All Forum Posts by: Zach Davis

First personally owned rental was 25% down on a 210k property + 10k in repairs. Its worth about $240k now and I owe about $150k at 4.875%. Second was 5% on a 290k property and with another 10k in repairs, Its worth about $330k and I owe $275k at 4.25% 

I've been contemplating a 4 plex in a town near my home. The property itself has great numbers and a low vacancy rate but even though the town has grown 22% in the last 10 years, its still only 3000 people. I'm just a little unsure about that small of a tenant pool. Anyone have any experience with smaller towns?

Thanks for the responses everyone. 

Those that are looking for more info: The FMV is around 240k, asking is 225k. Owner finance, 10% down, 5.25% interest at 30 years with a 7 year balloon. Its in decent shape but has not had substantial updating since new. Rents are below market by about $100 each per month and the tenants are on expired leases that have been rolled over to month to month, 6 and 2 year tenants. Rents can realistically be raised about $20-$25 each right off the bat with a few fixes to justify it, which would put me in the 5-6% cash on cash realm. Full rent increases would take about 2-3 years unless someone moves out and I turn the unit over. A small benefit is that if I buy the property I can save around $1000 a year in utilities ($500 on this one and $500 on my other plex) because it allows me to open up a gate to another complex and use that properties' under-utilized dumpster. Yes, that's above board, I'm a partner in the complex. That savings would put me in the 8% range and 2-3 years down the road when I've been able to bring rents up to market, assuming current market rents don't rise, I'd be in the 12-15% range. IF interest rates stayed low and I could refi around 4-4.5% I would net around 18% COC. These are self managed properties and assume 6% vacancy, 10% of gross rents in maintenance costs, taxes, insurance, CAP EX and all that good stuff. I could also get an owner occupied loan if I needed to but PMI would kill any cash flow gained by the lower interest rate.

Keep in mind, I don't need the property itself analyzed, I know the numbers because I have access to the financials from 3 other properties in the immediate area. I'm asking if you would be willing to make little initially and bet on semi-static interest rates and property values not plummeting in order to refi some time in the next 7 years. I know this is pretty standard for commercial loans with 10 year balloons but since small multi is valued like SFH you have less control over the value of the property and its a little more risky.

I was recently contacted by the owner of the duplex across the street from mine, he's sick of it and wants to sell it to me owner contract. The asking price is about 15k under market and the terms are 10% down payment and 5.25% interest amortized over 30 years with a 7 year balloon. I don't currently have quite enough cash to put a full 20% down otherwise I would just buy it through a bank and take the lower interest rate. My thought was that I could buy it owner contract and refi it in a year or two. Obviously, other than not knowing what interest rates or property values will do in the next 7 years, the property will barely cash flow until updates are made and rents increased. It has the potential to net around 15% cash on cash IF I can refi it at around current market rates in a year or two, if not, it’ll be more like 6% (which, sadly, is pretty standard for the area) until inflation pushes rents up.

Would you bet on this thing?

I was recently reflecting on how much rents have increased in my market in the last 10 years and am curious what has been happening elsewhere. My first apartment out of high school was a 2 bedroom POS that I rented from a slumlord for $550 a month, 8 years ago we were charging $600 for smallish 2 bedroom 1 bath flats in a large complex. Right now, I'm renting a similar unit in the same neighborhood for $825. What are your experiences?

I was thinking about how much rents have increased in my area in the last 10 years and decided to do a little research. I used the St. Louis Federal Reserve website to look up info on average rents and to my surprise, there was very little in the way of decreases on any long term basis. This is a national graph, not a local one and I'm sure there are markets that have seen very high vacancy rates or dropping rents but I take this is an overall good sign for our investments. My question is this: Have any of you seasoned vets experienced dramatic (10% or more) or long term (2 years plus) drops in rent prices?

@Jon Klaus - I'm glad I could ease your mind. All jokes aside though, I bet somewhere some landlord has a story involving liquid nitrogen... Just sayin'.

@Jason Burr - Copper is just a personal preference for me. It's basis is a natural mineral as opposed to a poly composite with some crazy synthetic molecule. Its totally moot since most water mains are PVC, which is the worst of the bunch in terms of leaching chemicals. And none of it really has any basis in science anyway... Maybe I've just been around Portland too long. I think mostly I just felt like a real artisan after sweating a house full of copper together. PEX almost seems too easy. Lol

Just FYI, my current house is all PEXb and I haven't heard of a case of spontaneous combustion in the whole neighborhood... yet. ;-)

Where do I start... I have done under pressure freeze/thaw tests with PEX and different types of fittings. I used to work for a plumber that hated the "new fangled stuff" and we set out during a slow week to test the claims along with the 4 main types of fittings. Those being cinch rings, crimp rings, SharkBite, and expansion fittings.

This was our test: Each test piece consisted of a brass valve with a 1/2" pex adapter soldered on, a few sections of 1/2" PEX, and various types of fittings. The valve was attached to a 1 foot piece of PEX which went to an 90 degree elbow, then another foot of PEX that ended in a T with a 6" PEX stub on either side, each ending in a plug.

We attached them each to a garden hose (around 40psi if I remember right), filled them to capacity, got as much air as possible out, then closed the valve to retain pressure. All valves went into a deep freezer for 48 hours. Then they were removed and thawed at room temp for another 24 hours before hooking them back up to the hose and checking for leaks. 

Upon removing them from the freezer we were surprised to find that not even the brass fittings (or brass SharkBite) fittings had cracked. We assumed this was because the PEX expanded and relieved enough pressure to keep them from cracking. That being said, when the pieces were re-pressurized we found that the cinch rings had expanded enough that the lines were now leaking at 2 of the fittings. The rig with the crimp rings on it had a minor leak around one fitting, and the SharkBite fittings, although not leaking, had moved out about 1/8" up the line from where they started. The real winner was the expansion fittings. Nothing moved, nothing leaked, everything expanded and then shrank right back to what it was supposed to be.

Later on (another slow week) we put together a half dozen 3/4" and 1/2" stubs with a plug on either side and water in the middle. We dipped them in liquid nitrogen (his brother was a science teacher) and then let them thaw. Only one of them leaked. From then on we used PEX and expansion fittings wherever possible. 

I personally like copper for my own stuff but if you're rehabbing or re-piping a rental PEX is the way to go.

The company that I've worked at for the past 8 years is closing its doors in April and I find myself at a crossroads. I recently sold my personal home and was looking for another small multifamily property to move into but have yet to find one that the numbers work on in my area. I'm currently sitting on just over 40k above my living expenses and emergency fund and have a duplex that is worth around 230k which I owe about 155k on. The question is what would you do in my situation? Just find another job and stick with the slow lane buy and holds every few years or try and make REI my job. I do potentially have a private lender that I can use for small flips or other short term investments but not for buy and hold deals. I have a general contractor in the family that I trust and I have a background in construction, maintenance, and property management but I'm still uneasy about setting out on my own. Ideas?

OK, thanks for the input. Might have to start marketing to find better properties.