All Forum Posts by: Peter Lohmann

+1 Dana and Pariser. They handle 10 to 15 evictions for us each month.

No need for a lawyer - just continue the eviction process, and you'll have them out eventually. Nothing you can really do in the meantime.

I have several I can refer. What type of attorney are you needing? Evictions, contracts, litigation, incorporation advisement/formation...?

Hate to break it to you, but nothing about your analysis is conservative.

• "Closing costs" that the banks are quoting you are merely their origination fee. Your actual out-of-pocket costs to close will be MUCH higher, more like 3 to 5k. Everyone has to get paid - title company, etc etc.
• Are you using the current property valuation for taxes? If you are paying more than the current value as listed on the Auditor's website, the property will be re-assessed at your purchase price, causing your taxes to increase. Plan on this.
• 7% vacancy? Dream on. That's not even 4 weeks per year. Units that rent for $450/mo  in Columbus are not occupied with paying tenants for 50 out of 52 weeks. Plan on 6 to 8 weeks of vacancy (or non-payment) per unit per year, at least.
• Capex - you quote "5%". Five percent of what? Rent? Capex is independent of rent. Plan on $1.00/sq ft per year. Your property is very small, so maybe double that.
• Repairs/maintenance - same as capex - these costs are completely independent of rent. Plan on $2.00/sq ft minimum.
• Property Management - nobody is going to manage your property for $45/mo per unit. If they do, they will charge first month's rent each time they lease up a unit, so add 8% to management (18%). That's more reasonable.
• Other expenses not noted: Legal/Accounting, Evictions, Landscaping, Snow Removal, Pest Control, Travel, Insurance, Utilities.

Re-run with those numbers, now we're talking.

Do not purchase a 4-plex that rents for $450/unit for 31k/unit. Personally I would not pay more than 20k/unit for such a thing.

Thanks for the referral Kevin! Much appreciated.

Sorry, but this isn't what it's cracked up to be:

1) Your PM will take more than 10%. Did you include all of the following possible fees in that percentage? Get a fee schedule or read your PMA, then add up all the following. It will be more like 15 to 20% when it's all said and done:

• Leasing Fee
• Annual Fee
• Trip Fees
• Admin Fees
• Advertising Fees
• Eviction Fees

2) The following costs do not appear in your financials:

• Maintenance (should be at least $1/sq ft per year, realistically more like $2)
• Capex (should be at least $1/sq ft per year, realistically more like $2)
• Tax Prep ($250 the first year, $150 thereafter)
• Utilities (do you pay any? Water? Trash?)
• Discount for vacancy. You will have some sooner or later. Plan on 6%.
• Cost of turning the unit when it does go vacant. Plan on 2 to 3k.

Properties in "OK" areas, purchased for 37k, renting for 750/mo - they are losers in the long term. You will break even at best. If you hold it, come back and read my post in 4 years, tell me if I ended up being right. Hopefully you can prove me wrong, but it's statistically unlikely based on data we have gathered from our 260 units under management here in Columbus.

Bottom line is out of state investing is a very serious thing and you cannot listen to anyone .. this is your money and you need to understand the risks.

Quoted for truth.

Hey Tyler - "capex" is short for Capital Expenditures. Basically, it's the long-term maintenance expenses on a property, averaged out. The following is a partial list of things that wear out or become outdated over time and eventually need to be replaced for every property:

-Roof

-Siding

-Hot water tank

-Furnace

-A/C system

-Electrical system

-Plumbing system (inside)

-Sewer service line

-Water service line

-Any concrete exposed to the elements (sidewalks/porches)

-Windows

If you calculate the cost of replacing each of those items and divide them by the expected useful life, then sum that up, you'll come up with a monthly amount that you can expect to spend on capex over the long term. You should be setting aside an amount equal to or greater than is in a reserve account somewhere for each unit you own.

My point is that folks purchasing 30k homes in bad parts of town typically do not account for these costs when calculating their "cap rate" or cash-on-cash returns. If they did, they'd realize that those properties are bad investments (they lose money or barely break even over time - over the long run).

Any neighborhood where the average rents are $500 to $600 for a SF home. Those houses are old, and capex will kill you over the long run. Even if you get them for next to nothing. The rent is just not high enough to support the costs of owning and maintaining a house.

See: http://www.biggerpockets.com/renewsblog/2015/01/20...

And: http://www.biggerpockets.com/renewsblog/2015/03/03...

Welcome to the Columbus market. Just don't buy any 30k homes and you'll be fine!