Posted by Joe(TX) on September 17, 2003 at 11:19:53:
Thanks. I’m thinking of making a low offer with an inspection contingency.
First Potential Deal…feedback please. - Posted by Joe(TX)
Posted by Joe(TX) on September 16, 2003 at 16:40:52:
Here are the numbers…6 unit rental property. 4 1-bedroom apts and 2 efficiency apts. Rent is $325 per unit with all utilities included for efficiency apts so gross rents = $1950. Owner is asking $65k for the property. Tax appraisal is $50k. The problem is the tenants are all month to month, no deposits and definitely less than desirable people in general. The property could use some work though the neighborhood is very nice. It’s an older SFH that’s been converted to 1 bedrooms apts and the garage was converted to efficiency apts. I’m not an expert on repair costs but think it may need pier/beam foundation work, paint, carpet/wood floor finishing. Electrical and plumbing have all been updated. The owner needs to sell as he is getting divorced and bought the property with his wife. Any suggestions? What type of offer should I make?
Re: First Potential Deal…feedback please. - Posted by TH
Posted by TH on September 18, 2003 at 06:47:21:
New here at this game, but anyone can see that this is a no brainer! I WOULD BUY IT NOW if I were you. The pictures look good, do the math, it’s a win win situation…
TH
Re: First Potential Deal…feedback please. - Posted by TWatkins
Posted by TWatkins on September 17, 2003 at 21:52:27:
sounds like a good deal. get it under contract. during the inspection period, you might want to make sure that there are no zoning conflicts. you said that it was a SFR that was converted. even if the property has been converted for some time, you don’t want zoning issues arising. if the local government has been “looking the other way,” you can try to get a statement of continued non-enforcement of zoning laws.
and another thing about the shared utilities. don’t take the seller’s word for average costs. have him provide a history from the utility companies. this is pretty common practice, and will save you from surprises. he may be telling you spring time costs, but winter utilities may go through the roof. if it’s a problem look into getting separate meters, which would make your long term management much easier, (but that’s pretty costly).
good luck!
Re: First Potential Deal…feedback please. - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 17, 2003 at 10:26:49:
Joe–(TX)---------------
The rents to price ratio sounds outstanding. So the other considerations.
Expenses. Who pays the utilties? If You, how much?
“needs work” is vague, you need to get experts in to estimate work. If you do some yourself, it will probably be less costly and you will learn.\
You need to tie it up with a contract to purchase which has an inspection contingency so you can get out of the deal if it does not seem right to you.
Don’t worry about month to month. Here in CA, that is all I use. Here, if the renter wants to get out of a lease, I, as the owner, have to “mitigate damages.” That means I have to try to rerent the property. And so it is unlikely that the renter will have to pay addtional rent.
“…Less than desirable… .” renters? Well, I don’t know exactly what you are dealing with here. If it is difficult to collect rent and there is damage to the property, you need to get rid of the not so good renters. Otherwise, perhaps you are just prejudiced. Would there be demand from other, better, renters?
There is more turn over with efficieny apartments. You might target elderly people, they may be more stable.
Only you can make the finally decision, but from the information you have given so far, this sounds like a cash cow putting out buckets of bucks.
Good Investing****************Ron Starr**************
Re:Ron Starr…feedback please??? - Posted by Joe(TX)
Posted by Joe(TX) on September 17, 2003 at 09:48:04:
NTXT
Re: First Potential Deal…feedback please. - Posted by David Garcia
Posted by David Garcia on September 16, 2003 at 18:09:55:
Offer him to take over his payments. If he insists that he needs money, offer a lease option. With the condition that you give him some cash when you sell.
Re: First Potential Deal…feedback please. - Posted by Arthur
Posted by Arthur on September 16, 2003 at 18:05:46:
Its hard to say without the repair costs.
Re: First Potential Deal…feedback please. - Posted by Joe(TX)
Posted by Joe(TX) on September 17, 2003 at 22:42:33:
The apartments are set up on separate meters for electric but gas and water are all together. He is a contractor and pays for contruction run-off and wastewater on the same bill so it would be hard to determine the properties water use. I am going to get a 12 month avg for the gas since the house has gas heat and I don’t want any surpises.
I’ll also look into any zoning issues.
Thanks for your input.
Re: First Potential Deal…feedback please. - Posted by Joe(TX)
Posted by Joe(TX) on September 17, 2003 at 10:43:45:
Ron,
Thanks for a quick response.
The landlord pays all utilities for the efficiencies and water/gas for the 1 bedrooms. He said it runs less than $150 for gas and water on average and the electric for the 2 efficiencies is usually less than $50.
I guess the “less than desirable” is due to the fact that there was a car parked in the front yard, front porch had a workout bench and weights strewn about and when we walked up the driveway to view garage apartment I could smell pot smoke coming out of the house.
Maybe I should submit a lowball offer with an inspection contingency and see what happens? The property is listed on realtor.com but has no sign in the front yard and the agent admitted to being embarrased about showing a property that looked like this.
I took some digital photos of the property. Would seeing those help get a general idea of external repairs?
Thanks again.
Joe
Re: First Potential Deal…feedback please. - Posted by Joe(TX)
Posted by Joe(TX) on September 16, 2003 at 18:13:37:
Thanks for a quick response. I’m actually looking to buy and hold this property. The owner won’t do a lease/option. Only financing he would consider was with 20% down or a 20% second mortgage.
Re: First Potential Deal…feedback please. - Posted by Joe(TX)
Posted by Joe(TX) on September 17, 2003 at 09:41:10:
The repairs wouldn’t be necessary right away as the property doesn’t have any vacancies. Would I be able to get a loan without the work being done?
Re: First Potential Deal…feedback please. - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 17, 2003 at 16:32:42:
Joe–(TX)------------
I’m not going to take the time to run the numbers, but you should do so.
This sounds like an outstanding buy given what you said. Don’t dink around. Make an offer that you think the owner(s) will accept. If that is full price, so be it. Talk with the listing agent and see if they have any idea if a somewhat lower offer will succeed.
Now, I am worried that this is not a good deal if it has not been snatched up by somebody else already. Those rents vs asking price figures are so good. Did you misprint the asking price? Left off a 1 at the front?
Have you looked at at least 50 income properties in your area so you know how it compares to what else is and has been available for buying there?
You can make rules about thinkgs like cars on the lawn. You can try to only take in the best of the rental applicants. I have to look at 15-25 applications for every house I rent to find a good renter. I’m creaming off the top 10% of renters.
You might try putting the pictures up on the internet with a URL of where to find them. A while back some of the posters were posting pix of their great buys.
And I would suggest that you never say in public that you smelled marijuana at the property when you own it. I worry about those crazy government laws about seizing properties of drug lords. You might be considered one.
Good InvestingRon Starr***
Re: First Potential Deal…feedback please. - Posted by Arthur
Posted by Arthur on September 17, 2003 at 11:01:04:
Well, it doesn’t matter if it has to be done right away, it will eventually have to be done, and you need to know where you stand before you jump in or you may have some very nasty surprises later on.
You also need to know what the outgoings are if you are to pay the utilities etc. The rent v purchase price is fantastic, if i can find something at 15% plus i’m happy, but you have one at nearly 50%…however, we don’t know what they pay in bills, nor the estimated repair costs.
You could always put an offer in subject to inspection and get a pro in to check out the condition and quote you for the work.
Only fools rush in.
Re: First Potential Deal…feedback please. - Posted by Joe(TX)
Posted by Joe(TX) on September 17, 2003 at 20:05:40:
Here is a link to the photos to go with information in previous post.
Re: First Potential Deal…feedback please. - Posted by Joe(TX)
Posted by Joe(TX) on September 17, 2003 at 19:49:47:
Ron,
Here are my numbers, let me know if I’ve missed anything.
Asking Price $60,000
Gross Annual Rents $23,100
5% Vacancy Rate $1,155
Gross Operating Income $21,945
Advertising $300
Insurance $1,000
Management Fee 10% $2,310
Replacement Reserve $1,500
FinderFees (Tenant) $800
Taxes $2,000
5% Repairs $1,155
Total Operating and
Fixed Expenses $9,065
NOI $12,880 $1,073 /mth
Mortgage #1($48K @ 8% 15yrs) $460 /mth
Mortgage #2(12k @ 10% 5yrs) $255 /mth
Annual Debt Service $8,580
Debt Service Coverage
Ratio(DSCR) 1.50
Cash Flow $358 /mth
Do you think I would be able to 100% finance a place like this? Credit score is 670 and have very little debt.
I have not looked at 50 properties like this as the metro area it’s located in has a population of 100,000 people and I didn’t find many like this for sale. Is there a better way to get comps?
This would be my first offer. Is there a form I should use? Any other escape clause I might want to add in case of a surpise other than the inspection clause?
TIA
Joe