All Forum Posts by: Paul B.

Hi,

I have recently switched property management companies. The outgoing PM is seriously dragging their feet transferring all the required security deposits, keys, leases, etc. It has been since Oct 28th when I terminated the agreement. How long does the PM have, by law, to transfer all of this information and more importantly, the money? I'm in Alabama, if that helps. I'm really considering reporting them to the real estate commission, because this is ridiculous for something pretty easy to take care of. Thanks!

@Jordy Clark; I'm with David. Without very favorable loan terms, your cashflow is probably negative. Not sure this is a good deal.

Hey There; we just completed our first flip this week. We gained a lot of lessons learned from this one. We also made some money on it, so that is good too! Definitely looking forward to the next one. It took 6 weeks to complete. Ok, first the numbers:

Purchase Price at Auction: $35000 + 10% buyers premium ($38500)

Rehab Costs: $32190

Closing Costs: $6380

Sales Price: $90000

Net: $12930 or 16% ROI

Seems like this is in the ballpark of where we want to be. Ok, so lessons learned. Lots of fees and costs that nibble away at the bottom line: Utilities - a/c ran constantly at 70 degrees with doors wide open, running power tools, etc, so that added up to big utility bills. Closing costs - on the front and back ends attorneys' fees and state/county taxes.  Materials - could have saved on a bunch of items, now that we know where to go (we bought all the materials and also did the landscaping). Labor - definitely doing cost-plus next time. We were over-budget on labor. Anyway, it was a lot of fun and it was a success. 

Hi @Seth Cunningham ;

Fourplexes are going to be classified as residential, so having comps will be most important in evaluating it.

Someone said it above and I have to strongly second the thought regarding deferred maintenance. Figure that out going in. My experience with purchasing and owning a fourplex has been (and it has deferred maintenance) that you may need - sometime significant - cash going in to fix a bunch of issues up front. You can't rely on the operating cashflow to get you there. The tenants in these buildings seem to be much more transient and I don't count on them paying all their rent every month or staying the entire lease. This is a big assumption with a C neighborhood if that's what you are looking at. About half of them will pay rent well, the other half not so much. If you can go in and rehab it and make it the nicest building on the block, maybe you can upgrade your class of tenant. But check out the neighborhood. You may be stuck with what you have. I would find out how long those tenants have been there and the rental history of the building.

Some folks use $100 a door as a metric for multi. I like this too, if not more, as it provides some contingency $. You will have a water heater go out, or an a/c unit break, or plumbing leaks, etc. Have a sufficient cash reserve. The first 6 months may be a drain before making any money.

If you are working 12hr shifts I would question PMing the building yourself. Multi has much more TLC required. Tenants call to change a light bulb. Not kidding! My PM is over there all the time for something, usually the garbage disposal. I think they put rocks in it. They are hard on apartments and equipment.

Well, not trying to discourage. It's not all bad; just my experience and lessons learned, and I hope it helps in your decision-making. Your numbers are in line with what I came up with. But it depends on what financing you get. I like this guideline that it should cashflow to your criteria assuming it is financed at 100% (so says Ben L). That puts you under $200/mth on this one. If you go hard money, it may be negative. If you go conventional, you are ok (25% down), but you don't want to buy cashflow either.

@Trevor K. ;

Hi and congrats! As I took over my 4 units, the change in ownership ruffled the tenants, for reasons I will never fathom. Some quit paying or moved out. Something to watch and be prepared for.

Congrats @Sean Connolly ;

Sounds like great start. I know nothing about your area, but want to congratulate you anyways on your first deal.

@Christopher Hunter

From what I've picked up (and you can find this on other posts) cap rates for what are considered residential properties (4 units and less) is not as meaningful for an investor as for 5+ units. I think one of the reasons why is because they are considered residential, they tend to use comps to value them versus cap rate. But that's not the interesting question.

The interesting question here is, what could this property be worth to an investor? If you put the rehab in and are able to raise rent (if it is supported by the comps in the area), does that now make it more attractive? How is that area this property is located within trending? What's the potential here? Maybe there is some, maybe there's not.

@Anthony Barbato ;

You want an LLC primarily for liability protection on your rentals, not tax advantages. An LLC is a pass-through to your personal return, so you get all the advantages of owning real estate. Hope this helps,

@Jon Klaus ; Good thought exercise here. I was actually responding to the personal finances angle of @Shawn Sparks' question, not how I would look to a banker. I agree you need both a healthy P&L and Balance Sheet to borrow money. However, if you have a nice net worth on paper (great for the bank), but no cash flow to live from, create value, or save, you are personally poor.

@Jeremiah B. Yes you can convert some of your assets to cash when needed. But as you say, this is not always easy or quick; and there are potentially huge tax implications. So, really - how do you get to that "$1M of cash" in the first place? You work a job and save (good luck), invest and get cashflow to save, and/or asset appreciation. Or inherit it :^) .

I think real estate is a great avenue to get the cashflow you need for income to have a personal income statement that works for you and for your family today. Plus the possible asset appreciation over time and to take advantage of the tax laws in your favor (which in turn helps your income statement).

@Shawn Sparks ; @Thomas Guertin is on it. Net worth doesn't mean much. There are plenty of rich people on paper with zero cash flow. You want cash flow. That is why you get into real estate. And there are the tax benefits through depreciation etc.