Posted by Darren (MA) on January 18, 1999 at 11:58:41:
David,
I absolutely agree with Phil about checking out the current leases, because you’re going to have to honor them once you purchase the building. (This could mean trouble if the rents are below market and the lease is for a term longer than you would prefer).
First rental property - Posted by David
Posted by David on January 18, 1999 at 09:04:54:
My broker approached me the other day and said that he had a couple of duplexes and a quadplex coming up for sale. He asked me if I wanted a chance to look at them and I told him yes. I am very nervous as this is my first rental that I will be considering taking on. Should I pass and only go for the single families or should I try to tackle something like this as a newbie? I am having trouble finding any single families that will cash flow in my area. Any input would be greatly appreciated. I really enjoy this sight.
Thanks,
David, GA
Re: First rental property - Posted by phil fernandez
Posted by phil fernandez on January 18, 1999 at 10:01:47:
David,
Normally single family houses don’t cashflow well because you only have one income to offset the expenses. Why not go for the duplexes or four unit. More units better cashflow.
Make sure that these units are in decent neighborhoods not war zones. And check the income and expense figures by verifying them yourself. Don’t make the mistake of taking the sellers or brokers word on the numbers.
Re: First rental property - Posted by David S
Posted by David S on January 18, 1999 at 09:58:20:
you didn’t provide enough info for comment here, but you should always take the time, as a newbie, to look at everything you can.
in GA, there are tons of sfr’s, mh’s, etc that will cash flow.
David S
Re: First rental property - Posted by David
Posted by David on January 18, 1999 at 10:08:25:
What is the best way to check the income and expense fitgures and make sure that they are correct?
Re: First rental property - Posted by Bud Branstetter
Posted by Bud Branstetter on January 18, 1999 at 11:59:06:
Small rental properties can be deceiving. A 40% factor for expenses is a rule of thumb. This includes management, vacancy, maintenance(including deferred) as well as normal untilities taxes etc. If you do these yourself you may be showing a profit but you are doing so on your labor not the income of the property. You are also taking time away from looking for other oportunities. Add these things in as if you had to hire them done to get a real picture.
Re: First rental property - Posted by phil fernandez
Posted by phil fernandez on January 18, 1999 at 10:42:45:
David,
One way to check would be to take a look at the seller’s Schedule E Form that was send to the IRS. I would look at the last three years.
Also take a look at the leases of each tenant and verify this info with the tenants. Have the tenants sign what’s basically an affidavit known as an estoppel certificate certifying what the rents are.
This second way, you probably won’t be able to do before you make the offer, so in your offer have a contingecy clause stating your right to obtain the info.
Find out the company who furnishes heat and electricity. Call the companies up to verify numbers. Taxes and water and sewer costs are easily checked by calling the city that the property is located in and asking for this information.
Call up rubbish removal companies and ask them what costs would be to remove garbage on a duplex or four unit. Same with lawn care, find out what that would cost in your area.
Back to the rents, call up management companies to find out what the vacancy factors might be in your area. They can also tell you what two bedrooms verses three bedrooms rent for and where the demand is for the units.
These are just some ideas.