Author Topic: Potential next purchase  (Read 3405 times)

Drifterrider

  • Handlebar Stache
  • *****
  • Posts: 1118
Potential next purchase
« on: April 07, 2016, 07:30:38 AM »
Here are the numbers:

List                45,000   
20% down        -9,000   
Financed       36,000   
      
5%/30            193   per month
Taxes              67   
Ins                      67   
Monthly cost    327   
      
Current rent   640   
Mgt fee            -51    
PITI                  -327   
Net monthly         262
      
Net                 3,144  per annum
Cash outlay     9,000
      
Annual return   34.90%   

Does not factor in depreciation of $1,636

Revenue       $7,680
Expense        -4,536
Depreciation -1.636

Taxable       $1,508 per year.

Thoughts????

Enough

  • Stubble
  • **
  • Posts: 182
  • Age: 31
  • Location: KY
Re: Potential next purchase
« Reply #1 on: April 07, 2016, 07:49:00 AM »
Other costs to factor in:

Vacancy ($770)
Maintenance (I use $800/yr/unit)
Tenant Placement Fee ($320-640)

iamlindoro

  • Handlebar Stache
  • *****
  • Posts: 1520
    • The Earth Awaits
Re: Potential next purchase
« Reply #2 on: April 07, 2016, 07:55:38 AM »
I think it's a big mistake the analyze a property without accounting for vacancy (8-10%), repairs (5%), capital reserves (another 5%), and tenant placement/lease renewal fees (10% vacancy means you'll pay a tenant placement once every two years or so and a lease renewal fee once every two years or so).  Adding in those items, the return on this property is much lower than the calculated 35% return.

Drifterrider

  • Handlebar Stache
  • *****
  • Posts: 1118
Re: Potential next purchase
« Reply #3 on: April 07, 2016, 08:06:06 AM »
Other costs to factor in:

Vacancy ($770)
Maintenance (I use $800/yr/unit)
Tenant Placement Fee ($320-640)

House is occupied.  30% of properties in that area are rentals.  The only time there are vacancies is if your house is over priced for the market or needs work./   There is no such thing as a tenant placement fee in this area.

Edited to add.  My family has had rentals in this area for 60 years.  Most tenants are very long term tenants if you don't try to squeeze them every year for higher rents.  Typically, rents on a house of this nature might rise $10 per month every other year. 



« Last Edit: April 07, 2016, 08:08:15 AM by Drifterrider »

iamlindoro

  • Handlebar Stache
  • *****
  • Posts: 1520
    • The Earth Awaits
Re: Potential next purchase
« Reply #4 on: April 07, 2016, 09:07:09 AM »
House is occupied.  30% of properties in that area are rentals.  The only time there are vacancies is if your house is over priced for the market or needs work./   There is no such thing as a tenant placement fee in this area.

Sorry, but that's silly.  Vacancy happens to every property, no matter how ideal the market.  Someone will move out and you'll have to do a deep clean or repairs on a property.  Someone will stiff you and you'll fight through an extended eviction.  Vacancy to some extent will happen no matter what.

Edited to add.  My family has had rentals in this area for 60 years.

This is the second time I have seen you mention this on this subforum when someone presents an opinion contrary to yours.  If you aren't interested in anyone else's beliefs or experience, then why even post the thread?  Someone with a 60 year family history of rental ownership shouldn't need or care what our analysis says, shouldn't miss that repairs (both incidental and capital) are must-budget items, and shouldn't wave away the idea of vacancy.  I'm not trying to attack you, I just don't understand what you were expecting as a response, here.

Drifterrider

  • Handlebar Stache
  • *****
  • Posts: 1118
Re: Potential next purchase
« Reply #5 on: April 07, 2016, 10:14:49 AM »
House is occupied.  30% of properties in that area are rentals.  The only time there are vacancies is if your house is over priced for the market or needs work./   There is no such thing as a tenant placement fee in this area.

Sorry, but that's silly.  Vacancy happens to every property, no matter how ideal the market.  Someone will move out and you'll have to do a deep clean or repairs on a property.  Someone will stiff you and you'll fight through an extended eviction.  Vacancy to some extent will happen no matter what.

Edited to add.  My family has had rentals in this area for 60 years.

This is the second time I have seen you mention this on this subforum when someone presents an opinion contrary to yours.  If you aren't interested in anyone else's beliefs or experience, then why even post the thread?  Someone with a 60 year family history of rental ownership shouldn't need or care what our analysis says, shouldn't miss that repairs (both incidental and capital) are must-budget items, and shouldn't wave away the idea of vacancy.  I'm not trying to attack you, I just don't understand what you were expecting as a response, here.

Of course you are trying to attack me.  I know the market, you don't.  Just as your posting about tenant placement fees do not apply.  We've never spent 10% per year on maintenance.  What kind of maintenance do you plan to do annually on a property?

People move.  In this area, people who rent SFRs below $1,000 pm  rarely move.  Certainly not 10% vacancy each year.  To account for something as routine when it isn't, is foolish. 

Do you have to pay these cost routinely on your rentals?  What market are you in?


onlykelsey

  • Handlebar Stache
  • *****
  • Posts: 2169
Re: Potential next purchase
« Reply #6 on: April 07, 2016, 10:17:27 AM »
Quote
Of course you are trying to attack me.  I know the market, you don't.

What is your problem?  Find a forum of people who know your minute local market, and post there instead.  Why are you asking for advice?

iamlindoro

  • Handlebar Stache
  • *****
  • Posts: 1520
    • The Earth Awaits
Re: Potential next purchase
« Reply #7 on: April 07, 2016, 11:06:00 AM »
I know the market, you don't.

Again, I'm really just wondering what you're hoping to accomplish here.  You clearly believe that you know better than everyone, so what do you hope to gain?

We've never spent 10% per year on maintenance.  What kind of maintenance do you plan to do annually on a property?

Maintenance isn't just done annually, it's averaged over time.  I presume your homes all have roofs, furnaces, hot water heaters, plumbing, toilets, and maybe even air conditioning.  You have to average the replacement costs of those items into your repair and capital budget over their average useful lifetime.  A roof might be good for 15-25 years, depending on how nice of a roof you install.  Some roofs can have their life extended by adding another layer of shingle, but eventually you need a tear-off and full replacement, which can be on the order of $10K.  Furnaces have a useful life of around 20 years and might cost you $3-4K to replace.  Hot water heaters will cost you $600-1000 to replace every 10-15 years or so.  The list goes on and on.  Even without anything "small" unexpectedly breaking, maintenance can easily approach 10% of your rents.

Analyzing a property with a maintenance budget of 0 isn't analyzing a property at all.

People move.  In this area, people who rent SFRs below $1,000 pm  rarely move.  Certainly not 10% vacancy each year.  To account for something as routine when it isn't, is foolish. 

10% vacancy is a good general starting point, and it needn't be so high in some areas.  Analyzing a property with a vacancy of 0 isn't analyzing a property at all.

Best of luck with your rentals.  It sounds like you might be better served to turn to your family for advice instead.

Drifterrider

  • Handlebar Stache
  • *****
  • Posts: 1118
Re: Potential next purchase
« Reply #8 on: April 07, 2016, 11:22:35 AM »
  A roof might be good for 15-25 years, depending on how nice of a roof you install.  Some roofs can have their life extended by adding another layer of shingle, but eventually you need a tear-off and full replacement, which can be on the order of $10K.  Furnaces have a useful life of around 20 years and might cost you $3-4K to replace.  Hot water heaters will cost you $600-1000 to replace every 10-15 years or so.  The list goes on and on.  Even without anything "small" unexpectedly breaking, maintenance can easily approach 10% of your rents.

[/quote]

It seems because I disagree with you, you are right and I'm wrong.  Where on earth are you paying $10K for a roof?  Water heaters Cost $300.  $400 if you have someone else install.

I didn't ask for advice.  I find internet advice to be worth what I paid for it. 

But I did ask what experience you have had with your rentals?  I also asked what market your rental are in.  Lots of snow in the winter?  Bad plumbing that causes your water heaters to fail frequently?  High labor cost for a roof?  Are your rentals in such condition that they routinely do need maintenance?

I'm going on my experience so when someone suggest I should factor in a "tenant placement fee" and I say we don't have that, you want to get angry.  Recently replaced a roof.  $6,000.  30 year life span.  $200 per year, not per month. 

One house was bought new in 1956.  We had it off market for nearly a year doing a renovation.  Lets factor in all the times between tenants we had for cleaning, etc.  Lets say two year vacant in total over 60 years of ownership.  No where near 10%.

Why do you have 10% vacancies?  If I had that I'd ask myself why.  Our last newest tenant stayed 14 years.  She only left because she decided to stop paying rent and we don't like that. 

The tenants next door to that moved after 22 years.  They retired and bought a house.  They couldn't afford it raising five children. This house we reno'ed at the same time as the above.  Let's say the same two years vacant total.  2 out of 44.  (We did a lot of the work or they would have been rented faster).  That is 5% and that was mostly our fault.

Longest current tenant:  24 years.  One roof (house needed it when my father bought the house but he waited some)  one HVAC in 1997.  No paint, no carpet.  Two new sink faucets and one new wax ring on the toilet.

So, my answers are based on my experience; not a book or standard formula people love.  So again, what are YOUR experiences with your rentals.

You do have rentals don't you?


Bobberth

  • Bristles
  • ***
  • Posts: 318
Re: Potential next purchase
« Reply #9 on: April 07, 2016, 12:52:55 PM »
Can you get a 30 year loan on $36k? Most banks don't lend that little for that long.

zinethstache

  • Pencil Stache
  • ****
  • Posts: 829
  • Location: Anywhere USA
  • FIREd 1/27/2017
    • My FIRE Hobby and travel blog
Re: Potential next purchase
« Reply #10 on: April 07, 2016, 03:44:24 PM »
We own three multis. The first we bought from the bank. Unit A has been there 20 years now, Unit B for 6+ years. The second was empty, it is much closer to the military base. We've filled it, and each unit has had a vacancy already. Unit 3 came with 2 units full, we rehabbed the owner suite and filled it, No one has left.

Is that what you are asking?

We've spent little to nothing per year on each unit, but we do maintain the perimeter (mowing, trimming) of two of the three units and already calculated that in. DH handles just about all repairs and maintenance. He is a licensed electrician and his dad a plumber. We rarely hire external help, I can think of 2x we did...it was for a sewer scope both times.

We've ran at about 27% total costs for these properties over the last 3 years (industry says to calc 50% total costs not including PITI)

We pay 5% monthly to our PM and 50% of first months rent for vacancy/marketing.

We are in PNW. Hopefully this info is helpful to you:)

Megma

  • Pencil Stache
  • ****
  • Posts: 733
Re: Potential next purchase
« Reply #11 on: April 08, 2016, 01:54:55 PM »

I didn't ask for advice.  I find internet advice to be worth what I paid for it. 



You did post a thread and say "thoughts?" at the end, so iamlindoro gave you his thoughts. You certainly don't have to agree with him but if you don't want feedback or think you need any, then why post the thread and ask for thoughts?

Drifterrider

  • Handlebar Stache
  • *****
  • Posts: 1118
Re: Potential next purchase
« Reply #12 on: April 15, 2016, 08:31:37 AM »
We own three multis. The first we bought from the bank. Unit A has been there 20 years now, Unit B for 6+ years. The second was empty, it is much closer to the military base. We've filled it, and each unit has had a vacancy already. Unit 3 came with 2 units full, we rehabbed the owner suite and filled it, No one has left.

Is that what you are asking?

We've spent little to nothing per year on each unit, but we do maintain the perimeter (mowing, trimming) of two of the three units and already calculated that in. DH handles just about all repairs and maintenance. He is a licensed electrician and his dad a plumber. We rarely hire external help, I can think of 2x we did...it was for a sewer scope both times.

We've ran at about 27% total costs for these properties over the last 3 years (industry says to calc 50% total costs not including PITI)

We pay 5% monthly to our PM and 50% of first months rent for vacancy/marketing.

We are in PNW. Hopefully this info is helpful to you:)

PNW = Pacific North Wet???

Yes.  I was asking thoughts from those who are landlords, have been landlords and have real experience vice those who are not, have never been and don't.

I would like to get into multis (duplexes really) but they so rarely come up for sale in my market.  S. East coast, military town.

Are your multis the large complexes or the 2/3/4 unit type?

Also, is your 5% PM cost average for your area or a discount because you have so many?  My agent doesn't charge any fee other than the 10% flat rate.  I think they charge the prospective tenant an application fee just to keep the "lookers" out.