All Forum Posts by: Scott Johnson

@Venkatesh B. Knob and tube... knob and tube and knob and tube... this can absolutely be deal breaker for me unless I’m am getting the property at a steep discount. Just a quick story: I just had an 1890 triplex under contract only to find active knob and tube; I scoured insurance companies to give me a quote on insurance... the scary part is that about half did actually say they would insure naturally I wanted to be extremely sure so after I would specially inquire “are you absolutely sure 100% that the carrier will insure knob and tube” ... EVERY single one of them after contacting their carriers declined coverage! Naturally I went to the current owners and asked who they use... contacted their carrier asked the same and.... you guessed it NOT covered! The owners had an empty insurance policy.

I have attempted to close on a few properties with knob and tube and all turned out pretty similar as the above... so now I certainly avoid it. The issues with it are many; 1) you NEED to make absolutely sure the carrier will insure it especially if you are planning on updating the wiring that is when most fires occur and if you are not insured that’s no bueno; 2) most insurance brokers themselves don’t know or worse issue you an insurance policy - the result is that you technically do have ‘insurance’ in that you do pay the premium but are certainly not covered if something happens because of it; 3) if the electrical has been ‘updated’ check with your township to see what electrical permits were pulled if they have no record then chances are that the electrical may look updated but there is knob and tube behind the walls.

Like I said this is an absolute deal breaker for me unless we are buying as a flip or unless we are getting the property at a steep discount ESPECIALLY if it’s a multifamily.

I am looking at a home built in 1900 for buy and hold. I would like to know, what are the dangers of buying a home that was built that old. The home looks in good condition. One thing I observed is that the steps of the stairs are very small, I mean height and depth. Not sure, if there are any rental codes that this home have issues with.

Thanks,
Venkatesh

@Chad Duncan I build my duplexes, as it makes more sense to me than buying turnkeys. But there is some very different issues when building than buying.  Financing can be a really big difference, as you would be looking at a construction loan and for me, that means coughing up 20% of the total costs (land, construction, permit, etc).  Another issue is zoning, and you might find it difficult to find land with the proper zoning for 2-4 unit buildings.  Things like design the building and getting plans might be an issue.  There are alot of choices to be made when building also, something that you must be comfortable with.

In my area, I can buy a turn key duplex for about the same as I can build it, but the house is older and comes with those Capex risks. I can build some equity into the project if I build from vacant land, plus I build exactly what I think renters want nowadays. I stay with duplexes (2 unit houses) due to building regulations and limited land zoning for 3+ unit building in my area.

With all of the above being said, you should be able to do a quick check in your area to see if building makes sense.  First is land cost, second is building cost and last is what existing 2-4 unit buildings are selling for.  Land costs is likely the biggest decider if things make sense.  Below is a quick example that works in my area (I am looking at this project right now).

2 unit duplex, 2bed -1bath, 1800ft2 total (900ft per unit)

Construction Costs = $90/ft2 = $162,000

Comps sales prices = $140/ft2 = $252,000

If I pay $52,000 for the land, the cost of the land is $28.89/ft2, making my total costs $118.89/ft2 (equity of $38k), this is a good deal.

If I pay $100,000 for the land, the cost of the land is $55.55/ft2, making my total costs $145.55/f2 (equity of -$10k), this is a bad deal.

Your construction costs per sq ft will vary with region, for me $90/ft2 is right for the size of duplex that I build.  

Once you determine this, you can drill down into the income to determine if it makes sense from an investment standpoint.

I purchased a property this year that has a SFH and mobile home on it. Got the SFH rented out first, then the MH. After I posted the rental for the MH, I got 220 messages in the first 48 hours. There is high demand for SFH rentals, but even bigger demand for MH rentals.

I just bought my first trailer park... and I'm pumped up.  No Complaints yet.

If you missed my other post. I am new and will probably have a few questions while I am studying and analyzing deals the next few days. One question I have right now is whats the down side to buying mobile homes for buy and hold rentals? They seem to good to be true. The only thing I can think of is because they might not appreciate like a normal house does? But so what? the cash flow is threw the roof. Or maybe you cant get as much for rent in a mobile home as you can a house? Whats the deal? As far as cash flow goes they seem like a no brainer. I have found some very reasonable 3/2s and 2/2s compared to houses their same size. When I calculate the numbers they seem to be a pretty crazy to me, but like I said I am learning and am a little skeptical when something seems to good to be true. Would like to hear some input. Thanks!

Did you state so in your leasing agreement? i know some state that the tenant is "responsible for plumbing repairs"

@Scott Johnson kiavi what's the minimum loan amount they provide on an asset?