All Forum Posts by: Wesley W.

@Nicole H.

Net cash flow with both units rented is, conservatively, $250 positive monthly. It might be a challenge using a PM for this property (we self manage at home) but we could do it and probably would (built into pro forma) and in our long term plans of moving south we would be turning our entire portfolio over to a PM or selling it, which is also an exit strategy here.

The tenant base would be non-traditional graduate students, or white collar commuters to two nearby MSAs (the property is a tenth of a mile from the Interstate).

@James W.

I did not include that.  However, if we sell (see above) there would be recapture.  If we held, it would be an extra tax shield as you mentioned.  I also neglected to account for the tax deductions on 50% of the expenses as well.

So, the purchase is looking better given those factors, but I guess what I am attempting to answer myself (with your help!) is it good enough to be worth it given our mid and long term plans?

Thanks for your continued feedback!

Hello all,

I've got a bit of a financial puzzle I'd like some input on.

My wife is going away to school for 3 years, so she will need housing during that time. As budding buy and hold investors, we thought this might be a great opportunity to add to our portfolio and get some tax deductions to boot. I'm distilling this problem down to two choices based on actual numbers I have gleaned. My pro forma is pretty conservative, so I'm pretty sure we can hit the mark.

I did not account for rental increases in either scenario, as I assumed they would be at the same rate given both options would occur in the same market. I used 10% management, 10% repairs, 3.5% cap ex, 10% vacancy. I also did not add in any ancillary expenses (e.g. Cable) since they would be the same in either scenario. The property is not in a market that will appreciate much over this time period. I tried to make this as “apples to apples” as possible.

OPTION A: Wife rents an apartment

Rent & utilities: $800/mo.

Housing expenses after 3 years: $28,800

NET EXPENSES AFTER 3 YEARS: $28,800

OPTION B: Buy duplex, wife lives in one side

NOE when renting out one side: $465/mo.

Housing expenses after 3 years: $16750

Initial down payment for purchase: $19600 (including $10k in closing costs/repairs)

GROSS EXPENSES AFTER 3 YEARS: $36,350

Down Payment Equity after 3 years: $9600

Debt Service Loan Paydown: $4650

TOTAL EQUITY AFTER 3 YEARS: $14,250

NET EXPENSES AFTER 3 YEARS: $22,100

Difference between Options A & B: $6700, or about $186/month.

So, understanding that “anything can happen” in landlording, is the $6700 savings worth the extra responsibility and PITA factor?

Your thoughts and feedback graciously appreciated!

@Carl Fordyce Yes, but it might be a logistical challenge for you. There is a very strong and active REIA in the area (Action Investors Network) of which I am a member. Through the group I have met many tradesmen (also members) that I feel comfortable using for those services. They are vetted obtusely through the group (because their reputation is established by experiences other members have with them), and I've come to know them personally after attending months of meetings with them.

Since RE investing is a big commitment, I might suggest planning a local trip to our market around one of the monthly meetings and get yourself connected a bit.  Real estate is a relationship business, and it's really hard to get a feel for someone via email or phone that you can trust with your investment.

Your utility provider may have such a service, even complimentary.

@Carl Fordyce Honestly, no.  Most of the people I know self manage.  Even those with large portfolios.  If there is a reputable company in the market I would be interested in hearing some testimonials.

Good luck!

Just casually ask the "PM" when you call them who the owner of the property is.  If the tenant is running some funny business with a friend, they most likely won't be prepared with this information. 

You, on the other hand,  can find this info yourself through the municipal tax rolls before making the call.

Thanks @Kelly N.!

The pic with the sink and black pipes are actually of the kitchen - the pipes are the washer hookup. Pics 2 and 3 of Unit 2F are panning from left to right.

What about the flooring? It's dated via style, but in good condition otherwise.

I appreciate the input!

Great idea, @Matt Vogt! I'm embarrassed to say that I never knew you could post images to these forums.  After a 2 day odyssey of trying to resize and upload the images here, I believe I have finally produced something that is viewable. ;)

Hopefully this thread hasn't seasoned to the point where everybody is ignoring it.  Your subsequent feedback is graciously appreciated!

UNIT 2F - 4 images

UNIT 2R - 4 images

Hi all,

We have a growing portfolio of small multi family properties in a nearby city.  The area has been historically blue collar, but is experiencing some gentrification in recent years.  These particular buildings have units that typically rent between $650 and $900 to give a frame of reference.

We just closed on another building this week that is largely vacant, so we're looking to make some improvements to these units in order to improve the quality of tenants in the building.  I've read that one should make the condition of a unit congruent with the quality of tenant desired. 

On a limited budget, I'm struggling with over improvement versus leaving it too "dated/tired" and attracting the wrong crowd.  I asked my contractor what he would do as he is also a landlord, but I see his advice as not completely objective as he is spending someone else's money by creating work for himself.

I called one of the big PMs in the area and asked her if she would be willing to avail her skill set, and she gave us a price of $500 for the 3 units.  I'm not against someone leveraging their ability/experience to supplement their income, but I thought that was a bit steep.

I was envisioning someone that could walk through and point out a few things that would be required updates/improvements and others that would be optional: "if you do this, you might be able to get another $25 per month, but it wouldn't be a turn off to most tenants" kinda thing.

I'm feeling a bit overwhelmed with three units empty, so I want to make sure my time and money are spent as efficiently as possible.  I'm not sure if I am conveying my question in just the right way, but hopefully I'm being clear enough to get some good feedback.

Thank you in advance for sharing your collective wisdom and experience.

I think an important detail in this thread that everyone has overlooked is that the current tenant is on an existing lease.

That being said, you need to thoroughly acquaint yourself with the terms of that contract to determine whether or not you can charge a late fee.  If the lease doesn't provide for it, you can't legally charge them a late fee.

You can, of course, have this woman sign a new lease (or amendments) at any time, but she is not required to.

I agree with most here that she is not a good tenant if she is paying late.  This is a business.  Treat it like one and you will reap the returns.  If she is not paying you, she is paying someone else.  I can guarantee no matter how low-paying her job is, her monthly net income is more than her rent.