All Forum Posts by: Sam W.

I have not heard any imperical evidence that higher rates result in lower home prices -- generally because home prices are a result of a combination of complex factors. There was a good article in the Atlantic a couple of years ago that looked at this issue:

http://www.theatlantic.com/business/archive/2011/07/how-rising-interest-rates-affect-home-prices/241504/

As I said....for me, cash flow is key - longer term financing vice shorter term. I don't mind paying 3-5% mortgage. You can "retire" while still having outstanding mortgages.

Hi @Shema Turner,

I assume this is a duplex.

Is the income you list for the entire property or per side?

Thanks

Sam

Some thoughts from my perspective...of course everyone's situation is different. I am a buy (fix) and hold investor. For me:

- Cash flow (after expenses & cost of capital) is probably my biggest requirement. Cash flow allows me to react to the unexpected and fund expansion. Nothing profound, but key is to minimize outflows and maximize income. Longer-term financing generally supports my objectives best.

- Just a quick thought on financing. If I had to do it over again, I would pursue non-bank funding (private equity, seller financing, etc) as a first option in order to preserve my mortgage eligability for the truly "exceptional" opportunities that I did not want to lose. I went with banks first and now am having to be creative in financing new properties. It does not allow me to be as nimble as I'd like.

Does anyone have a feeling for what it costs (per ft2) to turn a regular concret slab into presentable flooring?

Hi Marcy...just up the road from you in Medina and Summit Counties. I have always wanted to learn more about mobile home park investing. Looking forward to dialoguing with you on the forums.

Alex R.,

That is always the dilemna....and the reason finding good investment properties is hard work. Someone posted on another thread a couple of weeks ago that for every 100 properties they researched, only 1-2 met their criteria for an offer.

Regarding the 5 unit you are looking at, how do the rents compare to the market? Currently it is averaging $512/unit (assuming the entire gross income is from rent and not from garage rental, coin-op washing machines, etc). Can rent be increased without pricing yourself out of the market? Increasing rent to $650/month would put your strike price at $162,500...still a long way from the $225K asking but at least it is a number. They can only say no.

If I read your initial post correctly, this 5-unit is zoned C-1, which could account for its higher price. I'm not familiar at all with Bakersfield zoning, but usually C-1 is Limited Commerical (grocery stores, barber shops, churches, etc...really anything up to malls). This might factor into your thinking as well.

Sam

Alex R.,

All of the properties have positive cashflow. I think the big difference between Ohio and California is the cost of the property. For example, the 4-unit I referenced in my first post generates about the same annual gross rent as the 5-unit you are looking at ($27,500 vs. $30,000) but I purchased it for $120K...so my monthly mortgage payment (PI) is $503/month. The numbers are similar for the other properties (some of them have no mortgage).

Regarding vacancies. My total vacancies for 2012 for the 11 "doors" I referenced above was ~10 of the 132 available months, or about 7.5%. This is slightly higher than my "historical" norm (6%), because a couple of the vacancies lasted a little longer than I would have liked, but this happens and is part of the 50% expense average.

Alex R. Just for giggles I did some quick math to determine 2012 expense ratios (Expenses/Gross Income) for a couple of my properties for which I have the data handy.

4-Unit: 52%
SFH: 35%
2-Unit: 78%
2-Unit: 34%
2-Unit: 28%

Sort of a scatter-shot...and it will be different in 2013 as new maintenance and repairs are done on some units, and other units require less upkeep as compared to this year.

My experience (and I'm by no means the most experienced REI) is that the 50% rule is pretty close for my portfolio. Maybe less in the beginning on a newer construction...maybe more on older properties, but right around 50% over the long term (I have a property manager so that accounts for 10%).

In looking at the numbers you supplied, it looks like the owner's stated Expenses/Gross Income is about 30%, thought I agree with most posters who feel that $67/month ($804 annually) is low for property insurance. Also, I think that 1% vacancy is very low. If you account for higher insurance and factor in and extra 4-5% vacancy, you're probably right around 37-40%...which is pretty close if you intent to manage the property yourself.

I'm by no means an expert on property in California and my experience in Ohio may not be relevant. Good luck.

I agree with Kelly N. - electric heat is expensive. I think when rehabbing, some folks pull out old boilers and radiators and want to avoid the upfront cost of ductwork and forced air - so they put in electric baseboards. In the long run, I think enough money is saved through lower utility costs to justify putting in gas forced air - assuming you have gas service and don't have to perform unnatural acts to run the ductwork. I'm not sure if the same holds true for propane as I have no exerience with it.

I'm a buy and hold investor so I rehab to get the property ready for renters. In my experience, high utility bills don't make for long-term tenants.

As an aside, I only have experience with electric baseboard heat and not electric forced air (pros and cons for each).