All Forum Posts by: Will K

Scott French I am looking at something similar in your region, I almost thought you were describing my property!

The property I am looking at is 4 units but they are 2BR/1BA. They currently rent for $635/mo, but LL pays all utilities (about $9,600/yr). Building is old but has been renovated inside fairly recently, so somewhat new appliances, cabinets, etc. Building is currently owned by a social housing program who has rent limits, so when they sell I aim to reposition it to tenant-based utilities and increase rents to market rates (about $750/mo).

Just to give you an idea, the property I described above is listed at $130k, but I plan to offer around $100K for it (primarily because it’s an hour away from me, and paying anymore would not generate sufficient cash flow for me to put up with the headache of an out-of-town property.

I consider my building a pretty good deal. For your property, I probably would not offer more than $120k, based on how you described it.

Disclosure: I’m a newb at this, and I have not ever owned a rental property

Ibrahim S This is a great list. Do you mind linking to the original thread it was posted in?

I have a question though, how do you find people in these categories? For example, how do you find contact information for people who are late on bill payments or mortgage payments, or contact information for people paying two notes?

I am aware of online tax data searches via city websites. But, for example, if someone owns a property in Baltimore and one property in DC, running a tax database search on only one of those cities websites is only going to show their Baltimore properties.

Is there a tax-database search that aggregates all these sites?

Uwe S. haha nice and blunt, I like it.

$3,000,000 is based on the price I got from emailing the poster.

And you are correct, it is only 69 units. That makes the deal mediocre. Nice catch Uwe!

Scanning CL for real estate deals, I came across this one:

http://washingtondc.craigslist.org/nva/reb/3442474249.html

It’s 69 townhouses (each has 2-3 units in them, I assumed an average of 2.5 units per property, so 173 units total) for $3,000,000 in Baltimore. That’s about $45,000 per townhouse, or $17,500 per unit.

I don't know if I agree with their rental rate assumptions, but even if you could pull in an average of $750 for each unit, I came up with a CAP rate of almost 30. This deal crushes the 2% rule, as each unit would pull in 4.3% of its value monthly.

This is taking into account a 8.5% property management rate for the whole enterprise (roughly $100k a year, I assume you would hire two people to be full-time managers). I also assumed a 75% occupancy rate and a 10% maintenance rate.

If only I had $3,000,000 laying around…

Steve Maye Steve, even at a 100% occupancy rate you're going to get a 1.5% cash on cash ROI and a 5.6% total ROI if you take into account the principal pay-downs.

With the stock market historically returning 6.5% - 7% annually, you should at least aim to get somewhat above that, especially considering the extra work (and sometimes risk) involved with RE deals.

Shane Johnson whoops you're right, it should just read "post-tax".

As for the 30% rate, I assumed that my rental income would be added to my current job's salary, which would put it around the 30% tax bracket.

If by write-offs you mean expenses and mortgage related to the property, then that is taken into account. As far as depreciation goes, I made this version of the spreadsheet before I knew about depreciation. I have an updated one I will upload soon which takes into account depreciation as well as allows for inputs of other expenses, such as utilities that owner pays.

Thanks for the feedback! How did my ROI numbers compare to how your current rental performs?

Mike Smith assuming a 90% occupancy rate, my spreadsheet says you shouldn't pay more than $320,000 for the property if you at least want a 10% CAP.

Just out of curiosity, where in Madison are 2BRs renting for $1,500?

Michael Cerny Assuming 85% occupancy instead of 97%, I wouldnt offer more than $110k. This is not taking into account HOA fees. This thing has a 5.5% CAP rate at $170k, not worth it.

Col Wag Hey Col, so the "improvements" category is something that is added to the "money down" cell in G5, which is used to calculate the ROI calculations. So yes, the improvements category is taken into account when assessing ROI.

Also, I noticed some errors and made some updates to the file. These include:

-Fixed CAP value calculator - was counting vacancy expenses twice when using the 50% rule.
-Added another CAP rate formula, calculates CAP rate based on your inputted expenses (and not the 50% rule like the cell above).
-Increased closing cost estimates to 6% of purchase price, more inline with what I found from industry research.
-Maintenance is calculated as 10% of collected rent, instead of 1% of home sale price.
-insurance is 0.8% of purchase price, more inline with what I found from industry research.
-NOI cell was updated to show annual NOI instead of monthly NOI.

Enjoy!

http://www.biggerpockets.com/files/user/wklose99/file/mfh-or-sfh-deal-analyzer

I'm a newb so take this with a grain of salt, but I would think after you take into account closing costs, rehab, and potential overruns with the foundation being fixed, this may not be such a great deal. I would estimate total closing costs on both ends to run close to $15k, but I may be way off.

Also, I may be misunderstanding your post, but your RE agent tells you only nine comps have sold in the past year, and even then only at $95k? Where are you getting the $145k comp number from?