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I recently received a lead from a friend of mine about a 10 unit multifamily building going up for sale in the coming weeks. This friend knows I’m an investor and thought it would be a good opportunity for me. While I appreciate my friend thinking of me, this property one of the worse investment option I’ve ever come across….despite the price. Here are the 8 features of this building that kept me from pursuing the opportunity.
- The property’s street position – The first thing I thought when I stepped out of the car was “what an awful position this building was in” It was located toward the bottom of a steep hilly street. There was no doubt in my mind that when it rains this basement would be taking on water. Upon entering the basement, it took a matter of seconds to smell the damp air.
- The condition of the roof – The roof was one of the things that was not very visible from the photos my friend sent. Once I arrived at the property I could see a couple immediate turnoffs. The 1st was that the roof was slate. Slate is a great material when it’s in good condition but can be very expensive to repair. From the street I could see that the roof had already been patched and at some point and the patch was done with shingles versus the original slate material. This was probably done because the owner couldn’t afford the cost of the slate replacement. The 2 note I took was the steepness of the roof. When you’re replacing a roof the steeper the roof’s angles are the more difficult the work becomes. When the work become more difficult the price goes up.
- Public Transportation/ Parking – Before we entered the building I asked the owner about public transportation in the area. He replied that the bus stop was about 3 blocks “that way”. While 3 blocks isn’t very far for most people, please remember that this building is located on a hilly neighborhood in New England. Walking up or down a hill in the snowy weather is not the easiest thing to ask when you are trying to recruit good tenants. I also noticed there was parking for 6 vehicles while the building consisted of 10 units. Assuming each tenant had only one car, there would still be a few units without an open spot.
- Beautiful Victorian Structure – While Victorian homes are very appealing when properly maintained, the upkeep for this property style can be very costly. I don’t believe this is the best building style to choose for a rental apartment investor. This is something I noticed prior to visiting the building but the low price sucked me right in.
- No Uniformity – When you purchase a building with 10 plus units and none of the apartments are similar in size, shape or layout, the building become difficult to manage. For example, if I’m purchasing new kitchen cabinets for this building a would have to access each unit and measure whats needed for each individual space. If the apartments were uniform in terms of the layout, I would be able to measure one unit and multiply the order by 10.
- One Heating Unit – This isn’t a problem for every landlord but I personally do not like the idea of having one heating system for an entire apartment complex. Every tenant is going to either be too cold or too hot depending on the temperature you maintain in the building. Those that are too cold will consistently be calling the landlord to increase the heat and those that are too hot will a crack window to regulate the temperature in their units. In either case you have trouble. The alternative is to convert the building to separate heating systems for each unit, but this isn’t exactly a small investment.
- Inconsistent Rental Income – When I initially asked the owner about the occupancy of the building I was told that 9 of the 10 units were filled and rents flowing. By the time we connected with the property manager and received a tour of the building we found the it was closer to 6 units filled. I’m not sure where the disconnect happened but it didn’t appear the current owner could keep these units rented.
- Poor Job Market – Before we concluded our tour of this building I asked the property manager about the economic state of the city. His answer was less than encouraging and in so many words he told me that the “no one in the area could find work”. If that’s true then “no one in the area” can pay rent and this certainly isn’t the investment for me.
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There are two very important investment calculators buy and hold investors should pay more attention to. Both of these calculators are forward looking and help investors predict the future of there real estate holdings.
The 1st of these two calculators in what’s called a “compounding calculator”. The compounding feature can help us estimate property values at a given point in the future. Say for instance, we purchased an investment property today at $550,000 and we want to know where we’ll stand in 10 years. Let’s then assumed the value increases at an average of 3% per year (which is a relatively safe assumption for the Boston Market). If our assumption hold true, at the end of year 10 this property would be worth almost $740,000 which is nearly $200,00 more than we paid for the property.
The 2nd of these two is simply a mortgage calculator with an “amortization schedule” attached. Assuming you make all your monthly mortgage payments on time, an amortization schedule will show you what your (principal) mortgage balance will be after every month.
Let’s go back to our investment purchase of $550,000 and assume we purchased this property with a 20% down payment ($110,000). Let’s also assume we financed the remaining balance ($440,000) at a rate of 4%, with a 30 year amortizing loan. If we looked 10 years down the road (payment number 120) we would find a principal balance of roughly $340,000.
We the combination of these two calculators we’ve been able to make some predictions as to what our investment will look like 10 years from now. With the $110,000 down payment we were able to secure this investment property and leverage the remaining balance. At the end of 10 years you will own a property worth $740,000 and have a mortgage balance of $340,00.
$740,000 Value – $340,000 Debt = $400,000 Your Equity.
If you sold this property after 10 year you would have nearly quadrupled your initial invest $110,000. Your equity position would have grown 400% or an average of 40% annually. This doesn’t include any cash flows you received from the property over this 10 year period.
You can find both of these calculator with the links below!
Drinks & Networking – Local Investor Gathering!
Come join us for drinks, appetizers and networking. This is an informal gathering for local Boston Real Estate Investors and a great opportunity to meet potential partners and mentors. The best way to push forward with your investing career is to surround yourself with people who want the same. Here’s your chance! Look forward to seeing you there!
Tuesday, February 10, 2015 – 6:00 PM to 8:00 PM
Savvor Restaurant & Lounge, 180 Lincoln Street, Boston, MA
Boston Home Center University – Meet The Lenders
Meet The Lenders is a one-stop shopping opportunity to meet different mortgage lenders and learn about special mortgage programs, money to close, free mortgage pre-qualification, affordable homeownership listings applications, home repair, lead paint assitance and sign up for a free homebuyer and credit course. Come learn about your options to get you on the right path to Homeownership! FREE Event!
Saturday, February 7, 2015 – 9:00 AM to 12:00 PM
Edward Brooke Charter School, 190 Cummins Hwy, Roslindale, MA
Building Wealth Through Home Ownership
Come learn how many build wealth through smart home ownership. Topics will include but not limited to the following:
• Why the surest path to wealth is through home ownership
• Basics of home buying and getting yourself on the path to ownership
• Home buying timeline and what to consider when searching
• The pre-approval process and mortgage loan basics
• How to manage yourself through bad times and avoid foreclosure
• Quick tips on how to repair bad credit and save for a down payment
• Loan programs and grants offered for first time buyers
• Intro to personal finance software and monitoring your financial position
Thursday, February 19, 2015 – 6:00 PM to 8:30 PM
Roxbury Community College, Academic Bldg #3 Rm 121, 1234 Columbus Avenue, Roxbury, MA
RSVP for FREE @ http://www.meetup.com/Urban-Money-Matters/events/219829343/
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Are you a current or aspiring landlord in Dorchester? No matter your years in the rental business, fully understanding your local market is one the most important things you can do to ensure your long-term success. Receiving regular market updates will help you determine when’s it time to buy and when it’s time to sell. It will also allow you to see what your units rent for in comparison to your neighbors. Should you be increasing your rents?
Here are Dorchester’s multifamily sales and rental market statistics for the last 6 months.
Total Multi-Family Listings SOLD: 123
Average Living Area by Square Feet: 3,517
Average Listing Price: $532,918
Average DOM (Days on Market): 58.85
Average Sales Price: $527,420
Average Rent for 1 Bedroom Units: $1,451
Average Rent for 2 Bedroom Units: $1,691
Average Rent for 3 Bedroom Units: $1,823
Average Rent for 4 Bedroom Units: $2,170
Want to get a FREE Sales and Rental Market Report for your specific area(s)? Just send a quick email (or complete the contact form below) to Contact@MandrellCo.com to receive your monthly report. In the title put the words “FREE Boston Sales Statistics” and in the body, add the up to 3 areas you’d like to receive data for. Your name and email will be added to the next monthly reporting cycle. It’s that simple to stay up to date and ahead of the curve!
Please call us directly at 617-297-8641, for custom reports or questions above the data provided.