All Forum Posts by: Ken P.

What is the condition of the property?  In order to determine if $5k capex is a good number, you should have an understanding of the remaining life in the roofs, and how much replacement will cost, whether windows are needed during the time you'll own the buildings, HVAC life expectancy and replacement costs, etc.  Divide those costs up over the remaining number of years of life for those major systems, and then add a bit more because while you may want the heating system to fail at the end of its life, Murphy's Law says it will fail years before then, so you better start saving.

If you do go through the purchase, I would treat those capex dollars as spent dollars and put them aside in a separate account.  That way the money will be there when needed, and you won't be tempted by a large general bank account balance to spend money that should be allocated for major work.  When large multifamily deals are done, and when condo HOAs manage their money, banks and state governments require that the capex reserve accounts be real, separate accounts.

We've used both a 401k loan and a HELOC for RE investing financing. The interest rate on the 401k loan is 3%, so you are potentially taking a hit if your 401k portfolio is returning greater than that. In this past quarter my portfolio was DOWN almost 3%, so it actually was better to have the money out on loan! Overall though you will take a hit vs stock market returns, which hopefully will be more than offset by higher returns on your real estate investment.

My employer requires a 5 year payback of the loan, so my paycheck is ~$900 less per month ($50k + interest / 60 months) until the loan is paid off.  You need to be able to handle the drop in take home pay or have the cash flow returns from the real estate investment high enough to cover the 401k loan payment, or some combination of the two.  With single family rental investing you would typically need to have purchased 2 - 3 houses to have $900/mo cash flow to cover the loan.  In our case we used the loan as part of the down payment on a multifamily portfolio and after a year+ of intensive rehab and repositioning work were able to get free cash flow to cover the loan.  At the 5 year mark when the loan is done the extra $900/mo will be a nice reward for a lot of hard work and perseverance.  

I'm looking for a very trustworthy plumber in metro Detroit for regular work at an older apartment complex in the Dearborn area.  We keep supplies onsite in a storage area and need someone we can explicitly trust to give access to these supplies.  The plumber we've been using for years has been great, but is now ill and not able to work as regularly and timely as he once was.  We probably average one plumbing job every other week, from toilet replacements to unclogging drains to replacing garbage disposals.

A year+ on, how is this property performing?  Have you refinanced as planned?

We have 24 units; 2 SFRs and 22 apartment/condos.  The apartments are close to work and SFRs are close to home so the running around isn't too bad.  24 is right about the upper limit for number of units I feel comfortable self-managing while working a full-time+ job.  

The next step we're considering is buying a larger apartment building and then turning over management of everything to the apartment building PM.  

Where do you draw the line on maintenance? For example, if the toilet blocks up, your rental company handles the job.  But what if the toilet needs to be replaced? Surely your business model cannot handle the expense of replacing the toilet, let alone major repairs like  replacing a broken water heater. So where Is the savings to the landlord from not having to deal with maintenance? Answer, there is no savings.  

@Brian Adams, I'm glad it worked out so we participate as investors in this project.  We look forward to your updates as you renovate and reposition this property.  Best wishes.

Hey @Zack Gerson, welcome to BiggerPockets.  To provide meaningful feedback on your potential deal, please provide some additional information, including:

- rough location. For example, buying a $30k property with a $130k ARV in a great rental market like suburban Dallas has a completely different answer than buying a $30k property in a typical Detroit neighborhood, or Gary Indiana.

- assumptions behind your $1300/mo expenses.  What makes up that number?  For example, what is the amount you've set aside for insurance, property taxes (on which property value), for maintenance, for a capex fund, for common area utilities, etc?  That amount is a bit over 50% on a property that you're proposing to do $50k in rehab on, so that does seem reasonable assuming the you've got good numbers in the $1300/mo total, and that rehab addresses most major systems.  Which leads to the next question...

- assumptions behind the figure of $50k for rehab.  Is this a figure that comes from having had the renovations quoted by several contractors that you have experience with, or come recommended from other real estate investors?

- How are you financing the deal?  If the financing is right and you have almost no money of your own in the deal after you refinance, then you'd be in a decent position where you're sitting on found equity and earning $500/mo, for a great on-paper rate of return.  However, $500/mo isn't going to change most people's life and it is a lot of work managing 4 tenants to achieve that cash flow, so even with decent equity capture and $500/mo I wouldn't do this unless it was part of a larger plan to grow your portfolio and this somehow fits the plan.  Otherwise the reward just isn't worth the aggravation.  

It all depends on how active or passive you want to be, and the experience that you're bringing.  If you're light on the experience side, but are an accredited investor ($1M net worth or higher, or $200k / yr personal income), and want to be active in deals down the road, a good initial approach would be following @David Thompson's advice and participate in several apartment building syndication deals with your $500k.  In syndication deals minimum investments are typically $50k or $100k, so you'd be able to take part in a number of deals with a number of lead investors, which would afford you the opportunity to learn about all aspects of apartment investing over the 3 - 5 year term of the investments.  At the 3 - 5 year mark, your $500k would hopefully have grown to $750 - $800k, you'll have a good understanding of the financial and operational side of managing apartment deals if you were a diligent student, and you will have a network of mentors and potential investors to join you when you become the lead investor on your own project.

It doesn't tell you what actual rents are, but as an alternative to Zillow you can get a good idea of asking prices by going to www.rentometer.com and checking out their results for your area(s) of interest.