The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: more4less on June 09, 2014, 04:44:33 PM
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Hi guys, there's opportunity to buy a 4-plex in Texas, ok neighborhood. House built in 1950. Lists at 170k, trying to get in for 150-155k. It passes 1% rule, but doesn't not really passes 50% rule according to the last year rent roll (looks like it was a bad year).
So here's the rent roll for 2013:
Rent received $27000 (rents are 700, 500, 590 & 450 for 2/1, 1/1, 1/1 & studio)
Appliance repair - $90
Co-brokerage service - $300
Lawn maint - $450
Maint HVAC - $800 (1 unit was replaced)
Management fee - $2700
Pest control - $100
Plumbing repairs - $1100 (replaced 1 faucet and fixed water damage)
Rental fee - $320
Repairs & maint - $2000 (leveled foundation, repaired stairs & deck, outside paint)
Security expense - $80
Utility, electric - $4600 (should be half of this now: 2 units have individual meters, tenants will pay for their electricity )
Utility, water - $1800
Expense total: $14500
The place is supposed to be turn key with management in place. Yet I'm somewhat worried about 50% rule.
It will cashflow with 10% down with this level of expenses. After these repairs it should have positive cashflow with 0 down.
About me:
- I have never invested in RE.
- My primary investment is VTSAX so far, and I'm looking to diversify.
- I should have at least $10k in emergency fund after putting 25% down.
Comments? Advice?
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Hi guys, there's opportunity to buy a 4-plex in Texas, ok neighborhood. House built in 1950. Lists at 170k, trying to get in for 150-155k. It passes 1% rule, but doesn't not really passes 50% rule according to the last year rent roll (looks like it was a bad year).
So here's the rent roll for 2013:
Rent received $27000 (rents are 700, 500, 590 & 450 for 2/1, 1/1, 1/1 & studio)
Appliance repair - $90
Co-brokerage service - $300
Lawn maint - $450
Maint HVAC - $800 (1 unit was replaced)
Management fee - $2700
Pest control - $100
Plumbing repairs - $1100 (replaced 1 faucet and fixed water damage)
Rental fee - $320
Repairs & maint - $2000 (leveled foundation, repaired stairs & deck, outside paint)
Security expense - $80
Utility, electric - $4600 (should be half of this now: 2 units have individual meters, tenants will pay for their electricity )
Utility, water - $1800
Expense total: $14500
The place is supposed to be turn key with management in place. Yet I'm somewhat worried about 50% rule.
It will cashflow with 10% down with this level of expenses. After these repairs it should have positive cashflow with 0 down.
About me:
- I have never invested in RE.
- My primary investment is VTSAX so far, and I'm looking to diversify.
- I should have at least $10k in emergency fund after putting 25% down.
Comments? Advice?
It will have some learning pains... as RE is not a "passive" investment. It does require some work. If you accept that, then I would say go for it. That looks like free cash flow of $12k which would mostly go into your mortgage. Once paid off, this property will be spinning off a TON of cash.
The downside is that it will likely require some attention (though property manager will take care of most things... you just have to sign off on repairs and write a check), and repairs will be necessary as it is an older property.
I'd get a home inspector, or someone you trust who has RE experience, to help you understand what maintenance will be like going forward. In general, you can budget at least 2% maintenance per year (replace HVAC, pipe burst, new dishwasher, etc). Things happen, and the maintenance will go up and down, but it is inevitable.
I think you'll want to keep more cash on hand as a major repair like HVAC, flooring, etc, can easily cost you $5k+. If you are in a good income situation (from work), and can swing the purchase, I'd go for it.
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I didn't see any accounting of a mortgage, though it appears there is going to be a mortgage since you are talking down payments. What is the mortage? That is an expense as well.
Only speculate with money you can afford to lose. I would say since you have no experience in this, you MAY be speculating. Going from zero real estate to a four plex is a big move. I have a single family home that is paid off, and only after one year of being a landlord did I even consider buying more. Even so, I'd rather buy single family homes. Investing in out of state real estate in a so-so neighborhood is risky IMO. I know some investors recommend that out of state is the best since they can't bother you. That's the most retarded logic I've heard in a while...I drive by my rental property regularly so I can see the condition. I also do as much repair on my own as I can so I have an excuse to go inside and see the condition.
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30 year mortgage + homeowners insurance should be in the range of $900-$1000 according to my calculations.
If this purchase goes through, real estate will make about 1/4 of my portfolio. Numbers make sense. However, as you mentioned, doing this from a distance of 2000 miles worries me a little bit. There's property management in place already. I hope it will make my life easier.