Good First Real Estate Investment?

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CoastLawyer2030
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Good First Real Estate Investment?

Post by CoastLawyer2030 »

My accountant and I met several times last year to put the groundwork on buying a rental property. We are going 50/50 for initial investment, he gets 52% of profits for dealing with day-to-day, and we have just been waiting on the right property.

There is a 4,000 square foot duplex listed for $275,000 (NE Ohio, LCOL area). This unit is in my same neighborhood -- probably .2 of a mile from my house (not that I would ever disclose this). Each unit is 2,000 square feet, 3 Beds/2.5 Baths, and somewhat dated but nothing terrible -- just eventually needs new floors and some paint.

Both units are currently rented. Tenants pay all utilities except trash. The rear tenant pays $950 per month -- she has been there for 11 years and never had her rent raised. The front tenant is new and pays $1,350, but has a pet. The first floor is almost entirely tile that I'd eventually want to cover, so this is not a huge deal.

So, current cash flow is $2,300 per month. I would plan on raising the rent for the rear tenant by $100 or $200. I believe I could obtain this property for $250,000.

My thoughts -- $200,000 mortgage = $1,020/month mortgage, plus $350 property tax/month, plus trash $30/month. I'm right up the street so I would cut the grass and do the lawn maintenance (minor).

My realtor believes both units, when fixed up, could eventually be leased for $1,600-1,800 per month.

So, right now, about $800 cash flow per month. After fixing up, could be $2,000 cash flow per month (so $1,000 or so for me, which would cover my personal mortgage). The plan would be to just keep these tenants, save the money, and fix it up with those proceeds when we get new tenants.

I view this as a really good opportunity but feel like I'm missing something.

Thoughts?
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gwe67
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Re: Good First Real Estate Investment?

Post by gwe67 »

Terrible idea to do this as a partnership.
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exodusNH
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Re: Good First Real Estate Investment?

Post by exodusNH »

CoastLawyer2030 wrote: Fri Jan 15, 2021 1:26 pm Both units are currently rented. Tenants pay all utilities except trash. The rear tenant pays $950 per month -- she has been there for 11 years and never had her rent raised. The front tenant is new and pays $1,350, but has a pet. The first floor is almost entirely tile that I'd eventually want to cover, so this is not a huge deal.

So, current cash flow is $2,300 per month. I would plan on raising the rent for the rear tenant by $100 or $200. I believe I could obtain this property for $250,000.
Unless you have a tight housing market or the rear unit is vastly under market value, be prepared that if she leaves, you may have a month or two of $0 rent, which wipes out the potential increase. There's a lot to be said for a long-term tenant.
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CoastLawyer2030
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Re: Good First Real Estate Investment?

Post by CoastLawyer2030 »

exodusNH wrote: Fri Jan 15, 2021 1:31 pm
CoastLawyer2030 wrote: Fri Jan 15, 2021 1:26 pm Both units are currently rented. Tenants pay all utilities except trash. The rear tenant pays $950 per month -- she has been there for 11 years and never had her rent raised. The front tenant is new and pays $1,350, but has a pet. The first floor is almost entirely tile that I'd eventually want to cover, so this is not a huge deal.

So, current cash flow is $2,300 per month. I would plan on raising the rent for the rear tenant by $100 or $200. I believe I could obtain this property for $250,000.
Unless you have a tight housing market or the rear unit is vastly under market value, be prepared that if she leaves, you may have a month or two of $0 rent, which wipes out the potential increase. There's a lot to be said for a long-term tenant.
My intent would be to approach this very gently. “Your rent hasn’t been raised in ten years” type speech.
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CoastLawyer2030
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Re: Good First Real Estate Investment?

Post by CoastLawyer2030 »

gwe67 wrote: Fri Jan 15, 2021 1:29 pm Terrible idea to do this as a partnership.
Why?
gougou
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Re: Good First Real Estate Investment?

Post by gougou »

That return looks pretty good. I'd just buy it myself and hire a property management company.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
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CoastLawyer2030
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Re: Good First Real Estate Investment?

Post by CoastLawyer2030 »

I’m a solo attorney and am one for a reason. I understand the perils that come with a partnership in a complex business.

Doing one to own one property is an entirely different animal than running a business together.

Like I said, we have met a significant amount of times and agree on all major issues related to property management, improvements, desired tenants, etc.

Basically I am more concerned with the numbers as whether this transaction makes sense.
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Sandtrap
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Re: Good First Real Estate Investment?

Post by Sandtrap »

Based on your numbers, at present, you will have a 3.2% "before" tax CAP rate.
Is this correct?

j :D

*edit: correction on the cap rate. (brain fart).
Last edited by Sandtrap on Fri Jan 15, 2021 9:49 pm, edited 1 time in total.
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Topic Author
CoastLawyer2030
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Re: Good First Real Estate Investment?

Post by CoastLawyer2030 »

Sandtrap wrote: Fri Jan 15, 2021 4:09 pm Based on your numbers, at present, you will have a 3.2% "before" tax CAP rate.
Is this correct?

j :D
This is my main issue. Low cap rate to start but this is the best school district in the area in arguably the best neighborhood in the area. There’s a duplex right up the hill that rents for $1,900 per unit.

So cap rate now is not great, but future potential is solid.

I just love how close it is. It is 200 feet from the house I grew up in and a quarter mile from my current house.
ny_rn
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Re: Good First Real Estate Investment?

Post by ny_rn »

Why do you need a partner? Run the numbers again and include expenses that will come up. Example - capex, vacancy, property management.
Lexx
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Re: Good First Real Estate Investment?

Post by Lexx »

I would never partner up with anyone I did other business with. It's just bad. Conflicts are bound to happen from time to time. Unless you are BOTH experts at conflict resolution, any conflicts may affect your other business dealings. So hard pass for me.

$50k down and $2300/mo rent means your cash on cash return is $2300 * 12 = $27,600 annually. $27,500 divided by $50,000 gives you a 5.52% cash on cash return. That's how much you're earning on the $50k cash you put down.

Your CAP rate would be $27,600 divided by $200,000 = 11.04% which is outstanding.

So this sounds like a good investment but I would go it alone.
CoastLawyer2030 wrote: Fri Jan 15, 2021 1:26 pm My accountant and I met several times last year to put the groundwork on buying a rental property. We are going 50/50 for initial investment, he gets 52% of profits for dealing with day-to-day, and we have just been waiting on the right property.

There is a 4,000 square foot duplex listed for $275,000 (NE Ohio, LCOL area). This unit is in my same neighborhood -- probably .2 of a mile from my house (not that I would ever disclose this). Each unit is 2,000 square feet, 3 Beds/2.5 Baths, and somewhat dated but nothing terrible -- just eventually needs new floors and some paint.

Both units are currently rented. Tenants pay all utilities except trash. The rear tenant pays $950 per month -- she has been there for 11 years and never had her rent raised. The front tenant is new and pays $1,350, but has a pet. The first floor is almost entirely tile that I'd eventually want to cover, so this is not a huge deal.

So, current cash flow is $2,300 per month. I would plan on raising the rent for the rear tenant by $100 or $200. I believe I could obtain this property for $250,000.

My thoughts -- $200,000 mortgage = $1,020/month mortgage, plus $350 property tax/month, plus trash $30/month. I'm right up the street so I would cut the grass and do the lawn maintenance (minor).

My realtor believes both units, when fixed up, could eventually be leased for $1,600-1,800 per month.

So, right now, about $800 cash flow per month. After fixing up, could be $2,000 cash flow per month (so $1,000 or so for me, which would cover my personal mortgage). The plan would be to just keep these tenants, save the money, and fix it up with those proceeds when we get new tenants.

I view this as a really good opportunity but feel like I'm missing something.

Thoughts?
SouthernFIRE
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Re: Good First Real Estate Investment?

Post by SouthernFIRE »

Pass. Cap rate too low. Not a great metric for duplex but still suggests cash flow isn’t there.
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Sandtrap
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Re: Good First Real Estate Investment?

Post by Sandtrap »

CoastLawyer2030 wrote: Fri Jan 15, 2021 5:37 pm
Sandtrap wrote: Fri Jan 15, 2021 4:09 pm Based on your numbers, at present, you will have a 3.2% "before" tax CAP rate.
Is this correct?

j :D
This is my main issue. Low cap rate to start but this is the best school district in the area in arguably the best neighborhood in the area. There’s a duplex right up the hill that rents for $1,900 per unit.

So cap rate now is not great, but future potential is solid.

I just love how close it is. It is 200 feet from the house I grew up in and a quarter mile from my current house.
IMHO, the feasibility of this lies in your experience and skills as an attorney and your friend's experience and skills as a CPA which is a formidable combination in business, and in this case, regardless of whether the "numbers" are good, marginal, or otherwise. It's obvious that both of you are going into this with "eyes wide open" and have the resources to back it up and make it work.
On that basis, why not give it a try. It is not a formidable purchase, and If either of you grow tired of the endeavor, you can just sell the property. There is an exit plan.

Your case is different. For some that have gone into rentals as a sole proprietorship, perhaps buying a SFH rental while earning a salary, then growing from there, that's one path and one point of view based on that experience. And, so forth. In your cases, you are both professionals diversifying professional businesses you are already in. Similar to a combination "hui" of a Realtor Broker and a General Contractor Developer.

Have fun in your business endeavor.
Perhaps along the way you can get into building high rise apartments and all that fun as well. :D :D
j :D
Last edited by Sandtrap on Sat Jan 16, 2021 7:07 am, edited 1 time in total.
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816_Feet
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Re: Good First Real Estate Investment?

Post by 816_Feet »

Lexx wrote: Fri Jan 15, 2021 6:22 pm $50k down and $2300/mo rent means your cash on cash return is $2300 * 12 = $27,600 annually. $27,500 divided by $50,000 gives you a 5.52% cash on cash return. That's how much you're earning on the $50k cash you put down.

Your CAP rate would be $27,600 divided by $200,000 = 11.04% which is outstanding.
Wouldn't their cash on cash return be:

($2300-$1020-$350-30)12 / $50,000 =
$900 x 12 / $50,000 =
$10,800 / $50,000 ≈ 22%

Cap. rate would be NOI / purchase price:

$10,800 from above / $250,000 = 4.3%

If they raised the rents to $1,600 each then cash on cash is:

($3,200-$1020-$350-30)12 / $50,000 =
$1,800 x 12 / $50,000 =
$21,600 / $50,000 ≈ 43%

And Cap. rate becomes:

$21,600 / $250,000 = 8.6%
Lexx
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Re: Good First Real Estate Investment?

Post by Lexx »

You're right. Gawd I suck at math. I've been spending too much time helping my kids with New Math. Good thing I went into healthcare where I can use my fingers to count lol.

Y
816_Feet wrote: Fri Jan 15, 2021 10:49 pm
Lexx wrote: Fri Jan 15, 2021 6:22 pm $50k down and $2300/mo rent means your cash on cash return is $2300 * 12 = $27,600 annually. $27,500 divided by $50,000 gives you a 5.52% cash on cash return. That's how much you're earning on the $50k cash you put down.

Your CAP rate would be $27,600 divided by $200,000 = 11.04% which is outstanding.
Wouldn't their cash on cash return be:

($2300-$1020-$350-30)12 / $50,000 =
$900 x 12 / $50,000 =
$10,800 / $50,000 ≈ 22%

Cap. rate would be NOI / purchase price:

$10,800 from above / $250,000 = 4.3%

If they raised the rents to $1,600 each then cash on cash is:

($3,200-$1020-$350-30)12 / $50,000 =
$1,800 x 12 / $50,000 =
$21,600 / $50,000 ≈ 43%

And Cap. rate becomes:

$21,600 / $250,000 = 8.6%
SashaWalpole
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Re: Good First Real Estate Investment?

Post by SashaWalpole »

I currently own 3 multi family rental properties. I'm a new landlord. I've bought one property each of the last 3 years. My advice if you haven't done so already is to buy Brandon Turner's books," The Book on Rental Property Investing" and "Managing Rental Properties" before you do anything else. Now, i might not be the most experienced landlord, but here's how i'd view your numbers.

Investment

$50k for a 20% downpayment for a 30 yr mortgage
$ 5.5k in closing costs
$ .5k for an inspection
immediate repair costs?

$56 total investment for now

Monthly Rent

Don't know what number to use. You say you intend to raise it to $2,500, but that the market value is actually $3,200 minimum. That's a big difference. I'll use the lower number for now, but it's confusing because i don't have a clear idea on what your plan is. If you intend to raise rents by a lot, have vacancies, and renovate the units, then the rent would be a lot higher but you'd have to factor these expenses into your initial investment. Also, make sure you can verify that you can actually get the higher rents if that's your plan. Don't just take your partner's word on it.

Monthly Expenses

$1,020 for mortgage payment
$ 350 for property taxes
$ 30 for trash
$ 130 for insurance (you didn't include this so i'm guessing based on what it costs me in my area)
$ 125 for 5% vacancy (all 3 of my properties came fully filled with tenants. I currently have 2 vacancies at once because one of my tenants died in his sleep and one was a difficult person and abandoned the property. If i were you i'd budget something for vacancy)
$ 200 for repairs (things break. You mentioned that this is an old house)
$ 200 for Capital Expenses (sooner or later roofs and furnaces and water heaters need to be replaced. Like vacancy and repairs, i feel you should budget something for this, although i'm not in a good position to say how much.)
$ 35 for snow plowing and other small things

$2,090 total expenses

Some things that i've experienced- one day i learned that the wall on the first floor of my triplex was starting to get wet. It turned out that the sewer pipe from the 3rd floor had a huge hole in it. It was cast iron and had corroded over time, but there had been no sign until water started splashing against that 1st unit wall. That cost me something like $1,000. Another experience- a new sewer pump on my 5 unit stopped working. I got the actual pump replacement for free, but still had to shell out $1,200. I haven't gone over my numbers recently, but it's possible that my repair and CapEx budgets of $200/ month for each isn't conservative enough. Contractors in my area are expensive and $200 doesn't go very far. Perhaps i only feel that way because i'm facing a lot of expenses right now though/ perhaps it's recency bias.

So you make around $400/ month using my perhaps somewhat conservative guesses.
$400/ $55,000 = less than a 1% ROI, not including potential appreciation and debt pay down

lets say that you raised rents by $700 and we ignore the additional renovation costs, now it's...
$1,100/ $55,000 = 2% ROI, not including potential appreciation and debt pay down

That's how i would look at it.
SashaWalpole
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Re: Good First Real Estate Investment?

Post by SashaWalpole »

Its funny how different my opinion is from everyone else. Some ppl in the past have accused me of being overly conservative with my numbers by projecting expenses like vacancy, repairs, and CapEx. In my opinion, things happen and you can't afford to exclude these (right now phantom) costs.
ohboy!
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Re: Good First Real Estate Investment?

Post by ohboy! »

SashaWalpole wrote: Sat Jan 16, 2021 9:52 am I currently own 3 multi family rental properties. I'm a new landlord. I've bought one property each of the last 3 years. My advice if you haven't done so already is to buy Brandon Turner's books," The Book on Rental Property Investing" and "Managing Rental Properties" before you do anything else. Now, i might not be the most experienced landlord, but here's how i'd view your numbers.

Investment

$50k for a 20% downpayment for a 30 yr mortgage
$ 5.5k in closing costs
$ .5k for an inspection
immediate repair costs?

$56 total investment for now

Monthly Rent

Don't know what number to use. You say you intend to raise it to $2,500, but that the market value is actually $3,200 minimum. That's a big difference. I'll use the lower number for now, but it's confusing because i don't have a clear idea on what your plan is. If you intend to raise rents by a lot, have vacancies, and renovate the units, then the rent would be a lot higher but you'd have to factor these expenses into your initial investment. Also, make sure you can verify that you can actually get the higher rents if that's your plan. Don't just take your partner's word on it.

Monthly Expenses

$1,020 for mortgage payment
$ 350 for property taxes
$ 30 for trash
$ 130 for insurance (you didn't include this so i'm guessing based on what it costs me in my area)
$ 125 for 5% vacancy (all 3 of my properties came fully filled with tenants. I currently have 2 vacancies at once because one of my tenants died in his sleep and one was a difficult person and abandoned the property. If i were you i'd budget something for vacancy)
$ 200 for repairs (things break. You mentioned that this is an old house)
$ 200 for Capital Expenses (sooner or later roofs and furnaces and water heaters need to be replaced. Like vacancy and repairs, i feel you should budget something for this, although i'm not in a good position to say how much.)
$ 35 for snow plowing and other small things

$2,090 total expenses

Some things that i've experienced- one day i learned that the wall on the first floor of my triplex was starting to get wet. It turned out that the sewer pipe from the 3rd floor had a huge hole in it. It was cast iron and had corroded over time, but there had been no sign until water started splashing against that 1st unit wall. That cost me something like $1,000. Another experience- a new sewer pump on my 5 unit stopped working. I got the actual pump replacement for free, but still had to shell out $1,200. I haven't gone over my numbers recently, but it's possible that my repair and CapEx budgets of $200/ month for each isn't conservative enough. Contractors in my area are expensive and $200 doesn't go very far. Perhaps i only feel that way because i'm facing a lot of expenses right now though/ perhaps it's recency bias.

So you make around $400/ month using my perhaps somewhat conservative guesses.
$400/ $55,000 = less than a 1% ROI, not including potential appreciation and debt pay down

lets say that you raised rents by $700 and we ignore the additional renovation costs, now it's...
$1,100/ $55,000 = 2% ROI, not including potential appreciation and debt pay down

That's how i would look at it.
Great breakdown. I owned a duplex. In ohio. This deal isn't great. There are little to no good deals these days. Mostly you are only getting in landlording business for the leverage of a homeloan and the hopes of appreciation. I don't like it.
ohboy!
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Re: Good First Real Estate Investment?

Post by ohboy! »

SashaWalpole wrote: Sat Jan 16, 2021 9:52 am I currently own 3 multi family rental properties. I'm a new landlord. I've bought one property each of the last 3 years. My advice if you haven't done so already is to buy Brandon Turner's books," The Book on Rental Property Investing" and "Managing Rental Properties" before you do anything else. Now, i might not be the most experienced landlord, but here's how i'd view your numbers.

Investment

$50k for a 20% downpayment for a 30 yr mortgage
$ 5.5k in closing costs
$ .5k for an inspection
immediate repair costs?

$56 total investment for now

Monthly Rent

Don't know what number to use. You say you intend to raise it to $2,500, but that the market value is actually $3,200 minimum. That's a big difference. I'll use the lower number for now, but it's confusing because i don't have a clear idea on what your plan is. If you intend to raise rents by a lot, have vacancies, and renovate the units, then the rent would be a lot higher but you'd have to factor these expenses into your initial investment. Also, make sure you can verify that you can actually get the higher rents if that's your plan. Don't just take your partner's word on it.

Monthly Expenses

$1,020 for mortgage payment
$ 350 for property taxes
$ 30 for trash
$ 130 for insurance (you didn't include this so i'm guessing based on what it costs me in my area)
$ 125 for 5% vacancy (all 3 of my properties came fully filled with tenants. I currently have 2 vacancies at once because one of my tenants died in his sleep and one was a difficult person and abandoned the property. If i were you i'd budget something for vacancy)
$ 200 for repairs (things break. You mentioned that this is an old house)
$ 200 for Capital Expenses (sooner or later roofs and furnaces and water heaters need to be replaced. Like vacancy and repairs, i feel you should budget something for this, although i'm not in a good position to say how much.)
$ 35 for snow plowing and other small things

$2,090 total expenses

Some things that i've experienced- one day i learned that the wall on the first floor of my triplex was starting to get wet. It turned out that the sewer pipe from the 3rd floor had a huge hole in it. It was cast iron and had corroded over time, but there had been no sign until water started splashing against that 1st unit wall. That cost me something like $1,000. Another experience- a new sewer pump on my 5 unit stopped working. I got the actual pump replacement for free, but still had to shell out $1,200. I haven't gone over my numbers recently, but it's possible that my repair and CapEx budgets of $200/ month for each isn't conservative enough. Contractors in my area are expensive and $200 doesn't go very far. Perhaps i only feel that way because i'm facing a lot of expenses right now though/ perhaps it's recency bias.

So you make around $400/ month using my perhaps somewhat conservative guesses.
$400/ $55,000 = less than a 1% ROI, not including potential appreciation and debt pay down

lets say that you raised rents by $700 and we ignore the additional renovation costs, now it's...
$1,100/ $55,000 = 2% ROI, not including potential appreciation and debt pay down

That's how i would look at it.
Great breakdown. I owned a duplex. In ohio. This deal isn't great. There are little to no good deals these days. Mostly you are only getting in landlording business for the leverage of a homeloan and the hopes of appreciation. I don't like it.
fourballs
Posts: 17
Joined: Thu Jun 25, 2020 3:04 pm

Re: Good First Real Estate Investment?

Post by fourballs »

SashaWalpole wrote: Sat Jan 16, 2021 9:52 am I currently own 3 multi family rental properties. I'm a new landlord. I've bought one property each of the last 3 years. My advice if you haven't done so already is to buy Brandon Turner's books," The Book on Rental Property Investing" and "Managing Rental Properties" before you do anything else. Now, i might not be the most experienced landlord, but here's how i'd view your numbers.

Investment

$50k for a 20% downpayment for a 30 yr mortgage
$ 5.5k in closing costs
$ .5k for an inspection
immediate repair costs?

$56 total investment for now

Monthly Rent

Don't know what number to use. You say you intend to raise it to $2,500, but that the market value is actually $3,200 minimum. That's a big difference. I'll use the lower number for now, but it's confusing because i don't have a clear idea on what your plan is. If you intend to raise rents by a lot, have vacancies, and renovate the units, then the rent would be a lot higher but you'd have to factor these expenses into your initial investment. Also, make sure you can verify that you can actually get the higher rents if that's your plan. Don't just take your partner's word on it.

Monthly Expenses

$1,020 for mortgage payment
$ 350 for property taxes
$ 30 for trash
$ 130 for insurance (you didn't include this so i'm guessing based on what it costs me in my area)
$ 125 for 5% vacancy (all 3 of my properties came fully filled with tenants. I currently have 2 vacancies at once because one of my tenants died in his sleep and one was a difficult person and abandoned the property. If i were you i'd budget something for vacancy)
$ 200 for repairs (things break. You mentioned that this is an old house)
$ 200 for Capital Expenses (sooner or later roofs and furnaces and water heaters need to be replaced. Like vacancy and repairs, i feel you should budget something for this, although i'm not in a good position to say how much.)
$ 35 for snow plowing and other small things

$2,090 total expenses

Some things that i've experienced- one day i learned that the wall on the first floor of my triplex was starting to get wet. It turned out that the sewer pipe from the 3rd floor had a huge hole in it. It was cast iron and had corroded over time, but there had been no sign until water started splashing against that 1st unit wall. That cost me something like $1,000. Another experience- a new sewer pump on my 5 unit stopped working. I got the actual pump replacement for free, but still had to shell out $1,200. I haven't gone over my numbers recently, but it's possible that my repair and CapEx budgets of $200/ month for each isn't conservative enough. Contractors in my area are expensive and $200 doesn't go very far. Perhaps i only feel that way because i'm facing a lot of expenses right now though/ perhaps it's recency bias.

So you make around $400/ month using my perhaps somewhat conservative guesses.
$400/ $55,000 = less than a 1% ROI, not including potential appreciation and debt pay down

lets say that you raised rents by $700 and we ignore the additional renovation costs, now it's...
$1,100/ $55,000 = 2% ROI, not including potential appreciation and debt pay down

That's how i would look at it.
so if $400-$1,100 a month, that's $4,800-$13,200 a year, so your annual ROI is 8%-24%, isn't this pretty good? I'm a little confused as to why we use a monthly return--is this the norm in real estate investment? I do agree with adding considerations for potential vacancy and repairs. Repairs WILL happen. But overall I thought the numbers do make sense for investment. If you have a good handyman, and you choose your tenants carefully, being a landlord isn't so bad most of the time. What about appreciation of the property?
Lexx
Posts: 376
Joined: Mon Dec 21, 2020 5:21 pm

Re: Good First Real Estate Investment?

Post by Lexx »

fourballs wrote: Sat Jan 16, 2021 3:51 pm so if $400-$1,100 a month, that's $4,800-$13,200 a year, so your annual ROI is 8%-24%, isn't this pretty good? I'm a little confused as to why we use a monthly return--is this the norm in real estate investment? I do agree with adding considerations for potential vacancy and repairs. Repairs WILL happen. But overall I thought the numbers do make sense for investment. If you have a good handyman, and you choose your tenants carefully, being a landlord isn't so bad most of the time. What about appreciation of the property?
I would be very hesitant to invest in real estate right now. Property is at the very top of a massive RE bubble. Just how much more upside do you think there will be? Prices are rapidly outpacing family incomes.

During covid you can't even evict non-paying tenants. I've been hearing lots of stories about tenants who have well paying jobs that are taking advantage of not having to pay. In the meantime as a landlord you still have to maintain the building and pay the taxes.

You CAN market time real estate.
NYCaviator
Posts: 1963
Joined: Sat Apr 09, 2016 5:06 pm
Location: NYC

Re: Good First Real Estate Investment?

Post by NYCaviator »

CoastLawyer2030 wrote: Fri Jan 15, 2021 1:26 pm I view this as a really good opportunity but feel like I'm missing something.

Thoughts?
First, I have responded in other threads similarly, but I would caution anyone about getting into residential real estate right now. We seem to be at the top of a bubble. If you don't believe me, look at the median home price versus wages. This market is not sustainable, and we have not fully realized the economic impacts of COVID. If you have a mortgage on this property, are you going to be able to go 5-6 months without any rent (and without being able to evict your tenants) like a lot of landlords have done during this pandemic?

Second, I would NEVER get into a business relationship with my accountant. What happens if something goes south in a business relationship with the person who has access to, and knows your most intimate financial details? I am surprised there aren't ethical rules prohibiting accountants from entering into business relationships with their clients like there are for lawyers.

Third, I don't think your cash flow projections are correct. You've accounted for a mortgage, taxes, and trash. What about insurance, an emergency fund for when something inevitably breaks and your tenant calls you to fix it (maybe an $800 water heater or $5,000 roof), the cost of painting and new carpet every few years, etc.?

Fourth, is it REALLY worth $1k a month before taxes to have another job? You said you live right up the street so you know you'll be the person who has to go over to fix things when the tenant has problems, you'll have to mow every week, deal with collecting the rent, etc.

Residential real estate always sounds like a good idea, and you hear stories of a guy who knows a guy whose cousin has a ton of passive income from rental units, but when you really crunch the numbers for most people, it rarely makes sense. My thoughts? 100% don't do it.
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CoastLawyer2030
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Re: Good First Real Estate Investment?

Post by CoastLawyer2030 »

Thanks everyone for chiming in. I got excited by this being a duplex right in my neighborhood.

My realtor has talked with their realtor and she got a couple interesting pieces of information. First, the owners are mom and pop and now live in Florida, and they're just looking for cash. Second, the owners and their realtor know it is listed for way too high.

Thank you for the suggestion about Brandon Turner's book -- I actually bought it on Kindle last year and spent the weekend reading a lot of it. One thing he says is to go and look, run the numbers, and learn something.

So I'm going to go do that. They probably won't go for it but, if everything inside is decent, I'm thinking about a lowball offer of $175,000 just to see what they say.
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Sandtrap
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Re: Good First Real Estate Investment?

Post by Sandtrap »

CoastLawyer2030 wrote: Mon Jan 18, 2021 8:54 am Thanks everyone for chiming in. I got excited by this being a duplex right in my neighborhood.

My realtor has talked with their realtor and she got a couple interesting pieces of information. First, the owners are mom and pop and now live in Florida, and they're just looking for cash. Second, the owners and their realtor know it is listed for way too high.

Thank you for the suggestion about Brandon Turner's book -- I actually bought it on Kindle last year and spent the weekend reading a lot of it. One thing he says is to go and look, run the numbers, and learn something.

So I'm going to go do that. They probably won't go for it but, if everything inside is decent, I'm thinking about a lowball offer of $175,000 just to see what they say.
Glad things are resolved.
Nothing wrong with a low offer sometimes to get a sense of the seller. They can always counter. Every sale is different.

Good luck!
j :D
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Lexx
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Re: Good First Real Estate Investment?

Post by Lexx »

Spot on! I hope the OP takes this to heart. I see massive warning signs here.
NYCaviator wrote: Sat Jan 16, 2021 6:29 pm First, I have responded in other threads similarly, but I would caution anyone about getting into residential real estate right now. We seem to be at the top of a bubble. If you don't believe me, look at the median home price versus wages. This market is not sustainable, and we have not fully realized the economic impacts of COVID. If you have a mortgage on this property, are you going to be able to go 5-6 months without any rent (and without being able to evict your tenants) like a lot of landlords have done during this pandemic?

Second, I would NEVER get into a business relationship with my accountant. What happens if something goes south in a business relationship with the person who has access to, and knows your most intimate financial details? I am surprised there aren't ethical rules prohibiting accountants from entering into business relationships with their clients like there are for lawyers.

Third, I don't think your cash flow projections are correct. You've accounted for a mortgage, taxes, and trash. What about insurance, an emergency fund for when something inevitably breaks and your tenant calls you to fix it (maybe an $800 water heater or $5,000 roof), the cost of painting and new carpet every few years, etc.?

Fourth, is it REALLY worth $1k a month before taxes to have another job? You said you live right up the street so you know you'll be the person who has to go over to fix things when the tenant has problems, you'll have to mow every week, deal with collecting the rent, etc.

Residential real estate always sounds like a good idea, and you hear stories of a guy who knows a guy whose cousin has a ton of passive income from rental units, but when you really crunch the numbers for most people, it rarely makes sense. My thoughts? 100% don't do it.
mr_brightside
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Re: Good First Real Estate Investment?

Post by mr_brightside »

NYCaviator wrote: Sat Jan 16, 2021 6:29 pm

Second, I would NEVER get into a business relationship with my accountant. What happens if something goes south in a business relationship with the person who has access to, and knows your most intimate financial details? I am surprised there aren't ethical rules prohibiting accountants from entering into business relationships with their clients like there are for lawyers.

this is what concerns me the most actually

IMO you need to fly solo on deals like this

-------------------------------------
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gwe67
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Re: Good First Real Estate Investment?

Post by gwe67 »

As a high wage earner, it doesn't make sense for you to do this the way you propose. You are going to do minimum wage work such as handyman repairs and yard maintenance when you could instead be doing additional lawyer work and making big $$$? Your income is your biggest wealth building tool.
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CoastLawyer2030
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Re: Good First Real Estate Investment?

Post by CoastLawyer2030 »

gwe67 wrote: Mon Jan 18, 2021 4:10 pm As a high wage earner, it doesn't make sense for you to do this the way you propose. You are going to do minimum wage work such as handyman repairs and yard maintenance when you could instead be doing additional lawyer work and making big $$$? Your income is your biggest wealth building tool.
I get satisfaction out of using my hands and doing work. I sit behind a screen all day and am not going to do more of it to stay inside.
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jfn111
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Re: Good First Real Estate Investment?

Post by jfn111 »

The partnership idea is only worthwhile if you plan on growing into larger deals and more units. Former Timberwolves owners Marv Wolfenson and Harvey Ratner made 100's of millions investing in real estate together. If your only planning on a couple of duplexes.. why bother?
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