Please let me know asap so I can make a decision very soon. This 4-plex is completely rented and I do have a property management report for the month of July including rent rolls. Here’s the summary:
operating expenses:
Prop management fee - 168.15
gas - 92.23
electric - 546.30
water - 236.86 = $1043.54
Total payroll: $168.60
Total tax benefit deductions: $1476.30
Operating income/loss:
operating income - july: $1326.20
operating loss - June: 865.60
operating loss - May: 422.21
operating loss - April: $343.77
operating income - March: 1570.46
operating income - February: 13.78
operating loss - January: 1485.57
Total accumulated loss through December: $2528.97
Can someone please explain what the “Operating income/loss” section is about?? Also, it works with the 50% rule, HOWEVER it seems I would have to pay ALL the bills/utilities in which case it doesn’t look so good on paper anymore!!
Purchase price: 130k rents: each unit $700/month = $2800/month total
$2800 / 2 = 1400 - 953.89 (mortgage) = about $450/month positive cash flow
With the operating expenses being $1043.54 just in BILLS, I don’t know about this deal anymore!! Any advice, suggestions, input??
I NEVER buy buildings where I have to pay gas and electric. That’s a recipe for disaster (unless of course you can separate them). How would you feel driving by your building during the middle of the winter and seeing the windows wide open? NO THANKS!
I didn’t think about that…that does sound like a bad position to be in. Is there any way to get tenants to pay for that stuff? What is involved in changing it around?
What is all the operating income/losses that are listed mean?
Are there separate meters for each unit or just one for the whole building? Also, does the building have just one big furnace or one in each unit? You’d have to have the electric company come out and install meters for each unit if they are not there already if you wanted each apartment to get it’s own electric bill. I also think you’d need a furnace in each unit as well. This is my understanding anyway.
It sounds to me though like everything is all-in-one, and the owner just paid the end bill. If this is the case I guess you’d have to call the power company to see what it would cost to convert the units, and then see if it’s still worth your time and effort.
Just my $.02, worth only $.0016 after taxes and inflation though.
If there’s only one furnace, this property may be a good candidate for swapping over to electric baseboard heaters. Propertymanager has written about installing those before on here. The units themselves are very affordable (about $60 will get you an 8 ft. unit). That would be the first step to splitting the electric. I don’t know how much work it would be with wiring to get someone to install separate meters from that point. Our building has one water meter so we pay that, but our water bill is generally between $80-120/mo.
I’ve heard of some people adding a utility fee to each rent or even pro-rate the utilities based off a rate proportional to their unit square footage. You’re bound to have someone claim they don’t use as much as someone else though.
I can handle paying the water, but I don’t think I would do the electric too.
Don’t necessarily rule out something just because it isn’t vacant. There are people out there who will sell, but just haven’t put it on the market yet. The complex we are going to try for was one our Realtor took my wife by when she was looking at other properties listed on the MLS. They got the owners name from the mayor. He’s interested in selling, but didn’t put it on the market officially.
A survey by the National Apartment Association finds that over time operating expenses for rental units range from 45-50% of gross rents.
Therefore:
50% of your gross rent will go toward operating expenses (this includes your repairs you listed above and ANY other expense associated with the property)
the other 50% of your gross rent is your NOI (net operating income)
NOI covers your debt service and cash flow.
We buy and rent quads as part of our real estate portfolio so this post caught my eye.
I am thinking the loss listed could be rents lost due to renters not paying. Or higher than expected monthly repair cost (new water heater, that created a loss on the balance sheet).
here are a few more things to think about and add to your list of expenses.
What are monthly repairs costing?
Any deferred maintenance (hot water heaters, AC units, furnaces, roof, siding, appliances?
Advertising cost (small, but you will need a sign, fliers, possible ad in local newspaper).
Landscape (mowing, blowing, etc.), gutter cleaning and snow removal cost.
Taxes and insurance. Shop your insurance rates around as we have found out that a few hours work can really bring your bill down. If you dont shop, your insurance carrier will probably bump your bill up each year.
Legal and eviction. It happens and you will have to pay a lawyer to represent you in court and an eviction service to handle details and evict them (unless you want to wait an extra 3 weeks for the sheriff).
and things to think about on potential income
When are leases ending? Can I renew? If so, can I bump them up, and to what rate?
What are rents averaging in that area? Are they going up or down?
Do you have to give concessions when you do have to rent (1/2 off first months rent) or none at all.
If you have to turn around a unit for the next renter will you have a high turnover cost (appliances, holes in wall, rot, new carpet, pest, new toilets, etc.).
an additional idea - water can be one of your most costly items. Look at installing low flow toilets, low flow shower faucets, replace all washers and gaskets on sinks and appliances and repair and replace if need be all inner toilet parts to keep them from leaking.