All Forum Posts by: Tony R. Yagiela

Jean - I have been investing in North Canton since 2007 with single family and multi family rentals and have seen great appreciation and high quality tenants.  Over the 5 units I have in North Canton, they average approximately 1 month of vacancy every 30 months.  North Canton is a great community with a great school system. 

The only problem with North Canton is that its hard to make the numbers work since the price per square foot is high (i.e. $125,000 for a 3 bed 1.5 bath 1250 sq. ft. which will rent for $1,250).  So you have to keep your eye open and be willing to put in some sweat equity to get a property at a discount and beat the 1% rule).

Canton City is much less per square foot and has (according to the school rating systems) a less quality school system.  Some neighborhoods in Canton are pretty bad, but some are consider 'C class'.  But what Ryan said above is true - Canton City has been seeing significant improvement over the last 2 years and there is much more coming.

Point being, Canton and North Canton are two entirely different communities.  If you want to buy in Canton (which I am looking into as well since the numbers work so well), make sure you stick to the Plain Local School District (i.e. Glen Oak).  I would avoid anything inner city as of right now.

Feel free to reach out to me if you have any questions about a house you found or a location.

Good luck!

Tony

I will be there for sure.  Looking forward to it!

Research what needs to be done as far as a formal eviction process, since that is ultimately what you will be doing here if the occupant doesn't want to leave. 

I've also heard a lot of investors stress the importance of treating the occupant like a tenant and provide guidance, support, and even money if necessary to relocate.  Taking this approach will save time and money.

A house I lived in when I first moved to Cleveland was bought at auction and was occupied by a squatter who claimed he wrote a check for the house and owned it outright.  The court reminded him that he wrote a $100k check from an overdrawn account and it was considered bank fraud.  He responded by explaining that he was a 'Freeman', and it doesn't matter how much money was in the bank account because money has no owners and the bank should have honored the check.  Long story short - a formal eviction process proceeded and the sheriff was ultimately present when the locks were changed and the man was escorted off the property.

I do not offer snow removal, just lawn care.  A mentor of mine told me that if you provide snow removal and your tenant or a guest slips and is injured, you are liable since it was your responsibility to keep walkways free of ice and snow. 

That was years ago and common sense tells me now that it probably doesn't make a difference what the lease says about snow removal.  But simply stating that I cant offer snow removal for liability purposes has saved me thousands.

With that being said, all my units have attached parking and their own driveway.  If you have a shared driveway, that can be a sticky situation.

If this was my property, I would re-gravel the driveway grading it away from the house and put a French drain between the side of the driveway and the neighbors house.  The grading is necessary to keep water away from the foundation, and the French drain is necessary to keep the water away from the neighbors foundation.  But, I dont know how rain-runoff ties into the city sewers since i cant see how the driveway meets the road.  Simply re-grading the driveway will just displace the water causing other problems.

@Deanna McCormick makes a good point by seeing if the downspouts can be modified to put the water elsewhere.

If the landlord doesn't want to do anything about it, I would recommend she move. 

@Immanuel Sibero thanks for pointing that out. I once listened to a podcast with one investor outlining the traditional way to determine CAP rate (the one you just mentioned), and another investor arguing that it isn't the best way to determine a properties performance since it doesn't account for the true cost to maintain the building. I was in the same boat as @Miles Stanley.  And Miles, yes, CAP rate is typically used for larger multi-families, but I dont see how using it on a 4 unit can skew the value much compared to 5 unit.  Its always served me well.  My CAP rates on all my properties look fantastic when I exclude CAP Ex!!!  

The way I see it is just because an item is infrequent in nature doesn't mean its free.  If i need a new roof in 10 years and it will cost $12,000, then that is still $100 per month that needs to be accounted for.  I've learned to take the same approach to everything else that needs replaced on a building, over their respective costs and timelines.  I feel that gives a more accurate evaluation of the properties performance in the long run and to determine true cash flow.

But to be clear - Immanuel is correct to exclude capex in NOI the traditional way, however, the real question is which method best serves the investor.

@David Faulkner - I like your approach to investing.  I buy in areas that see good appreciation.  Its the best way to accumulate net worth.  Ive heard many investors say it like this: 'their 'D' Class properties pay their monthly bills, but their 'A' Class properties is where their wealth is accumulated.' 

Best Regards,

Tony

Hi Miles,

The CAP rate is the most accurate way to calculate your ARV since the majority of buyers will be investors and CAP rate is what they look at to evaluate a purchase.

Take your total annual gross revenue and subtract out management fees (approximately 10-15% of gross revenue), vacancy (approximately 8% of gross revenue), annual property taxes and insurance.  You also need to subtract out maintenance (plumber bills, lawn care etc.) and capital expenditures (big ticket items that are to be budgeted for over the long term like a new furnace or roof in 10 years).  Then divide that number by the purchase price and multiply by 100.

If the property is in a ‘D' neighborhood, its considered more risky and investors would want to see a higher cap rate such as 15 to 20%. If the property is in an ‘A' neighborhood, attracts better tenants at a higher rent, and has more consistent appreciation, a lower CAP rate can be seen as acceptable.

CAP rate calculations are not very complex, but determining accurate vacancy, maintenance, and capital expenditure costs can get tricky so make sure you read up on them beforehand. What one investor sees as a 8% CAP rate can been seen as a 5% CAP rate by an experienced investor who has more knowledge on estimating long term maintenance costs and capital expenditures.

Good luck!

Hello fellow investors!

My question is about how you would communication a rent increase to a tenant I inherited when I purchased a property.

The Duplex is located in an ‘A’ neighborhood and both sides were occupied by long term tenants when we closed.  One side went vacant and was paying $800 per month and I was able to rent it at $1075 (which is about $100 less per month than comparable properties, but the unit went vacant right before the holidays so I had to get competitive.)

The other side of the duplex has a family of 3 and has the same square footage, but one less bedroom.  They currently pay $850 per month.Other than the fact that they are pack-rats, they are the best tenants a landlord could ask for.  The occupied unit needs some work, but fixed up, I could re-list it at $1100.  I think a fair rate for the unit in its current condition is around $975.

Their lease is up January 1st so I want to give them notice.  Would you write a letter outlining the reasons for the rent hike, call them, or tell them in person?  And also, do you feel a $100 per month increase is excessive in this situation?

Any input would be appreciated!

Regards,

Tony

Kathleen - Am I correct in assuming that you haven't seen photos of the property since you don't know its general condition? What did the seller respond with when you asked if it was habitable?  If it isn't habitable, then conventional financing for non-owner occupied wouldn't be an option regardless if you qualify or not.  And if you did do seller financing, you would still need funds for rehab.

To answer your question - seller financing can be beneficial for both parties if its done correctly.  It all depends on what terms he is offering (seller financing is usually amortized over a shorter period with a higher interest rate).  If you know the area, and the property is a great deal, AND the seller is reasonable with the terms and conditions, its worth talking to a real estate attorney to draft up a contract.  If you do go for it, keep talking to banks periodically and work towards getting a conventional mortgage.

But keep in mind, banks typically work with you if you come into hard times and miss a payment.  This seller might not.

Good luck!

Jacob - Tim is right. If you are looking at a duplex, you would have to live in half in order to pay less than 20% down (maybe 15% some people say, but Ive never seen a bank loan 85% LTV on a non-owner occupied).

To answer your question - I would have 4 months of straight mortgage payments PLUS your insurance deductible.  If its a duplex, odds are in your favor that both units wont go vacant unexpectedly, however if its a single family and it goes vacant, I would tack on an extra month since you wont be getting any rental income. 

The number of months of (total) operating expenses you should have in reserve will go down as your portfolio grows (If you have 10 units and 1 goes vacant, you're still getting 90% of your rental income).

Its a numbers game really...  The more properties you have, the less impact a vacancy/eviction will have on your overall cash flow. 

Good Luck!