All Forum Posts by: Michael Brunner

Thank you everyone for your input!

I think I will look for another deal, as the property does seem to be priced pretty high. Also, I noticed the property has been priced the same for more than 1.5 years, so evidently the seller is not be that motivated.

Thanks to those of you suggesting Milwaukee. While I don't know anything about the neighborhoods, I'll poke around BP and online to try to find more information and take a look there, since it's not too bad of a drive from Madison.

For anyone curious, here is the realtor's response when I pointed out the expenses seemed very low and asked for a schedule E or tax return.

"The seller mentioned they don’t want to provide any personal info regarding their taxes.

Utility Expense includes electric to common areas and water to the 4-unit.

Yes the trash removal number is the quarterly number split In 1/3. The also did mention some of the numbers are lower because one of the tenants takes care of some maintenance/landscaping etc items"

Thanks,

Mike

Hello,

I'm looking for some guidance analyzing my first greater than 4 unit deal.

The property is listed slightly under 900k. On the same property, there is a brick 4 unit and 2 separate duplexes for 8 units total included in the deal.

Below is the P&L the realtor just sent me, along with the rent roll.

To me, right off the bat it seems like they are really low balling the expense side of things (not taking out for vacancy (though they claim vacancy is never more than 1 month, so should we remove 8%?) or capital expenditures, etc.), so I'm not sure how much I trust their $62,8xx yearly profit projection. However, using the 50% rule and checking out some online commercial loan calculators, I believe the deal could work, depending on what kind of interest rate I can get.

Please correct me if I'm wrong. Most banks would require 20%+ down (~$180,000) on an 8 unit property, right? While I don't quite have the down payment amount saved up right now, I'm hoping to team up with my family (1 aunt and 1 uncle, they both own rentals) in some kind of joint venture deal where they bring a larger percentage of the down payment funds to the table as silent partners and I manage the logistics of the deal. Has anybody done this with family before? If so, would you recommend it?

Assuming the family deal falls through, what kind of alternative financing would you recommend I look into?

Finally, do people also use the 1% deal for more than 4 unit properties? If so, it fails that test.

"Expense/Net Sheet

Monthly Income $7,070.00

Monthly Expense 

Utility $190.00
Lawn Care/Snow Removal $25.00
Trash Removal $67.00
Advertising $0.00 Craigslist and signage in yard
Insurance $235.00
Odd/End Repairs $75.00
Total $592.00

Yearly Annual Income $84,840.00
Yearly Annual Expense $7,104.00

Property 2014 Taxes $14,844.46

Yearly Profit $62,891.54

Unit Bedroom Bath Stove Fridge Dishwasher Microwave Washer Dryer

409 #1 2 1 Y Y N N N N Y 2008 2001 2002

409 #2 2 1 Y Y N N N N Y 2008 2001 2002

409 #3 2 1 Y Y N N N N Y 2008 2001 2002

409 #4 2 1 Y Y N N N N Y 2008 2001 2002

401 3 2 Y Y Y N Y Y N 1997 1997 1997

403 3 2 Y Y Y Y Y Y N 1997 1997 1997

405 3 2 Y Y Y Y Y Y N 1997 1997 1997

407 3 2 Y Y Y N Y Y N 1997 1997 1997

Garage and Common Area Electric is paid for by Landlord *I assume this is the $190 / month utility figure listed in the monthly expenses.*

$208/quarter for dumpster *I'm not sure if trash collection is this or if we have to add another $70 per month for the dumpster.*

Fence was put up in 1997"

Thanks,

Mike

@Tanya F. - thank you for your input. I like your business of Green rentals. I think it's on the cutting edge and maybe you command slightly higher rents because the tenants appreciate that concept.

Sorry to hear your unit developed a leak, but that's a great idea on how to monitor usage and catch a leak!

All of my additional analysis seems to point to sell, unless I want to take on a (likely) negative cash flow for appreciation play. I have PM'd you to discuss further.

I think I'll start looking for duplexes either in Madison or in Janesville instead. I really like the idea of two flows of rental income covering one mortgage.

@Dawn Anastasi - thanks for that idea. I do like it. That way I can make sure the bill is paid each month and then just issue a small refund if need be. Also, 5,000 posts is pretty impressive!!!

@Paul Haviland - I really appreciate your advice! I'll PM you my contact information. I wouldn't mind picking your brain more via phone and/or buying you lunch.

That's a great idea to get a new appraisal done. I'll look into that regardless of what I decide.

Ran some numbers, and I think my house will almost certainly be cash flow negative, which I know we don't want...but, as you said, selling is very expensive. If my house is only marginally cash flow negative, say $200-300 per month, does it ever make sense to try to build up a little more equity before I sell / try to ride the market higher? Though I suppose that would just be kicking the can down the road, since I'll have to pay a real estate agent unless I try the FSBO route.

I think I would get $18-$20k out (If I get the price I think I can in this hot market). So I guess I'll see what's selling for about $85-100k in our area and Janesville -- where I know prices are cheaper judging from the large house my brother just bought there! -- and run some numbers to see what kind of cashflows I can get. Some out of state investing I've read about on BP - like Ohio -- also seems appealing and inexpensive. I'm just a little concerned owning property out of state, at least on my first deal(s), for a myriad of reasons.

I'm also not sure if the renter typically pays electricity or the owner. I think when I was renting a few years ago I paid MG&E directly. Is that the norm for your properties?

@Dave Foster - I really appreciate your perspective! My parents were basically the kings of doing this while I was growing up; they would move every 3 years to take advantage.

I like the idea of only holding for 2-3 years and then being able to sell tax free. I'll strongly consider this route! Thanks for the idea.

I've heard a lot about 1031 exchanges, but not exactly sure what it is. I'll do some more research.

Hello,

I apologize if I'm posting in the wrong spot. 

My name is Mike. I'm 27 from Madison and new to REI. I see a lot of long term potential and I hope to start soon!

I've owned a home for about 2 years in Madison. It has a nice, low 3.5% rate, but it does have PMI at roughly $225 per month. I'm considering keeping this home when we move into a larger home in the next year.

Has anybody else converted their old primary residence to a rental? Or do most people keep their personal homes separate from investments by just selling when they move?

Should I get rid of PMI (by putting ~$25k into the loan)? Or just leave it.

My payment (including prop tax and PMI) is about $1,525. One rental company I contacted said he thought I could rent the house for $1,700. My uncle (30 years experience on the banking side) thought $1,500 on the low end and $2,000 on the high end.

Is it customary in Wisconsin for the renter to pay electricity and water? If not, there doesn't seem to be much room for cash flow.

Thanks,

Mike