I got a response from the listing agent about the 5-unit I talked about a couple of posts back. It turns out the 5th unit IS occupied - by the "property manager", who pays NO rent. That's all I know for now, so I have no earthly idea what all this "property manager" does. I figure if they are getting FREE rent (and utilities?), they'd better be handling just about everything, including paying ALL the bills, collecting ALL the rent, handling ALL the maintenance, and just sending the owner a check and summary report each month. Something tells me this isn't the case, but it could be.
Anyway, based on all the information the agent sent me, including the insurance, taxes, and utilities paid last year, along with the rent amounts, I figure this property would have an NOI in the neighborhood of $10k/year. Doesn't sound like a lot, but this place is pretty cheap which makes the debt service pretty low. I figure I could CF about $300/mo, minimum, at the beginning and upwards of $700/mo later based on the type of debt service I'll sock into it. Still a lot of investigating to do before I get my hopes up, though.
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3 comments:
Remote Property Mgr = license to steal
I would be careful with this one. You'll just want to make sure to do good due diligence, particularly with your inspections. And, there's no reason why a 5-unit building needs a live-in property manager. That's lost income right there. Maybe he's the current owner.
Why are the rents rented so cheap? Each unit has its own bath facilities, right? Does the owner handle all the utilities? I assume there's no central heat/air in this place, either. And, I figure the rent is low because there must be some deferred maintenance.
But, it still looks like it could be a good possible deal!
Stanley - My thoughts exactly. See comment below about my thinking on the matter.
Trisha - Exactly. The agent claims there is no deferred maintenance and nothing requiring repairs on a recurring basis - but we all know what that means.
As far as the PM goes, I'd either give him/her the boot or have them pay SOME rent. The other four units average $332/mo. in rental income, so I'm losing out on $332/mo for that one unit occupied by the PM. BUT, I'm not having to fork over 10-12% to a PM company. However, if I got $332/mo from that unit and paid a PM company 12% to manage all five units, I'd actually be ahead:
Option #1: Leave it the way it is
Net Income = Rental Income - PM Fees
Net Income = (4 x $332) - $0
Net Income = $1,328
Option #2: Boot-out PM, rent the 5th unit, and pay PM company 12% to manage
Net Income = Rental Income - PM Fees
Net Income = (5 x $332) - (12% of 5x$322)
Net Income = $1,660 - $199.20
Net Income = $1,461
A third option would be to leave the PM in place, but charge him rent on the difference of what I'd be paying a PM company to manage it (or $133/mo):
Net Income = (4 x $322) - PM Fees + Difference
Net Income = $1,328 - $0 + $133
Net Income = $1,461
I'm still leary about having someone play PM without knowing their credentials. I'd just feel more comfortable paying an entity that specializes in PM to manage the properties. Although, the PM now may know a heckuva lot more about the tenants, the property, etc., and won't gouge me with piddly repair costs.
BTW, the rents are cheap because the area is not considered an appreciable market. It's been basically stagnant for decades, I'm sure, with maybe fractions of percentage increases each year. There are no new businesses, and haven't been for a long time. Most people work either in the government sector, some retail, and such, but most deal with coal mining to some degree.
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