All Forum Posts by: Oliver Miller

@Jim Adrian  Thanks for the advice. I have managed some personal home renovation projects but nothing of this scale.  To be honest after receiving responses from this site and others I kind of agree that this is a project is a bit over my head.  Not impossible but would be difficult.  Also considering I still have my own business to still manage along with young kids at home I decided to walk away from the deal. However after walking away the seller now he has come back to me with a significant price drop of $60,000 which is making me reconsider.

My question for you is when you talk of an exit strategy do you mean for the project as a whole or for the partnership?  Without sounding to naive what are options for exit strategies besides to sell or leverage more capital?  My thoughts were to try and slow down the spending on the project.  I would address all the main issues that need to be done but maybe not do full renovations on the apartments and just do minor updates.  I thought this would allow for some minor rent increases when apartments turn over but would allow to still have capital and some reserve funds.

Thanks for the advice.

@Darrell Shepherd

Thanks for the info.  I have included my taxes, insurance, water, sewer, trash and plowing in the 30% expenses.  Once I get the income up to $100,000 per year that will be $30,000 set aside for those costs.  Taxes are $6,500 and insurance is $8,000.  That leaves a lot extra to cover the other expenses along with a 5% vacancy rate.  The construction loan will pay for the repairs and I was planning on putting the first 2 years of cash flow (Approx $40,000) for a reserve.  There are a fair amount of nearby grad students to rent the 1 BRs to which is about 4 of the units.  The rest are two bedrooms.

Thanks for the info.

Thanks for the replies.

@Tom V 

When calculating my numbers I was never concerned so much with AVR because my thought was that if I was able to significantly raise the income of the building enough to support the money spent on the renovations that it did not matter.  My thought was the value of the building was mostly tied to the income.  I was not overly concerned with appreciation.

@Patrick Liska

Yes, my partner is just splitting profits and would be paid back the investment when the property is sold. We would create an LLC together.

I am hiring contractors.

Hi, I am a first time buyer looking to break into the rental market.  I have been looking at multi families for about 6 months now and the one building I want to make a move on has so many variables that I am having a hard time with the math.  The building has 10 1br/2br units and 3 store fronts. It is a great location in a small town that really appears to be on the rise.  The price is $320,000 (the owner won't negotiate) but the building needs extensive work.  2 of the apartments are partially gutted and need renovation. All the store fronts are empty and need to be completely renovated (plumbing, electric, heating, renovation).  The building needs roof work and extensive work on the outdoor staircase which is the second means of egress.  The building has many open violations, mostly due to the abandoned store fronts and to water leaking into tenants apartments from the roof.  I have received estimates of $250,000 to cover most of the repairs.  This however does not cover future renovations to the other 8 apartments and one day to redo the whole roof.  I have an investor/friend that would pay cash for the building and then we would take out a construction loan for the $250,000 for the immediate repairs. Our mortgage payment for the loan would be $1,400 a month.  The building currently brings in $4,875 a month. The current rents are low for the area because the building is such a mess. I understand that the first couple of years would be tough but once I start to add in the apartments that get renovated and then store fronts my monthly income jumps to $8,875.

So when I do the math with this number $8,875 monthly income with a 5% vacancy rate and 30% operation expenses + my mortgage ($1,400) for the construction loan my cash flow total is $4,502 a month which I split with my investor.  Again I have not calculated for the undervalued rents but I want to be conservative but the hope is that number would eventually be $10,000 a month or more.

So finally for my question. When so much work is needed how does one look at the math? In my area (even with all the renovation costs) this seems like this is the best deal I can find.  In my eyes all the renovation costs will be paid from the proceeds of the building so it only becomes a factor when I want to sell?

And my second question (i know a lot of this depends on me) but is this just too big of a project for a first timer to handle?  

Thanks for any input.  I know this is a long post.