All Forum Posts by: Wes Brand

Insurance of 350/year for a 4 plex sounds extremely low to me. Get some quotes of your own for that.

You could do an FHA if you planned to live in a unit for a year. You'll want to study the area the property is in to get a feel for how dangerous it is and how well your prospective tenants will care for it. You'll also want to find out how much life the roof, furnace, and hot water heater have left in them.

Other questions: 20k people is small, but how is the growth? Is the town dying, expanding, or staying the same? Is it near any major cities / colleges / draws for renters? Ignoring assessed value, how much do other similar properties sell for? You'll need to limit yourself to 4plexes. What's the rental market like? More owners, more renters, about even? Are rents trending up or down? Crime? Schools? 

I realized that I dismissed Oakland / SF / the relatively close area out of hand -- thinking it can't possibly work because the buy ins are too high, and the cash ROI is too low, but I never actually seriously investigated how people who are here are making it work.

My constraints: 

600k max price for a traditional mortgage. No "house hacking" outside of SF proper. No personal sweat-equity rehab projects; I'm busy with my day job and I don't have time to replace a roof or install a new furnace myself (not to mention that even if I did have the time I couldn't transport it). This can be hired out, but obviously that increases the cost.

So, given my constraints, can it work? How does it work? Do the people who make the area work do the work themselves on a run down property, or do a FHA loan on a primary residence? Or do they only make it work because they bought in 3 years ago when the prices were lower?

I wouldn't do it. 

"What if the tenant disagrees with me" is not the kind of question you should be asking if you're seriously going to consider doing this. If they disagree with you, too bad. It's your property, your lease, your inspection. You're on the hook if the tenant skips out on paying the contractor, you're on the hook if the hot tub is improperly installed and floods the unit, you're the one who has to repaint the entire house when they decide that yellow, blue, and orange walls are awesome and then move out in 3 months. 

What are they hiding that they need to pay the first year up front? 

Sounds like a headache waiting to happen and I probably wouldn't take it.

If I had to buy it for some reason I'd offer somewhere in the 30-40k range. I figure you have about 10k / year NOI and you need an unknown amount of extra work (at least 4k, probably 8-12k). The low base rents and problem tenant make it seem like a not-so-hot area. You'll have quite a bit of cleanup work to do once you move him out of his unit, if you can move him out. A 30-40k offer gives you about a 20-30% return, which would be enough to make me think about jumping through the hoops to get the person out and the unknown risk that my rehab costs balloon closer to the 12k range. But...that's me. I don't want problems with my investments so my numbers for problem cases tend to be ridiculous.

Starts with finding the address, from there hunting through the various listings until I found pieces of the info I was looking for. They actually had the gross listed with one realtor. 

@Ben Leybovich

I dug a little deeper on this property just for fun and found that the annual gross for the building for at least one year is 57,815.00 making it rent for approximately $400/unit (a bit higher since that probably includes some vacancies). 

30% down, net "before taxes" is actually 29,482 according to a different listing, which isn't the 30k here. I'm not sure what the 46k is supposed to be. Before PM fees? That means they'd be paying 110/unit/month to the PM, and are getting ripped off, a lot. 

As for the 7% cap rate, look at what's common for that area for cap rates on apartment buildings, that'll tell you how realistic it is. I'm guessing you'll want a higher cap rate, since, while I don't know NM, 400-475/month is not usually an A+ area (and usually A/A+ areas go for ~7% cap rates, though that depends entirely on your market; 'round here they go for ~3% cap rates ;)

Just a word of warning: Don't trust that 10yr avg stay too much. If I were getting rents st. 50% of market I'd put up with a lot of negatives that I wouldn't if rents were closer to market. And from the sound of things it's not like it's rented to businesses that are sticky to a location (I don't think I have ever visited an insurance office in person...) Still seems like a good find, just temper your expectations :)

Don't let Greg scare you too much, I've lived with others for something like 10-15 years and not had any bigger problems than someone was playing their music too loud at night. It really depends on your personality. 

On the plus side, assuming your regulations allow you to take quick action, you can be far more flexable about who you rent to and skip some research. After all, if they don't pay you can just lock them out (depending on the state etc) I'm not saying don't do your research, but realize that because its owner occupied you have far more power. If a roomer's pet is destructive you can talk to them about it immediately instead of after 6 months of destroying your trim, for example. You'll also get to meet a lot of different people.

On the minus side you'll have to deal with interpersonal issues. Someone won't be happy with something, or might have a habit of slamming doors when they get home at 2am, or loud sex, etc. You'll also have more turnover by far. My current roomie has been living with me for just over a year now, but before him I had 4 in 2 years (I do month to month subleases since I find a new person in under a week). 

I would not recommend going above 3 roomies unless you particularly enjoy dealing with roommate drama. I also would stick to unrelated parties. Friends take advantage of things in a way that can ruin friendships if you're living together and strangers don't. One tenant and their friends can be ok, but it's a bit riskier for you, since they could all go if you have to get rid of one.

Mouse over any underlined word for a definition :) (this one is real estate investor association)