All Forum Posts by: Peter Mikhjian

welcome to the site Kyle!

good advice - thanks 

one more thing - appraisal came in at $285k and insurance to replace the whole thing from top to bottom came in at $319k.  

Just want to give everyone a quick update on this one.

We closed a week ago with a final purchase price of $275k.  Our inspection report came back with about $15k worth of repairs and the seller completed all of them.  Our mortgage is on $206k and with taxes, insurance and everything else our monthly comes out to $1375/month (not including maintenance/pm - we'll do that ourselves)

Now for the best part - as suspected, one renter hasn't had an increase in over 4 years and the other hasn't had an increase in over 8 YEARS!  Market rate for rents is confirmed to be $1400/month on AVERAGE and they both pay under $1k/month.

So, for today we have cash flow of around $550/month (1925 rent - 1375 mortg) which nets us about 9% on our $70k investment just from a CF perspective.  Within the next 6 months we'll increase it to $1200/month for each side.  This would net us $1025/month which gives us a return of 18%.  Then a year or so after that, we'll get it up to $1400/month per side, which would net us $1425/month, yielding an 24%!!! (I think i'm really starting to enjoy real estate investing!)

i'd also like to say thanks again to everyone that gave me some input on this project.  It definitely helped me look at it from a different perspective and the feedback helped out a ton.

Thanks - on to the next one!

thanks again for all of the feedback everyone, let me ask just two more questions;

1) what would you assume is a fair purchase price at the current rental rates (1925/month income, must put 25% down, assume 100/month for insurance, maybe 200/month for maintenance, 100/month for PM, 3750 for taxes, maybe 5k to 8k in rehab cost per side)

2) what would the rental rates need to get to in order to justify a 275k purchase price? (We're currently at 950 and 975 for the two sides, I think fair rates are in the 1100 to 1300 range)

wow, lots of good feedback, thanks - glad I went through this exercise

@Logan & Kim

*For insurance, I estimated $50/month, it sounds like i'll have to increase that (i'll bump it to $100/month)

@Gabe

*For the operating expenses, instead of saying 50%, I grouped it a little differently. For taxes, insurance and P&I, that's all included in the $1400/month expenses. For vacancy, I estimated 1 month, so I took that out of my ROI calculation. I would say the appreciation on the place would be maybe a hair higher than normal - maybe 3 to 5% max. Thanks for bringing up the PM portion, i'll have to include that down the line.

@ Issac

I have no idea on that part - i'll bring it up during the due diligence period

@ Steve

For the interest rate, yes I have it 4.25% (my wife works for wells fargo, we get a minor break).  For the insurance, a lot of people brought up that $50/month is low - i'm going to increase it to $100.  Your property tax amount is awesome!  Our's is relatively low, but higher than where you're at.  The last tax bill they paid was $3500 at an assumed value of $287k.  I bumped it to $3750 to be safe.

That's correct on the maintenance - there is no lawn, I'd manage the place myself, the utilities are on the tenants, the house insurance is covered in the $1400 monthly mortgage payment, and I took the one time costs for capex in the first model (but for only one side getting renovated).

Side note - I am appreciating all of the input from everyone.  

Today

Future

Yes - they payback period is long. But, i'm looking for the best rate for where to put my money. 13% ROI is pretty good to me and I've got a positive Net Present Value

As far as purchase price - it should be NOI/Cap rate...in my case I come up with a price of $295k...

NOI: (1925*11 = $21175 at current rent, minus operating expenses ($3500/yr super conservative) = $19675

Cap Rate: 6%

Purchase Price: $295k

The one year lease that i'm obligated to take over ends in January 2016.  So, there one set of updates I don't need to worry about for right now.

New roof was done in 2010, HVAC looks good (Trane), water heater I haven't seen yet, windows are good and appliances are ok.  I would definitely get new appliances when they move out.  I'm assuming total expenses to get the place up to speed after one side moves out is around $5 to $8k.  I also had them pay for home warranty.

As for a purchase price, I don't think they would go from $325k to less than $220k.  I think maybe at best case I can a few extra grand out of them after inspections.