Run me through this scenario.....

I am looking at this 3 unit multi family in a major city in the US. It is a pre-foreclosure. It is completely rented at 1000 dollars per unit. Built in 2005. Tenant pays all utilities. I don’t have a figure on the taxes but lets throw out 3000 per year(til I get the real figure). Price on the property is 200,000. The mortgage would be 1375 with 0 down 20 years @ 5.5%. The units need no major renovations to keep renting at 1000 each. What other costs could be included in this property? Is it me or does this property look like a heck of a deal. Pulling in 1375 after taxes and mortgage. Repairs and other related expenses would come out of that figure along with property management which will be roughly 8% of gross rent. Seems to be a great investment but I don’t understand the whole fees involved in preforeclosure. Any help with those figures would be great!!!


Good to see you. Few additional things to consider: insurance, snow removal (if applies), water, rehab cost when people move out, cost to add new tenants.

Also, one more thing and in my newbie opinion, the most important thing - think about where the idustry is going! When your tenants move out, do you think you’ll be able to replace them with new once that will pay you 1k/mo?

Good luck


the property management will take care of the snow removal… insurance I have talked to my agent and he said it should be under 70 per month for something of this caliber. Replacing tenants is again taken care of by the property management. I would definitely talk with the management company if I bought to make sure that it is in an area where someone would want to rent but I will say that there are numerous schools close by so I would have that going for me. Rehab costs are of course something that will be needed when someone moves out but to me is a little hard to budget for monthly but I would assume that my reserves are and will be enough since the property is fairly new construction (2005).

So my question is still out there on whether you or other experienced investors would be willing to jump on the property.




Personally I’d pass on this property. Good luck!


p.s. talk to managment company, see exactly what they are gonna do for you for 8%. :)))))

they are going to do everything for me and cut me a check at the end of the month. The property is about 2-3 hours from me so I can’t do it myself but its such a good looking invest.

I would encourage you to take your analysis from a narrative format to a spreadsheet format. It’s too easy to inflate your cash flow when you’re not going line by line and being methodical. I would deduct 10% for vacancy AND collection loss and at least 3-5% for replacement reserves for long lived items (a compressor goes out on your a/c unit and it’s gonna cost $400-$500, it happens on new units too). Also, many owners are appealing their property taxes as values have dropped, so that might be a possible way to decrease your expenses. Did the previous owner develop the property or buy it already built? What did he pay? Why is it in foreclosure?

Bottom line, no one is going to manage your property better than you (unless you have no idea what you’re doing). Make sure this management company is worth their 8%. You need to be asking them LOTS of questions and know exactly what’s covered in their fee. I feel like you might be assuming a little too much, but I could be wrong. On the surface, $3000/month rent on a $200,000 property doesn’t seem bad. I would be realistic with your numbers and be sure you’re okay with owning a property that far from you, even with a company ‘managing’ it for you. If you’re just getting started I would recommend finding something in your own backyard and get some experience managing a property.

Just to make sure you know… that 8% property management fee is not gojing to include much. They might agree to do all sorts of management stuff for you, but it will have additional cost.

For 8%, they aren’t going over there every day to shovel snow off the walks and off the roof. They will hire someone, and then YOU pay for it, not the management company. The cost of it will come out of your month end check.

They aren’t going to pay for legal fees. They aren’t going to pay for ads. They aren’t going to pay for the cost of obtaining new tenants. They are not going over there themselves and repairing plumbing leaks.

All of those expenses need to be budgeted for. It’s part of the cost of doing business, and I suggest that you figure it out, what all of your expenses will be, before you buy.

If you can still get out of this offer, do it. I would urge you not to buy something 2-3 hours away unless you plan to move down there. Property management companies are not like Aladin popping out of a genie bottle granting your every wish. If you’re not willing to do the grunt work yourself when the going gets tough, I would say choose another field than buying apartment buildings. Maybe commercial plazas on a triple net lease (where the tenants do all the work) might be a better field for you.

Let me give tell you one of many stories I’ve heard on property management companies… There was a guy who gained some success in landlording. Maybe mediocre to some, but in a lifetime of hard work, he owned two apartment buildings which had 87 apartments (2 buildings one was 36 units and other was 51 units). These were solid newer concrete slab buildings. I’ve been in there and they were in pretty good shape. Large, recently painted, newer flooring. Excellent candidates for condo conversions. Anyway, three years ago, he passed away and his son who never wanted to apprentice and learn the game with his father inherited the property. He thought it was so easy. Just give it to the professionals–the property management company who everything thinks are the great Aladin’s genie to residential rentals–and they’ll run it like a magic genie in the bottle and you’ll live happily ever after in the big city collecting mountains of rent cheques. Ka-Chang!

Doesn’t work like that. When he got the buildings, they were mostly filled. When the property management company ran it, they ran it to the ground. They let anyone into the building so they could try to keep it rented. The a-holes they let in there caused the good tenants to moved out and made it hard to get filled again. They encouraged excessive repairs so they could charge a service charge everytime they called a plumber or other maintenance person that sent their own bill as well. Within a year, he had over an 80% vacancy rate. He went bankrupt and lost everything.

I didn’t find all this out until later. I just saw that 36 unit listed for $700K and tried to put the money and financing together to buy it because I knew it was worth double, but couldn’t raise enough funds. The building was mint, with the exception of the roof that had a few leaks in it because the idiot management company let the cable guys drill holes into the roof to attach dishes that they later removed. Another investor scooped it up. He evicted the troublemakers. He patched the roof. He got it fully rented. A year later, they both sold for double. I was kicking myself. I have tones of examples of property management companies running apartment buildings into the ground locally. They are the worst pieces of scum on the planet. Don’t ever let a property management company run one of your properties and if you do, live in the same city so you can fire them and run it yourself after you see the mess they caused you in a couple of months. Seriously, try to find rentals in your city or if you can’t, then move to a city where apartment buildings show a decent return like I did. Sorry for being a little negative, but residential rentals is one of those fields where you’re gonna have to be prepared to get your hands dirty.

I run all my apartment buildings myself. You can do it too. It’s not hard to learn.

Realtor & Investor

thanks I will take your advice… :banghead

I just want to put in my two cents.

While I agree with much of the advice given here, I don’t think I’d be so quick to pass on a no money down, fully occupied, cash flowing property built less than ten years ago just because you may have to have it managed by a management company.

I have used management companies successfully in the past, and I continue to use them. Just as in any business, there are good ones and bad ones. Also, if someone expects to hire a management company, hand them the keys, then collect a check every month, well…you’ll get the screwing you deserve. You’ll have to manage the managers; stay on top of them, visit the property regularly, talk with the managers about property conditions often. Definitely ask a lot of questions about maintenance costs, ask how they locate and screen prospective tenants, how do they handle tenant problems? Ask them what services are included in the 8% (going rate is 10% in my area), what are extra costs? How much do they charge to re rent a vacant apartment? Is it a flat fee or do you pay for their advertising costs? Make sure you understand everything they’re doing and why they’re doing it.

Sure, ideally this building would be two blocks from you and you could manage it yourself, and get a good working knowledge of what building management takes, but it is what it is.

All I’m saying is, don’t be afraid of management companies per se. Are they magic genies spitting out money to owners? Just as they’re not that, they’re not all ‘scum of the earth’ as suggested earlier. Sure some are, maybe even a lot of them are. But I contend if you have a lousy management company and you let them run your building down, it’s your fault not theirs. No, stay involved, and fire them if they’re bad.

It may be after all is said and done that this deal is not the right one for you to start with. Just make the decision based on the numbers and sound knowledge, not fear of what you don’t know. I’m glad I started out managing my own properties, but I’m just as glad that I don’t do it anymore.

Anyway, good luck to you.