All Forum Posts by: Robert James

@Craig Tripp Thanks. The state Landlord and Tenant Act requires me to provide a "fit and habitable" space for tenants. The foundation is damaged and the walls in the basement are bulging out. Is this "fit and habitable"? I'm guessing that's open to interpretation, but surely there's risk of being sued if it's deemed not "fit" (unsafe)?

Thanks for the reply, Tim. I used 5% of rental income for vacancy and repairs. 10% of rent for property management, and 12.5% for CAPEX. You point is well taken, though, the numbers aren't favorable. I think I am intrigued by the possibility of a home in downtown at that price. Still, the numbers have to pencil out.

Hi there, thanks for taking the time to read this.

I am considering putting an offer in on a piece of property in my town. The assessed value of the property is $130,000, although there are foundation issues with the home and I believe I could pick it up for between $80,000 to $90,000 (contingent upon foundation inspection and repair estimate, of course - a previous quote put the cost of foundation repair at $20,000). After a good analysis of comps in the area, I believe the after repair value of the property is about $150,000 to $160,000 (it's in a great location). The unit is currently rented to long-term tenants at $775 per month. Market rate is probably $850 to $925, although it would require some TLC.

I have secured private financing from family, so I will essentially put nothing down, and just pay interest on the $80,000 to $90,000 at 5%. My plan would be to refinance after 1 year or whenever foundation issues are resolved, hopefully at or below 5%, and pull out some equity.

When I crunch the numbers, I basically break even (i.e., net zero) on Day 1 on the rental income after expenses. Rent is $775, about $375 per month goes to interest payments, and $400 goes to taxes, insurance, vacancy, repairs and property management. So, it doesn't immediately cash flow.

However, my thinking is this:

• 1) Assuming the foundation is not legally required to be fixed immediately, allow current tenants to remain at current rate until a major expense arises or tenants leave
• 2) Fix foundation and generally upgrade the house once tenants have left (budgeting $35,000 in my head)
• 3a) Rent out at competitive market rates to new tenants (should cash flow positive), or
• 3b) Rent out on Airbnb at competitive market rates (should be more cash flow positive), or
• 3c) Sell property if market is favorable

So, my question is this: should I pursue this deal or does it just not make sense? Of course I want it to be cash flow positive on Day 1, but $80,000 homes in this location are very difficult to come by. I've also got private financing at a favorable rate. Plus there is upside in the home assuming that the market doesn't completely tank. I would appreciate any thoughts you have! Thanks!