Author Topic: Rust Belt properties  (Read 1650 times)

Zaga

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Rust Belt properties
« on: October 18, 2019, 07:12:47 PM »
We are looking to start investing in rental real estate, probably multi family homes.  We looked at 2 last week and my initial impression of both places was positive.  They of course both have downsides as well, can I have a few opinions about these places?  We are definitely still in the learning phase!

Duplex:
This is a brick house in a nice neighborhood that has already been split into 2 apartments.  The outside is in great shape, but $$ issues are a very large dead tree and a garage that needs to be torn down and made into a parking pad.  There is no saving either of these things, they are hazards.
The apartments have been vacant for 5 years, the owner moved out of town and didn't want to be a long distance landlord.  The inside needs a lot more work, some drywall repair, lots of painting, cleaning, etc.  The usual things.  My concern is the plumbing, I don't know if it was properly winterized because we saw 2 pipes in the ceiling that were disconnected.  Is this standard practice?  It looked deliberate.
The numbers, lots are estimates:
asking price 44000, but could probably get it for 32k to 35k.
repairs, I estimate 12000 depending on the plumbing.
total cash outlay: ~20,000
Monthly rent 900
R&M 225
mortgage 150
insurance 50
utilities 100 (it's customary in this area to include water and sewage)
other costs 25
vacancy 90
property tax 120  (does this seem high?  This is a real number)
monthly net 140
yearly net 1680
cash roi ~9%  (does this seem low? )

Triplex:
This is an old storefront type building that was converted to 3 apartments many years ago.  Less cute from the outside, but the apartments are nice and in rentable condition.  Very few repairs that should be made immediately.
The numbers, still lots of estimates.
asking price 69000, might be able to get it for 65000
repairs - minimal but I'm assuming 2000
total cash outlay 17000
monthly rent 1345
R&M 325
mortgage 275
insurance 75
utilities 150
other costs 25
vacancy 135
property tax 235 (again, this is a real number)
monthly net 125
yearly net 1505
cash roi ~9%

Am I doing the math right?  I really would have expected the cash roi to be higher than 9% for either of these.

waltworks

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Re: Rust Belt properties
« Reply #1 on: October 18, 2019, 08:17:33 PM »
The lesson here is: declining areas have high, and rising, property taxes, because they are trying to support lots of old folks/pay pensions, and the young people are leaving.

Assuming you self-manage, you can have a mediocre job if you buy these places. If you pay for management, you can make nothing.

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sammybiker

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Re: Rust Belt properties
« Reply #2 on: October 19, 2019, 10:07:18 AM »
@Zaga

Are you managing yourself?  In the right areas, Pittsburgh should be cashflow positive.

Zaga

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Re: Rust Belt properties
« Reply #3 on: October 19, 2019, 03:43:45 PM »
sammybiker, yes, we would manage ourselves. 

The plus is in the neighborhood of the duplex there is literally 0 empty apartments that are up for rent, every one that shows up is snapped up right away.  But I still want to include vacancy to prepare for that likelihood.  Plus the duplex would not be rented for probably 3-4 months while we got it up to snuff.

waltworks, yes, the property taxes in this town are a bit appalling.  I've lived here for 13 years so I have a good record of them for our house, and they have definitely gone up.  Some years they've gone up precipitously.  But this is a decent working class town, the town to the north of us 10 miles is a shithole.

Anyone have thoughts on the plumbing pipes being disconnected?

Papa bear

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Re: Rust Belt properties
« Reply #4 on: October 19, 2019, 07:24:20 PM »
What plumbing pipes are disconnected? Dwv or supply? And where are they disconnected? 

If you are local and self managing, these arenít too bad.  Youíll make a few bucks, probably have a couple of headaches, but if you enjoy it, go for it.

Why not put low ball offers on both of them? Worst case, both of them accept. And now you have 2 places. Best case? One accepts your lowball and you get a good deal. 


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Zaga

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Re: Rust Belt properties
« Reply #5 on: October 19, 2019, 07:55:19 PM »
Short answer is we have enough funds to put a down-payment/initial repairs on one of these, but not both without draining our emergency fund down to pretty much nothing.

The pipes are in the ceiling of the basement, they look like they supply part of the house.  We saw 2 joints that were disconnected, they didn't look like cold damage according to a google image search.

Papa bear

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Re: Rust Belt properties
« Reply #6 on: October 20, 2019, 06:18:16 AM »
Short answer is we have enough funds to put a down-payment/initial repairs on one of these, but not both without draining our emergency fund down to pretty much nothing.

The pipes are in the ceiling of the basement, they look like they supply part of the house.  We saw 2 joints that were disconnected, they didn't look like cold damage according to a google image search.

The chances you get 2 properties at lowball prices are slim.  But you can work this out if needed.  Sounds like you already have the cash, investments, and assets to do this all right now, itís just a what bucket to take from. 

If you do put lowball offers on both, and actually go that route, you can

1) hold off on repairs on 1 property
2) cash flow repairs on the properties over time
3) take out 0% interest CC for 12-15 months and load what you can on those.

Itís not all a cash outlay on day 1 here.  You have options.


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Papa bear

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Re: Rust Belt properties
« Reply #7 on: October 20, 2019, 06:24:36 AM »
Regarding the pipes, pictures mean a thousand words here.  My guess is that they are old and unused.  Someone cut them out but didnít bother to remove them.  Follow them around to see where they go. 

Also, start doing your homework on buildings.  It should be very quick for you to identify what pipes they are when looking at them.




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Another Reader

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Re: Rust Belt properties
« Reply #8 on: October 20, 2019, 06:30:04 AM »
Short answer is we have enough funds to put a down-payment/initial repairs on one of these, but not both without draining our emergency fund down to pretty much nothing.

The pipes are in the ceiling of the basement, they look like they supply part of the house.  We saw 2 joints that were disconnected, they didn't look like cold damage according to a google image search.

These properties likely cannot be financed.  If all the cash you have is a 25 percent down payment on one property plus a few thousand for repairs, you are under capitalized and should not be buying rentals.  These properties are for buyers that can write checks for the full price and can cash flow the repairs.

Papa bear

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Re: Rust Belt properties
« Reply #9 on: October 20, 2019, 11:10:37 AM »
Short answer is we have enough funds to put a down-payment/initial repairs on one of these, but not both without draining our emergency fund down to pretty much nothing.

The pipes are in the ceiling of the basement, they look like they supply part of the house.  We saw 2 joints that were disconnected, they didn't look like cold damage according to a google image search.

These properties likely cannot be financed.  If all the cash you have is a 25 percent down payment on one property plus a few thousand for repairs, you are under capitalized and should not be buying rentals.  These properties are for buyers that can write checks for the full price and can cash flow the repairs.


Not sure why you couldnít finance these. If they are uninhabitable?  Doesnít sound like thatís an issue.   


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Another Reader

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Re: Rust Belt properties
« Reply #10 on: October 20, 2019, 11:18:40 AM »
Short answer is we have enough funds to put a down-payment/initial repairs on one of these, but not both without draining our emergency fund down to pretty much nothing.

The pipes are in the ceiling of the basement, they look like they supply part of the house.  We saw 2 joints that were disconnected, they didn't look like cold damage according to a google image search.

These properties likely cannot be financed.  If all the cash you have is a 25 percent down payment on one property plus a few thousand for repairs, you are under capitalized and should not be buying rentals.  These properties are for buyers that can write checks for the full price and can cash flow the repairs.


Not sure why you couldnít finance these. If they are uninhabitable?  Doesnít sound like thatís an issue.   


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Loan amount is too small.  A $44,000 property would mean a $33,000 loan.  Hard to get those small loans done.

Jon Bon

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Re: Rust Belt properties
« Reply #11 on: October 20, 2019, 12:08:47 PM »
I don't really like either of these properties.

The first is a def pass based on what you said. You listed several issues and it has been vacant for 5 years! I am sure you would blow your budget in no time. You could easily spend that just on mechanical and appliances which I assume dont work because they have no run in 5 years? Goodness knows what you might run into.

Triplex is slightly better. But 3 apartments rent for $1300 total? Are these 1 bedrooms? Again these are unrented? So you have a best guess on market rent and condition of the units. Kind of feel you might get nicked and dimed on this. The cost of a new furnace on a 1 bedroom unit that rents for $450 a month is going to be roughly the same as a 4 bedroom unit that rents for $2000 you know?

I would look for a more stable unit. Something that is currently rented and in decent condition. I get the feeling you have lots of learn about land-lording. So buy something form a professional. Their will be less risk and you will get a turnkey investment that is easier for a newbie like yourself to manage.

And by manage I mean own even if you hire a PM there will be a fair amount of "management" on your part.

Zaga

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Re: Rust Belt properties
« Reply #12 on: October 20, 2019, 12:44:50 PM »
This is a rust belt town, mortgages come in that size around here all the time!  I have friends that their first mortgage was 17,000, and that wasn't too long ago, early 2000's I think.  When houses aren't worth very much in an area the banks adapt.

Our house would be worth 400k in many areas, but in our town it's worth maybe 150K.  That's 1 acre, 4 bedroom 2.5 bath ranch with a finished walk out basement and a few outbuildings.  To help with perspective a bit.

The triplex is currently rented for reasonable rents for this area, and in pretty good condition.  Each unit has 2 bedrooms, but the layouts are a bit odd.  $450 per unit is market in this area for what they are.  I only put $2k initial repairs because I know how houses are!

You're correct, we are newbies looking at land-lording, but we are definitely not newbies at fixing up houses.  We've done everything in our house from flooring and carpentry to plumbing and electrical.  We have a pretty good idea what things cost to DIY and to hire out.  We renovated our 1,000 sq ft basement area ourselves for less than $10K.  That included flooring, building a bar, replacing everything in the kitchen expect the appliances, building new walls, and buying furniture.  We're pretty good at being frugal and yet getting a well built and attractive result.

We truly aren't sold on either property, but both have many good points, and some less than good points.  I hope we're not going to jump into something that's a bad choice, but neither of these would bankrupt us if things didn't go well.  We are still looking for other properties in the area, but don't want to be long distance landlords.

waltworks

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Re: Rust Belt properties
« Reply #13 on: October 20, 2019, 01:13:54 PM »
$1300 rent for a place that will have 6-10 (or more) people living in it?

Holy hell that's going to require some maintenance!

-W

Jon Bon

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Re: Rust Belt properties
« Reply #14 on: October 20, 2019, 03:00:57 PM »
On financing: Ok sure you CAN get it financed, but inspections, closing costs, appraisals etc cost the same on a 25k house as they do a 250k house. So it makes the money that much more expensive.

On ownership: Great you can swing a hammer, knowing how to DIY and what needs done is a huge skill to have. That gives you a big leg up. However your are looking to leverage these valuable skills putting in time and money on a property and still getting a pretty poor return. That is my issues with the houses you listed.

Pittsburgh is a real city, I know nothing about the rental market there. But I am sure there are better rentals then that. What you are listing has the feel of an old former manufacturing town that the jobs left 40 years ago. Don't buy that house. Just because its close to you does not make it a good deal.

Look up something in the city, send us those numbers and we will give you our best ideas.

Zaga

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Re: Rust Belt properties
« Reply #15 on: October 21, 2019, 04:58:18 AM »
Look up something in the city, send us those numbers and we will give you our best ideas.
I will find something closer in to the city, there is a much higher demand area a half hour south of us. 

Stachetastic

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Re: Rust Belt properties
« Reply #16 on: October 21, 2019, 05:47:46 AM »
I'm next door in Ohio, and we can easily get mortgages for as low as 25k through our local bank. If properties were routinely going for 500k+, of course banks wouldn't bother, but here in the rust belt, cheap properties are definitely A Thing.

Back to OP, I think your utilities estimate on both properties is too low. We pay sewer on one of our SFR (family of 4), and that bill alone runs $100 easily.  When people get free water, they will most definitely use it!  For a triplex, you will also likely need to pay for electricity in common areas.

Zaga

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Re: Rust Belt properties
« Reply #17 on: October 21, 2019, 03:34:31 PM »
Good call on the utilities.  Water and sewer are apparently leinable here so it's common to pay them, but we have a well so I'm not sure how much water would come to.