All Forum Posts by: Michael Andrews

 @Anthony Dooley Everyone I have talked to locally has been pushing me away from class C properties with the assumption I should "own a property I would live in", which makes sense to a degree as higher quality tenants that maintain a property are looking for more upscale accommodations.  

In no way was I implying the tenants of these properties were bad people, simply that when I tour the property and talk to them there are extenuating circumstances and strange deals with the current landlord that have allowed them to modify the property and use it in undesirable ways.  One property I looked at had a woman renting both units and subletting the second unit to someone that wasn't on the lease and attempting updates that were damaging the property, however this tenant had a steady four year rental history with a month to month lease.  As a brand new investor this was a huge turn off, and I am finding these strange situations with every class C property I am looking at.  And looking for buy and hold properties I really don't know what the long term consequences of investing in these kinds of tenant oddities will do to my business and sanity.  In all of these cases the properties are current rentals owned by a landlord.

Sorry to hijack the thread about cashflow, but I am just looking for good advice on how to perceive these deals and whether or not there is a good threshold for what's an acceptable deal from a tenant and cashflow perspective, or whether I should solely be looking at the cashflow and just build a thick skin and deal with strange tenant situations.  

@Anthony Dooley Interesting, I haven't thought of CapEx as separate from expenses in the sense you are describing in my analysis considering the money will 100% need to be spent someday down the road.

I started researching properties about six months ago and I am now finding that the MLS is not going to deliver high cash flow unless the deal is a run down multifamily property in a class C area with questionable tenants. I am wondering how you are finding deals "well below market"? I would like to buy and hold long term, however I was attempting to find an existing rental with cashflow day one of purchase to anchor my business as opposed to finding a distressed property and spending three to six months rehabbing using a HML and refinancing with the hope and prayer that it will rent and produce income. The market is also incredibly slow in my area and not very buyer friendly, so I am at a loss as to whether I should bite into some of the C class properties with questionable tenants that have been sitting on the market forever that show decent cashflow, attempt to buy a foreclosure or run down MLS deal and rehab it with the BRRRR method hoping it will pay off, just wait for the market to pick up again and find better deals on the MLS, or an option D that I haven't thought of?

@Anthony Dooley when you say 40-50% of gross rents are you meaning NOI (Net rents - vacancy - expenses - reserves - CapEx) or do you mean cash flow (NOI - debt service)?

Looking to see if I calculated this correctly and if there is a good reason to continue looking at this property with what appears to be dismal cash flow.  

It's a high end condominium duplex built in 2008 listed at $329,000 with a fair market value of $308,200 and yearly taxes of $6951 (OUCH).  Assuming I get it for the fair market value with 20% down and continue with the leases that are both currently $1275 per month, my cashflow spreadsheet calculator shows almost zero or negative cashflow. 

My spreadsheet calculates expenses at $714 per month based on the monthly rents of $2550:

PITI is estimated at $1918. Total expense are $2632.42, which is -$82 per month cashflow. If I up the downpayment to 30% it produces a measly $75 per month in cashflow. Not sure if this property can support a higher rent or not, but that might be an option.

To me this looks like a crap deal, but I'm just starting out and I don't know if this is a long term investment worth pursuing. 

I am in the process of getting my real estate investment LLC off the ground and after meeting with an attorney and comparing costs to an online solution like Legal Zoom I am wondering if there is a benefit to one or the other. The attorney mentioned that she would draft the operating agreement to protect my initial investment from future marital disputes (currently single) as the funding for the startup is coming from an inheritance. She has advised me that if I were to get married some day down the road and potentially get divorced the capital invested in the business could be kept safe from the 50/50 marital property laws in Wisconsin if she drafts the operating agreement. To form the LLC with all applicable filings and an EIN she quoted me $800-$900.

I know I could use Legal Zoom or similar and get this done with boilerplate language for much less than this, so I am wondering if she has a point in trying to protect my investment down the road or if she's offering something overpriced and unnecessary.

@Jarrod Kohl - Yes I meant net profits after expenses, assuming I calculated them correctly and liberally.  I just applied through cix and immediately received an offer for $350,000 with 20% down, 2 points and 10% interest.  This seems pretty high to me, so I will start with my local credit union and work up from there.

Apologies for the confusion.  This is five separate properties, each of which has two rented apartments.

@Zachary Buffin - The 6% is coming from a local property management company that I would use as I have no desire to do it myself.  I would act as the maintenance and repair person.

As for the numbers, I got them from a biggerpockets article https://www.biggerpockets.com/renewsblog/2014/12/02/rental-property-expenses/.  The tenants in these properties pay all utilities, so that does not factor into my calculations for expenses.

After years of doing my own remodeling and hiring myself out and recently inheriting about $100,000, I have decided to dive into real estate to put both skills and money to good use.  

In my initial search I have found a package deal of five properties being sold by the existing property manager and owner. The properties have a track record of full tenancy for years going back, and the asking price for the five properties is $443,000, monthly rents are $5,745, totaling $68,940 per year. Assuming I put down 20% / $88,600 I would potentially be looking at a PITI of $2138 per month (according to various mortgage calculators), and factor in 6% / ~$350 property management fees per month, 5% / ~$290 savings for repairs per month, 8.3% / ~$475 for vacancy savings per month, and 7% / ~$400 CapEx savings per month I come up with about $3650 in expenses. This would give about $2095 in gross income per month.

My fear is that I won't qualify for a traditional mortgage considering it is a group of properties, so I imagine I would need to find an alternate funding source like cix.

My question, does this look like a good deal to go all in on for a first shot at becoming a real estate investor?