All Forum Posts by: Mariah Jeffery

Originally posted by Jon Klaus:

I believe unemployment in South Dakota is low and I assume vacancies are low too? Any trouble renting your homes?

No trouble at all. The longest it's taken to rent a home in 2010 is 3 weeks, but most were rented in 2 weeks or less. It's a great rental market and rents are up.

Originally posted by Jon Klaus:

Good job Mariah! These look like they fit the 2% rule. Are they in the Portland area?

Nope, they're in South Dakota where all of my other units are. I'd be lucky to find 1% in Portland! My father in law is a contractor and has a team that works cheaply to do our maintenance and rehabs, so we have him do it all. However, we happen to be visiting for the holidays now, so we're about to tile a floor in one of our rentals while we're here.

Originally posted by Curt Davis:

Mariah, do you pay all cash for these homes you have been purchasing or do you get conventional financing? Nice work!!

Nope, we put 20-20% down and we use either Fannie loans if no repairs are required or our local credit union if they are. We get 6.75%/15 years fixed through our local credit union. Not a great rate, but they'll finance anything for us as long as the price is under the tax assessed value, without even an appraisal.

I bought my first renal property in March '06. Despite the hot RE market, I found a motivated seller and still got a good deal. I was excited to buy more properties, but didn't find any that would give me an acceptable return in Sept. '09. At that time, I found a motivated seller who sold me 4 properties, one per month for the next 4 months. Then I found some properties on the MLS, made 8 very lowball offers (about 70% of asking), got them all rejected. A month or so later, my agent told me the sellers had reconsidered and decided to take my offer for $155K on a 5-plex with a tax-assessed value of $190K. Another month later, the seller of a single family home decided to take my offer. The last property I purchased was in March '10.

At this point I had bought 7 properties in 8 months. I thought I was on a roll and was hungry for more. But there was simply nothing good, or I got outbid. Investors started going crazy over REOs in this area and bid sometimes 20% over asking price. I put in at least 15 offers and all were rejected.

I became so discouraged that I talked to my husband about either a) giving up on RE and investing our available cash in the stock market or b) settling for a lesser return than we had in the past. He told me to give it 6 more months before doing either.

Last week, I noticed a package of 4 single families (2 four-bedrooms and 2 three-bedrooms) come on the market for $211K. The combined tax assessed value is $310K. Two of the homes were rented at $800 and $950, and the other two need work (carpet, paint, and shingles). The seller was having cash flow problems and wanted to sell ASAP.

I offered $184K, and the seller accepted without a counter. I was blown away. These units will bring in $3,500/month in rent and will cost only about $10K to rehab. They're in a very nice area of town (unlike all of my other rentals) and should bring good quality tenants. I'll have great cash flow and built in equity.

On top of that, the seller has two more homes not yet listed on the market. She's agreed to allow me to view the properties and make an offer before listing them. If I'm lucky, maybe I'll end up with all 6.

Lesson learned: patience and persistence pays off. Determine what your minimum return is and don't settle for anything less.

I have a closing scheduled for 12/31, since the seller is one of the lucky few who will be impacted by the long-term capital gains tax increase for those making over $200K.

I think it will be a pain to close this day. I'll have to report rental income for one day, and I'll have to pay property taxes for one day (it won't be taken care of by the title co. because we pay property taxes for the prior year).

Can I ask the title co. (assuming the seller agrees) to do the prorating of rents and taxes as of Jan. 1st, and if so, can I effectively leave this property off of my tax return for the year? Or will I have to include it due to the one day of depreciation?

Originally posted by Steve Babiak:

$7300 for 7 meters, plus separation of services - doesn't seem too out of line. Get a couple more estimates, and then do this - the pay-off happens in the long run, as everything in the buy-and-hold world is for longer term.

I'm very much on the fence about splitting the meters. The electric bill averaged $420/month the last time there were tenants there, so this is a huge cost to eat. However, about half of my tenants in other units are on Section 8. Section 8 figures the FMR based on all utilities included, and subtracts the expected utility cost from the rents they'll pay when some utilities are not included. In theory, I should get the same amount whether I pay the utilities or the tenants, with the exception being that they will be wasteful if they're not paying.

If I go the route of renting to Section 8 tenants, I think I may only save around $25/unit ($150 total) per month by splitting the electric (kind of a wild guess). This would be a B/E of $7,300/150 = 49, or a more than 4 year B/E period. This seems borderline to me.

I hadn't factored in that I would be able to sell it for more once it's done, so perhaps that would put it over the tipping point. I do like the idea of paying upfront to minimize unknown, reoccurring expenses.

I'm not sure what the issue is, but this property still hasn't been listed. I'm hearing any day now.

I did get an electrician in to give me a bid on splitting the electricity through 7 meters (6 for the units, one for the laundry room and hallways). His quote was $7,300. Ouch! I'm back to just planning on paying for all utilities and trying to think of ways to make the building more energy efficient. So far, all I've come up with are better windows.

Originally posted by Jeffrey Koenig:

Do you have it under contract yet?

Nope, there was a delay in listing it and I expect to see it on the market in about 2 weeks.

Originally posted by David Breitzmann:

Mariah,

A factor is also how much sand is left so to speak on the current tenant leases?

Hi David,

The property is currently vacant, so of course we'll have to factor in some immediate vacancy costs while we do some upgrades and get it leased. There is pretty high demand for one bedrooms, so I think we'll have it leased quickly once the work is done. It just makes it very difficult to estimate rents and therefore, determine what the property is worth.

Originally posted by Ron Nawrocki:

re: Financing
All the financing we provide is variable and most borrowers don't mind after we discuss:

Out of curiosity, what rates and terms would you offer for something like this?

Originally posted by Ron Nawrocki:

3. with interest rates rising, the property value is also rising

How do you figure this? If I'm looking to buy an income property, the higher the interest rate, the lower the price I need to get an acceptable cash flow, so I would be willing to pay less as interest rates rise. Is my logic wrong?