First Property

General Real Estate Investing
1

Okay, I’ve about had enough of the analysis paralysis.

I’m up and running - in 35 days, I’ll be published in NY. Ready to go. I got tax id number. I got the bank account. I’ve got some cash. I’m just about to read about contracts (over the next 3 days).

And, I’m looking for a CASH FLOW property. Not a flip. Not a rent-to-value ratio of less than 1. Not an out of state property WITHOUT a property management company. And not a foreclosure (for right now).

I want:
Out of state rental - with over a 1.5 rent-to-value ratio. One that has been updated within the past 5 years. Has the rentals already rented with a property management company - recommended by seller and with references. One that is NOT in a very “bad” neighborhood - low crime area an absolute.

I think I’ve got one. The only draw back, I think is that I don’t believe it’s in a very much appreciable area. But at this point, I’m too freakin antsy to keep farting around.

Numbers:
Expenses:

water,sewer,trash & street maintance divided over 12 months is $93.00 a month.

Laundromat electric bill divided over 12 months $126.00 a month(all the machines run on electric)

Building electric for the hallways divided over 12 months $64.00 a month

Taxes on the property divided over 12 months $80.66 a month

Total Expenses $363.66

Income:

Laundromat averages $500.00 a month

Tanning & Hair Salon (caretakes the building and for that receives free rent)

3rd apartment is a two bedroom & is now rented for $200.00 a month ( have rented it in the past at $275.00)

4th apartment is now rented for $125.00 a month (is not remodled so I reduced the rent)

5th apartment is a one bedroom that rents for $200.00 a month

6th apartment is a one bedroom that rents for $200.00 a month (empty right now that’s the one I use when I go out there)

7th apartment is a two bedroom & rents for $275.00 a month(now empty)

All apartments have seperate electric meters and have electric heat that the renters pay for.

Total Income $1500.00 plus (with all apartments rented)

Asking price: $59,000
In North Dakota (YIKES!)

Okay, now tear it to shreds… :-\

2

The numbers are the info from seller.

3

Well I burst my own bubble I guess:

I did cashflow analysis:

Here are my numbers:

Gross Income 1500
Less Vacancy 300
Effective GI 1200

Expenses:
Taxes 80.66
Insurance 100
Water/Sewer/Trash 93
Electric 64
Advertising 40
Maintenance 100
Snow Removal 50
Pest Control 30
Account/Legal 50
Miscellaneous 100

Total Expenses: 707.66
NOI 492.34

Debt Service:
45,000 1st Mortgage @ 6.9% 296.37
(30 yr fixed)

Cash Flow: 195.97

Oh well. I figured even if I chopped off 100 bucks from expenses here and there and I was able to increase rents by 250 (at a cost of updating some units) - still at best cash flow would be just over 500.

Whatcha all think?

I’m going to bed…it’s 130am!!

4

Even in a best case scenario, you’re still getting less than $75 per month per unit in positive cash flow. Ouch! Moreover, in my opinion your maintenance allowance of $100 per month is VERY low. I use $50 per unit per month as a maintenance allowance. Legal expenses could also be low. $600 per year for a 7 units may be very low. How much does an eviction cost in North Dakota? Are you required by law to use a lawyer if you have an entity? What is the historic turnover? Here in Ohio, with an LLC, it can easily cost over $600 for a single eviction!

Don’t become a motivated buyer. It is VERY important to get this right!

Good Luck,

Mike

5

your loan numbers look low. Sevens units will be a comerical loan; I highly doubt you can get 6.9% (even if you did a 1 or 3 yr. adjustment period). I would expect a rate to be more like 7.5% or even 8%. Also, some banks want a 20 or 25 year amort period (kicks the payment up even more).

As a benchmark I just did a loan a couple of months ago for a 8 unit building in VA with a small local bank. Rate was 7.85%, fixed for 5 years, 25 yr. amort. period. I’ve gotten similar quotes form other places on other projects.