring a property manager to handle tenant relations and day to day activities so I can focus on growing the business and my home life with the wife and kids. I figured most people do the PM themselves and hire out maintenance, so trading one for the other would be a fair way to divide the work without sacrificing too much cashflow (correct me if this assumption is incorrect).

Here is the analysis for this property taking into account it's a newer property built in 2002 with what appears to be a good roof/siding and solid mechanicals, 2.5% for vacancy, 38% for expenses/reserves (not shown), and a 5% CapEx savings rate with a $300,000 purchase price:

Hopefully I am running my numbers correctly, which is really my main concern at this point because most every deal I look at is pretty terrible for COC return and cashflow.

Did this REIG ever come to fruition?  Would love to meet you folks if you're still working together.

@James W. I haven't collected all the information yet as I was trying to just qualify whether to put my time and my agent's time into further qualifying this property. Can you elaborate on how you factor the repairs and CapEx costs into a deal? I have been using the 50% rule and subtracting 5% to 10% if the majority of the large CapEx items are new like a roof and HVAC are recently replaced.

I can tell you that I have been searching for four months and the market in Eau Claire is not buyer friendly whatsoever.  

@Joshua Davies I did run an analysis and if I were to pay $300k for this property at a 10% discount of list with a 43% reserve rate (expenses + CapEx savings) minus debt service the cash-on-cash return is 2.24% with a monthly cashflow of $130 per month. That's abysmal, and pretty much the norm for every multifamily that isn't a class C property that's run down and needing a ton of repair in my area. I was hoping to anchor my business with at least one good cash flowing property occupied by existing tenants that didn't require a complete rehab, but I am starting to see that our market just isn't going to produce quality properties at a reasonable price to make a profit.

@Logan Allec I mistyped, I actually meant to write gross rental income.

I've been looking for my first multifamily property and I found a fourplex that just popped up on the MLS at $330,000 getting a net rental income of $2500. Looking at the 1% rule the price is way over the rental income threshold of $250,000, so I'm wondering if there is anything redeeming about a property like this I could look at to even come close to validating that asking price?