All Forum Posts by: Nick Michaels

@Account Closed so the down payment was $15,500 (25% of $62,000), with closing costs and prepaids it came to around $21,000.

We knew from the inspection that the front porch roof would need to be replaced, but thought the main root had some time left (even though it was over 30 years old). Weeks after closing, our insurance disagreed and informed us that all of the roof needed replaced and our independent insurance agent who got us that policy informed us that most companies would concur. So we had to fix the roof ($11,000).

Then one of the units wasn't renting because of smells (I disagreed and I have a keen nose, but you have to agree with the markets on these sorts of things) so rather than reduce the asking rent, we had the old carpets replaced with Allure, and the whole 2BR unit (so 2 BR, LR, K and BA)  repainted that was $5,000.

So then we have this tenant - I am not sure our PM even ran a credit / BG check as I was able to find a laundry list of debt collections and even a recent eviction judgment with a very basic and free court documents search on the internet. Who had been a handful from the day she moved in, complained about the freshly painted walls and new flooring, though the PM company insisted on placing this tenant. She eventually called code enforcement on the property because the thermostat was set to 71 and it would only get to 70. Of course code enforcement found a load of things (though were unconcerned with the nonissues the tenant asked about) that we knew about but wanted to fix later. So we are in the process of fixing those, and thankfully the local guy from code enforcement is easy to work with and flexible. But we are ballparking $6,500 for those repairs. Phew

Thanks @Megan France 

We also learned about expectations for Property Managers. We didn't shop around and ask the right questions the first time and it's certainly come back to bite us, for our new acquisition (closing in a few weeks)  we reached out to a number of different PM companies, with the following questions:

#1 What methods of rent collection do you use? 

#2 What property management software do you use? 

#3 What is your process for tenant screening? 

#4 How many units does your company manage? On the same note - what is the size of your staff? 

#5 How do you handle maintenance requests? Do you have an in house staff or just a list of trusted contractors? Do you keep an expense reserve amount for each unit? 

#6 How do you handle evictions? What costs surrounding these are passed on to an owner? 

#7 What is your monthly management fee? Is there a minimum charge per unit? 

#8 What is your initial leasing fee and lease renewal fee? 

#9 What is the minimum term for your contract with an owner?

Getting to see how different folks have responded to those questions and how the answers stack up and analyzing the data (e.g. if the company manages 800 units but only has 3 people dedicated to the PM side of the business, that's not super great in terms of quality control) has been eye opening.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Butler.

Purchase price: $62,000
Cash invested: $47,000

Our first rental property. An early 1900s brick duplex in an area close to the main street of the town (Butler PA - it's hard to call it a suburb of Pittsburgh since it's pretty far). The current owner had been using it as an office for the last 25 years and had maintained the home pretty well. It seemed like it didn't need much work at the time (but that was soon to change)

What made you interested in investing in this type of deal?

My initial analysis showed that this should cash flow $300 per month with our initial investment of $21,000 (25% downpayment plus closing costs and prepaids). It seemed like a good first investment. I kinda knew that my numbers may be off just a little bit, but just getting started was more important.

How did you find this deal and how did you negotiate it?

MLS. The day that we saw it, my agent informed me that someone else was writing an offer on the house that night and they also had another showing that night with folks who intended to make an offer as well. We made our offer knowing that at least one of the others was FHA and thus would require a more strict inspection. That said, we fell into the "highest and best" trap.

How did you finance this deal?

Portfolio loan through a local bank. 25% down, 5% interest rate for 15 years. I like that we are paying down the principal quickly, but I think we will opt for 30 year financing as we can get it going forward for the flexibility.

How did you add value to the deal?

We didn't intend to do any kind of value add, but we ended up replacing the roof, replacing two windows, replacing a fridge, residing an addition, repainting and reflooring (replacing old carpet with Allure) one of the units.

What was the outcome?

Our initial hopes of $300 monthly cashflow and $21,000 initial outlay (17% COCR) are now closer to $75 monthly cashflow and $47,000 (2% COCR). This is due to numerous repairs that I didn't notice myself before closing, code enforcement being called on the house and general mistakes of a rookie investor.

It took 1.5 months to get it fully rented and now we have one unit with a problem tenant that our PM placed that won't let people in to do repairs and is also trying to withhold rent. Yay!

Lessons learned? Challenges?

If it looks iffy, fix it. Most of the repairs that we fixed in short order we knew about ahead of time but didn't prioritize until outside elements forced our hand. Going forward, we are allocating $10,000 in up front repairs per property, no matter what. We are also looking at roofing, windows, siding with a more scrutinizing eye and treating inspection reports like gospel.

Beyond that, failure to properly account for PM, capex / repairs and lienable utilities came back to bite us as well.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Mars Bank was great for our financing and Wright Insurance did an awesome job lining up our coverage.

We learned a lot more lessons than the ones I had space to fill in above. Rather than let this experience defeat us we are taking the mistakes we made here and learning from them. We are in the process of closing on our 2nd investment and have taken great care to not replicate our past blunders.

First things first, let's talk city borders and real neighborhood borders.

Despite what the Pittsburgh neighborhood map says - Brighton Heights as a neighborhood ends when you go across the Shadeland Avenue Bridge or down into "Woods Run", which is not technically a neighborhood, more defined by the valley between Brighton Heights and Marshall-Shadeland -the values and housing stock down there are VERY different from those up the hill. So let's call Brighton Height's southern / eastern border is McClure Ave / Woods Run Ave. 

Next up, the section just south of where Jacks Run meets up with Bascom Ave, to the west of Vinceton St, primarily accessed by Oakdale St from Woods Run I would consider more part of the Observatory Hill neighborhood in terms of property and demographics.

Even at that point, there are two very different parts of Brighton Heights - it can be street by street but generally... Properties north of Davis Ave, and east of California Ave are going to hold more value than those not.

As far as it having a reputation as "one type of neighborhood or another" - let's just say that growing up in BH, I had opinions of the closer northern suburbs and then moved there later in life and found them to be false.

As far getting Shadyside rents... 2 BR in Shadyside go for anywhere from $1200-2200 unfurnished depending on exact street and finishes. You would be hard pressed to find a 2 BR going for even the low end of that range, unless it is recently remodeled and potentially furnished. But you can definitely get better rents than you would in surrounding neighborhoods.

Allegheny County Sanitary Authority - they clean the waste water.

Yeah I didn't factor in ALCOSAN either. I believe they bill quarterly, with a customer charge of $15.60 and then a per 1000 gallon usage fee of $7.43 per 1000 gallons used in a quarter.

Those are their 2018 rates, I can't find their 2019 rates anywhere - http://apps.pittsburghpa.gov/pwsa/Sewage_convenaynce_letter_PAW_customers_-_FINAL.pdf

IMHO if you are looking for passive investing I would check out some of those crowdfunding platforms out there or a syndication deal. 

A lot of the housing stock here, even in the neighborhoods that you mentioned is at best 60-70 years old and worst 90-110 - there are going to be warts with alot of properties and those without, you are going to pay a premium for.

That being said the areas you mentioned are certainly more stable and reliable than the New Kensington, New Castle, Beaver, Mount Oliver, (insert Eastern neighborhood here) where you can find houses for under $20,000

But as @Andy Madden mentioned, anything is possible with the right networking and finding value-adds offmarket.

good luck!

 That's interesting. I have never heard of a situation where water usage from a fire hydrant (which I would consider municipal property and responsibility) would be tacked onto a homeowner's bill

It blows my mind how much water people use. In my primary residence, we have a 6 person (2 adults and 4 kids ranging from 2 to 11) household and use 3,000 per month... We were at 4,000 but then we got a 1.5 GPM showerhead and that helped alot. 

Strongly considering putting these into our units after the next turnovers and maybe putting something in the lease that there is a $X charge if the showerhead is replaced.

 I just checked and PWSA updated their rates page to reflect the 14% increase - it seems to be across the board

 Most utilities that I have dealt with or researched charge per 1,000 gallons. Some municipalities charge a flat rate for sewage for EDU (equivalent dwelling unit) (ahem Butler Area Sewer Authority) that isn't usage based at all