Wednesday, January 27, 2010

Wednesday Update

Nothing happened over the weekend house-wise, as we were on a spectacular weekend getaway in beautiful Cleveland, Ohio.

This morning, however, I met with John and Al Medina, General Contractor, to go through the house. I should have an estimate from him tonight or tomorrow morning.

Also, I got to see the first floor. The insane woman I wrote about last week was definitely there and we definitely woke her up (at 11:15am). She, and the tenant (squatter) in the back yard studio, heat their homes with their stoves. Four burners on and the stove set to 'broil' with the door open.

I've never seen anything like it, and it's awesome.

Wednesday, January 20, 2010


So. In trying to decide which property to pursue, and which ones to drop, I have been trying to figure out the final selling prices for these places. Since there are not many good comps (other properties that are similar and have sold lately) to look at, I have been leaning on a friend of mine for advice. He lives in Philadelphia and his job deals with huge buildings full of apartments. I have no idea what he does, but he's helpful.

That in mind, I asked him how I could go about finding a realistic final selling price for an apartment building. He told me about the Capitalization Rate, or Cap Rate. I could use the Cap Rate to figure out what a fair selling price would be, when finished. The Cap rate is the ratio between the Net Operating Blah Blah Blah...

Basically, it's how much the property will make you per year, divided by the cost.

A simple enough equation, even for people like me who are terrible at math (If I were any good at math, my SAT score would have blown away Dan's. Sadly, I stunk, and still do).

I tried my best, using some information from the owner of the property, to figure out the final selling price for the first property we visited on Sunday.

Here are some specifics:

The math is based upon renting out all four of the units.

The monthly income is $3,350. That number is based upon the actual rents the previous owner was charging, so I could probably get a little more per month, since the units would be pristine, plus I would add pay laundry in the basement.

The monthly expenses, not including the mortgage payment, but including taxes and insurance, are $1,371. These numbers are also straight from the current owner. I think I could get the expenses down a bit (no air conditioners, make tenants split gas/water/electric, etc), but I can't guarantee it, so I went with the numbers I was given.

With those numbers in mind, I attempted to figure out the monthly mortgage payment that would give the property a Cap Rate of about 10%, which is a decent return.

I crunched a bunch of different selling prices, but for the purposes of this post, I will only include the one I arrived upon.

Final Selling Price = $155,000

20% down payment from the potential buyer = $31,000

Total mortgage amount = $124,000

Estimated monthly payment with a 6% conventional mortgage = $744

Income ($3,350) minus expenses ($1,371 and $744) = $1,235 = Monthly Net Operating Income

Yearly Net Operating Income = $1,255 times 12 = $14,820

To get the Capitalization rate, I take the yearly Net Operating Income, and divide it by the cost, which is the purchase price.

$14,820 divided by $155,000 = .096 or roughly 10%.

Using a Cap Rate of 10%, I could feasibly sell this house at $155k. I have asked John McCann, Realtor, to provide me with what Cap Rates are selling in and around Providence, so I may have to adjust my number to accommodate.

That said, $155k looks pretty good to me. If I could shed some costs and charge more in rent per unit, that number could be even better.

Also, there is probably a much easier way of figuring all of this out, but since, again, I'm terrible at math, I don't know it.

Thanks Greg.

I Lied.

I said I would post yesterday. I didn't. I wrote it, but did not publish it. I stink. Here's what I wrote:

So on Sunday, after the run in with the potential drug addict/definite crazy person, we went and saw a second property. It was the place that had no key.

Overall, it was pretty decent. A few semi-major problems, but mostly cosmetic things. Outlined below:


If you look closely, you can see some paintball shots all over the house. This is terrible. I will have to repaint the entire gigantic structure.

Also, note the need to completely rebuild the front deck/steps. Two very big expenses.

Generally crappy floors:

Including a dance floor?

Obviously, we'll need to get new carpets installed everywhere.

Terrible kitchens:

This kitchen is made from stained plywood. I'll probably have to replace it. That said, it's tiny, so it might not be too pricey.

Terrible stoves:

These stupid things are in two of the three units. Not only would we have to replace them with new ranges, but we'd also have to patch up the stupid exhaust hole in the wall.

Bathmats go here:

Peaceful bedroom:

If you look closely, you can see the blue painters tape still adhered to the trim around the room. I feel kind of bad for whoever started this project and didn't get to see their vision completed...

Missing copper:

Another expense: re-piping the water heaters. It shouldn't be too pricey, but it adds up. Also, if I'm a thieving copper burglar, why don't I take my time and get as much copper as possible? There are still inches of copper sticking out of each water heater, not to mention entire pipes still in tact. What this done by a novice copper bugler? A nervous one? A moral one? Was he or she trying to teach their kids not to be greedy and 'burgle only what is needed'? I need to get in touch with these people...

Overall, this house is in pretty decent shape. A few major expenses to be accounted for (house paint, deck rebuilt, kitchen remodels), but again, not much else. There are a lot of little things, but those will be anywhere we look at.

Cost-to-rehab-wise, this place is the front runner. The only thing keeping me from making an offer?

If you look at the sign fastened to the property, you will see that it is being sold by Westcott Properties. They are the worst. Specifically, Joy Riley, who is listing the house, is the worst. She works about as hard as the novice copper piping thieves mentioned above. That is: not hard at all.

I bought the first property we flipped through Westcott and Joy Riley. It took about four months to finally close and I had to jump through seventy three hoops to do it. She is unresponsive, unreliable and generally apathetic. She just lists foreclosures, waits for them to get an offer, does nothing while the buyer does everything for three months, then collects her check at closing.

That is the downside to this property. It is priced very well, needs a relatively small amount of work and will get decent rents when fixed up. It will also take four months to acquire. That is no good.

As I said in a previous post, I need to get my general contractor into each place to get a solid idea of how much each will cost to rehab. Once I have that, I will either make an offer on one, or keep looking.

Stay tuned...

Monday, January 18, 2010

Busy Weekend

On Saturday, Amanda and I did nothing house related. We, instead, went snowboarding. You don't care.

The following is very long.

On Sunday, after some pizza and gift buying, we met John McCann, Realtor at the house I wrote about last week. We arrived a little bit early and I took the opportunity to snap a few pictures of the exterior:

Anyone need the number of a tow company?

As you can see, the houses surrounding the property have been redone, which is good. The house's paint definitely needs to be redone, which might cost me. On the bright side, someone started to paint it already!

After a few minutes of waiting and picture taking, the buyer's agent showed up and we got down to it. First up was the studio in the back:

The exterior, like that of the main house, is in need of some windows and some paint, no big deal. Oh, and it needs a censor. Effword the help indeed. Also, I stink at math, can someone check to see if this equation is correct?

The interior is in great shape. The kitchen is new and looks fantastic. Also, note the interesting ceilings:

The tough part about seeing this place? Someone still lives in it. I guess the owner is still trying to evict some folks, but apparently isn't succeeding. The fellow who is squatting there seems like a nice enough guy, but the buyer's agent let us know that "he has a big knife right next to his bed". I didn't see it, but I was out of there before I could really look around for it...

Seeing the studio was fairly easy. The tenant (squatter?) was reasonable and polite. He let us in and said almost nothing while we quickly shuffled in and out. The main house, however, proved a little more difficult to see...

After trying about 20 keys in each exterior door, the buyer's agent was resigned to trying to open a window and climb in. I guess he didn't have the right key, but was determined to show the place to us.

While he was checking around the building for sufficient window entry, I decided to take a picture of the awesome couches that were stacked up in front of the property, thinking they might provide a blog joke later on. I snapped a shot of them and started to make my way to the side of the building, where everyone had congregated. I stopped abruptly, as I heard someone yelling.

An insane woman burst out of the front door, yelling 'who's out here?!??!'. Thinking quickly, I took another photo of the couches, this time ensuring that the woman was in the frame. Here's the picture I took:

And here's a zoomed in shot of the insane woman:

She is a prize. She oozed both grace and class, and probably some opiates/stimulants. She had on, as you can see, two towels (body, hair) as well as multiple rings. And multiple bruises. A coworker of mine posited that she is a day worker at a gentleman's club (what a euphemism: gentleman's club) by the nearby Home Depot. Based upon the image above, it is sound reasoning.

She very loudly spoke with the buyers agent, who she knew by name, and it was decided that we wouldn't be seeing the first floor. This was bad news for me, but good news for those who avoid contact with crazy people (Amanda). I really want to see that first floor, not to check on it's condition, as I can hazard a guess, but to see what this crazy woman lives like (I can probably hazard a guess at that too. In fact, I will: She lives like a mixture of the two A&E hit shows Hoarders and Intervention, but with less people that give a crap about her).

Resigned to never seeing the living conditions of a reality show waiting to happen, we traipsed up to the second floor and took a look around. The agent assured us that the first and second floors share the same floor plans (floor plan quirk: the bathroom in both of the units is attached to a bedroom. Weird.).

The units were in generally rough shape, but overall, not the worst place I've seen (see previous posts). As you can see from the pictures, there are some fairly minor, and a few major things that needs to be done: floor refinishing, hole patching, painting, cabinet repair, ceiling patching, etc.

Another thing to consider, that may be a big cost, is that all of the copper piping that ran through the baseboard heaters, throughout the building, has been stripped. That's a whole lot of plumbing:

Oh. Another consideration? Feces removal (be warned. The picture below shows feces of unknown origin):


The third floor brought more of the same, but with a different layout:

On our way down to the basement, Amanda pointed out the free sculpture that comes with the property (that is, if I can sneak it into the contract...). It's probably named Sexy Puma:

The basement was in decent shape. Most of the piping is, somehow, in tact and the furnace and water heater both appear to be in good shape:

Not in good shape? The wiring rat's next pictured below. I can't get away from these do-it-yourself wiring jobs:

On our way out, the woman had dressed herself and decided to ask the buyer's agent why he never called her. I got a picture:

After seeing this place, we went and saw another property, which also shows promise (and less feces). I'll write about that one tomorrow. I promise.

Overall, the property is in OK shape, with some crazy folks living in it currently. I have run some initial numbers and it looks feasible, provided (obviously) I can secure the property at the right price. The big cost wild-card here is both the exterior painting that needs to be done (I can give a rough estimate to that) and the plumbing work that needs to go into the place to restore the heat to each floor (I have no idea how much that will cost). That in mind, I plan on going back to the place with Al Medina, General Contractor to get a better idea of what it will cost to fix it up.

Once I have that number, I will determine the final asking price, based on the CAP rate (thanks Greg) and I'll make a decision. This place is not bank owned, so it means I will hopefully be able to have a regular closing on it (well, more regular, as it would be a short sale). That's a big plus.


Thursday, January 14, 2010

Up Date.

A small update for my loyal readers.

I heard through some sort of grape and or ivy vine that there was a property for sale. I did not find this out through traditional channels, but was asked not to mention the owner. It sounds a lot cooler/more mysterious than it actually is.

In any event, I will be going to see this place on Sunday at 3pm. I am very excited to see it. The person from whch I heard this has warned me about the condition of the place. This person has said things like, "two of the windows might be broken" and "the front steps might not be the best".

While I certainly appreciate the honesty, obviously, the owner is not a loyal, or even passing, reader of this poorly written and maintained blog.

I have dealt with broken windows, not so great steps and much much worse already.




If these are the only problems, I am in for a treat this weekend.

Full update on Monday, provided I actually see the place on Sunday.

Friday, January 8, 2010

Last Evening

So. Last night, we planned on meeting John to see three properties. John held up his end of the bargain and met up at property number one. It's a three unit building with a three car garage and tiny yard. The first floor was in OK shape, the second floor was in not so OK shape, and the third floor was in terrible shape. Photos below:


First Floor Living Room (Wood Paneling!):

First Floor Kitchen:

First Floor Bathroom (Blue is best):

Third Floor Wall Treatment:

Third Floor Wall Treatment Again:

Aforementioned Garage:

The first floor has new windows, which is nice. The second floor is the same as the first, just with a little less attention paid to it over the years. The third floor, as mentioned above, is terrible. It's listed at 100k which, for the neighborhood, is pretty good, but might not be good enough.

The second spot we saw was a four unit, two story place. We walked in, took a look around, noticed that two of the four units didn't have a living room, and left. It was terrible. As you can see:


Kitchen (there are three rooms connected to the kitchen. Two bedrooms and a bathroom. That's the whole apartment. We left shortly after this realization):

Galley (Sink Room):


The third place, which is huge, is a three unit jammer with paint ball shots all over it:


Some Sweet Art That Comes With It:

We went up to the front door, took a look around, and had no idea how to get in. According to the Realtor, there was a lock box with a key in it. We had the combination and everything. The only problem? We couldn't find the lock box to use said combo.

We went around to the back of the house and found no lock box. Again. We walked back around to the front, looked around again and finally spotted, on the side of the house, connected to the electric or water meters (I don't know the difference), the lock box. Buoyed, John started to get the combo input. It was already input. Uh-oh. Sure enough, the lock box open right up to reveal no key. Fantastic.

With no way to get in, we left. Crap.

Now, I get to wait to see that third place while I run a bunch of numbers on the first place. Fun.