Buying a Triplex?

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thatme
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Buying a Triplex?

Post by thatme »

I'm considering buying my first rental property. It's a triplex consisting of three, small 1 BR/1BA apartments in a small/medium-sized city about 2.5 hours from where I live. Purchase price is $45K, each unit rents for $400/month. I think the rent could go up a bit if I do some basic renovations (paint and flooring primarily, nothing huge). Roof is in good shape, key appliances (furnace and hot water heater) are old and will need replaced in the next few years. I had an inspection and things are generally in decent shape for what it is. I would be paying cash.

Insurance is $800/year, taxes are similar. If it cash flows $1200/gross per month, I think I would net ~$800/month after expenses. This would be my first rental property and I'm considering it generally because I'd really like to get into owning rentals and this seems like a relatively low-risk way to give it a try. I'm sure things will go wrong, and I'm sure being 2.5 hours away will be inconvenient at times. I'm hoping to find a local handyman person that can help when things go wrong but I am not planning to engage a property management company.

$800/month doesn't change my financial life - my goal is more being able to scale this and buy more rentals in the future, especially as I begin to understand this business better. I welcome people's thoughts on this idea.
bloom2708
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Re: Buying a Triplex?

Post by bloom2708 »

I think that is too far away for sweat equity to pay off.

Having to drive 2.5 hours to check something or spend the weekend there fixing.

I would pass. Long distance amplifies the hassle factor.
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thatme
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Re: Buying a Triplex?

Post by thatme »

bloom2708 wrote: Fri Nov 13, 2020 4:10 pm I think that is too far away for sweat equity to pay off.

Having to drive 2.5 hours to check something or spend the weekend there fixing.

I would pass. Long distance amplifies the hassle factor.

That's my biggest concern. I don't think the economics make hiring a property manager a good idea, and I'm worried about spending a lot of time there handling repairs, etc. I'm sure I can find someone to help from time to time, but ultimately it would be up to me.

For landlords, how often do you find yourselves having to handle things at your rentals? I don't mind spending a few longer weekends there initially getting the units painted/rehabbed a bit, but I'm thinking longer term and how often will I need to be there to handle problems on an annual basis once they've stabilized a bit.
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batpot
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Re: Buying a Triplex?

Post by batpot »

you could hire a property management company for 8-10%.
They will vet the tenants, and usually have good relationships with quality/low cost contractors...to save you the hassle of doing the repair yourself.
I worked with one for a property a ~1/2 hour away, and was worth it for the peace of mind, and I wasn't making anywhere near the kind of margin you're talking about.
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Meg77
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Re: Buying a Triplex?

Post by Meg77 »

Hey there, sounds like a good first rental opportunity! You'll learn quickly whether you love or hate it with relatively little money at stake. My first rental was a 100 year old duplex I bought for $120K if I recall, and immediately upon closing the loooong term tenant on one side moved out, leaving me to deal with lime green shag carpet and avocado cabinetry that hadn't been replaced in decades. Looking back the numbers were never that great, but it was a great learning experience for being a landlord. I owned it for over 10 years before selling it a few years back.

Anyway enough about me. I was going to say that once a tenant moves in you shouldn't have to visit or spend much time there even if you do most repairs yourself. The biggest involvement is between tenants getting it cleaned and refreshed and getting it leased (showing it to prospective new tenants). You could just outsource the leasing part to a real estate agent though which would save you the trouble of driving back and forth to show the place every time you have someone interested. That would get old FAST and sometimes people will call and say "can I come take a look now?" Besides they'll also deal with the tenant screening and application as well as the lease.

But if your day job isn't flexible you need to be comfortable with the idea of outsourcing repairs and leasing, or else I'd look for something close to home. The only rental I have left that isn't under professional management is a 2 minute walk down the alley behind me. And it still bugs me when I have to go over there haha.
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gwe67
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Re: Buying a Triplex?

Post by gwe67 »

Numbers sound OK, but I would have to question why (if this is such a great deal) the current owner wants to sell?
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AerialWombat
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Re: Buying a Triplex?

Post by AerialWombat »

I own rentals in three states.

You’re too far away. Hire property management.

There are very, very few businesses (real estate investing is a business) where you pay such a low amount to hire another business whose entire business is managing your business.
mgensler
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Re: Buying a Triplex?

Post by mgensler »

You can probably find trusted contractors and just give them the code to get in. However, I think your biggest issue is going to be tenant turnover. How do you show an apartment without being there? Just driving there and back for a weekend is going to eat into your profit margin for the month big time.
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thatme
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Re: Buying a Triplex?

Post by thatme »

gwe67 wrote: Fri Nov 13, 2020 4:49 pm Numbers sound OK, but I would have to question why (if this is such a great deal) the current owner wants to sell?
Owner is nearing 70 and is selling because she wants to leave the area to retire. She lives around the corner from the house, which obviously helps with her hassle factor in dealing with tenants (or lack thereof).

EDIT: and I don't want to oversell it, I'll definitely need to put some more money into it, but all apartments rent as-is currently and seem to stay occupied with few vacancies. Generally the tenants are shorter term (6 months) as there are a lot of short-term workers that come through there and are looking for cheap rentals.
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thatme
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Re: Buying a Triplex?

Post by thatme »

AerialWombat wrote: Fri Nov 13, 2020 4:51 pm I own rentals in three states.

You’re too far away. Hire property management.

There are very, very few businesses (real estate investing is a business) where you pay such a low amount to hire another business whose entire business is managing your business.
Assuming I did that, would the property manager typically handle calls from the tenants or is there a separate "per call" fee above and beyond the 10% or so of gross rents? I'm sure it's location dependent but I'm not even sure what's typical.
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AerialWombat
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Re: Buying a Triplex?

Post by AerialWombat »

thatme wrote: Fri Nov 13, 2020 4:59 pm
AerialWombat wrote: Fri Nov 13, 2020 4:51 pm I own rentals in three states.

You’re too far away. Hire property management.

There are very, very few businesses (real estate investing is a business) where you pay such a low amount to hire another business whose entire business is managing your business.
Assuming I did that, would the property manager typically handle calls from the tenants or is there a separate "per call" fee above and beyond the 10% or so of gross rents? I'm sure it's location dependent but I'm not even sure what's typical.
Yes, that is what you pay them for. There should only be additional charges if they actually need to send a plumber, electrician, etc. Selecting your property manager is a science unto itself. Find one that does not charge additional markup on trade labor.
Hockey10
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Re: Buying a Triplex?

Post by Hockey10 »

I once bought a triplex and I lived in one of the units for several years. I put a ton of sweat equity into the building in the first few years. I actually did not mind the upkeep and normal things that came up when I lived there. But, when I moved to the suburbs about 10 miles away, it became a hassle to handle these things. I could not imagine doing this from 2.5 hours away unless you had a very reliable person or property management company local to the property.
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AerialWombat
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Re: Buying a Triplex?

Post by AerialWombat »

thatme wrote: Fri Nov 13, 2020 4:59 pm
AerialWombat wrote: Fri Nov 13, 2020 4:51 pm I own rentals in three states.

You’re too far away. Hire property management.

There are very, very few businesses (real estate investing is a business) where you pay such a low amount to hire another business whose entire business is managing your business.
Assuming I did that, would the property manager typically handle calls from the tenants or is there a separate "per call" fee above and beyond the 10% or so of gross rents? I'm sure it's location dependent but I'm not even sure what's typical.
By the way, user “Sandtrap” wrote an exhaustive post a year or two back on this topic. I don’t have it bookmarked, but I encourage you to search for his long post on property managers.
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Brianmcg321
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Re: Buying a Triplex?

Post by Brianmcg321 »

Look for something closer. Two hours is too far to check up on regularly.
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BHawks87
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Re: Buying a Triplex?

Post by BHawks87 »

bloom2708 wrote: Fri Nov 13, 2020 4:10 pm I think that is too far away for sweat equity to pay off.

Having to drive 2.5 hours to check something or spend the weekend there fixing.

I would pass. Long distance amplifies the hassle factor.
I would definitely run the numbers assuming you are using a property management company. Most charge 10% of gross rent plus anywhere from 50% to 100% of the first months rent. Wack those assumptions off your numbers and see if it still makes sense to buy. That way if you ultimately decide to use property management it doesn't turn into a terrible deal.
BillyK
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Re: Buying a Triplex?

Post by BillyK »

If you are thinking of using property management, it may not be that easy to find someone willing to handle three units with such low rent amounts and short lease periods. It can be a lot of work for them without much inducement. That is more of a owner’s hands on type of property and 2.5 hours is a considerable distance if you end up handling it yourself.
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cchrissyy
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Re: Buying a Triplex?

Post by cchrissyy »

Good point, if you ever decide it's too far from home to manage yourself, it may be hard to find a management company at that level of rent, or they may require a higher percentage. I want to add that besides the 10% of rent i think it's normal that they take a full month's rent for each new tenant because of all the extra work involved. In the case of a normal SFH that stays rented a couple years, it won't hurt you too bad to lose one month. But this property you say re-rents every 6 months, which flips the deal to unprofitable.
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Re: Buying a Triplex?

Post by flaccidsteele »

thatme wrote: Fri Nov 13, 2020 4:19 pm
For landlords, how often do you find yourselves having to handle things at your rentals?
I live in Canada and own rentals in 2 US states. I don’t handle anything at my rentals personally
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
absolute zero
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Re: Buying a Triplex?

Post by absolute zero »

So the payback period is 3.5 years (assuming you keep units leased)? This seems like an absurdly good deal. Almost too good. My spidey senses are tingling. What’s the catch? If no catch and just a seller who has no idea how to properly value her property, then I’d expect some competition from other buyers (note that I know nothing about real estate...this is just me speculating/rambling).
barberakb
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Re: Buying a Triplex?

Post by barberakb »

45K for each unit or total? If total that is awesome numbers and you can just pay a property manager
Marseille07
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Re: Buying a Triplex?

Post by Marseille07 »

45K for a Triplex sounds unbelievably low. Are you sure this isn't some run-down unlivable Triplex where you might struggle to find tenants? If somehow the units are in good shape then this is a very good property to get your RE career started with.
ny_rn
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Re: Buying a Triplex?

Post by ny_rn »

What is your exit plan? This is very important.

Rental real estate is a business, treat it as such and hire a property manager. Also, do some research on the type of tenant you will most likely get for $400. Look up other multi-family units in the area, find the owner and ask questions. You might be buying a headache or you might be buying a cash machine.
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thatme
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Re: Buying a Triplex?

Post by thatme »

barberakb wrote: Sat Nov 14, 2020 12:31 am 45K for each unit or total? If total that is awesome numbers and you can just pay a property manager
$45K total. The entire building is ~1200 square feet - two 300 square foot apartments up, and one ~400 square foot basement apartment below (200 feet of common/utility space in the basement).
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Re: Buying a Triplex?

Post by Sandtrap »

Thoughts:

What is the general tenant demograph? and location/area characteristic?

IE: Low income area, next to industrial, area of low rise multi unit housing and apartments.
IE: Zoning, characteristics. Next to a Service Station, nightclub, welding shop.
IE: University student area.

Typical tenants you might expect at that rent amount and lease duration (what are your lease durations?)
IE: Students?

Buying a physical R/E rental is only part of the business plan.
Cash reserves for lumpy expenses. (HVAC replacement, lawsuits, flood damage reimbursement, bed bug infestation?)
Oustide income able to sustain the rental unit when it is vacant or vacant for long periods?
Etc.

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thatme
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Re: Buying a Triplex?

Post by thatme »

I really appreciate everyone's comments, you've given me a lot to think about. To answer the questions about whether this is "too good to be true," etc... I don't think so. Based on what I've seen, there is a robust rental market in this town but SFHs don't appear to sell as quickly. This house has been on the market for ~30 days. The town had a major employer leave ~2 years ago and values fell as well, but as I mentioned above, there is good demand for rentals, especially due to short-term need for energy (oil and windmill) jobs.

In terms of the structure itself, I've had it inspected and while many of the fixtures (cabinets, flooring) are original, the rental market doesn't seem to mind. And I'm planning to do some basic renovations DIY as tenants leave so that I can consider raising the rent and attracting better tenants. One thing I did was join a Facebook group for people looking for rentals in this town in this price point and I think these are "market" in terms of what is being offered.

I've taken everyone's thoughts to heart and think I absolutely need a property manager - the concern will be whether I can find a good one at this price point. Heck, just driving there and back takes a tank of gas ($40) so it would be worth it. Ideally I'd like to find other similar properties in the area, which would hopefully make it more financially advantageous for both me and the property manager.

In terms of exit strategy, I'm thinking of this as a long-term investment, but if I needed to sell it, I think it would sell. I also think some of the excess capacity in terms of structure and employees that were lost as a result of the large employer who left will eventually be taken up by a new employer coming into the area. That would only be a positive - presumably, I think we're at the bottom of the market in this particular town.
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Re: Buying a Triplex?

Post by heyyou »

Start closer to home, due to your lack of experience, and with no trustworthy local handyman, and no prop manager. This will not be your last chance to ever buy at a good price.

An unscheduled, intermittent, second job with unknown pay, five hours round trip from home, is not a good idea. Do you have family that will miss your presence? What about your real job when you miss sleep due to a late return from your new side job, where you stayed late to finish some project, or due to a weather event?

Yes you can easily do all of the needed updating on your schedule, but the landlording is an ongoing second job, much more than the calculation about buying, improving, then setting a rental price.
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Re: Buying a Triplex?

Post by Marseille07 »

thatme wrote: Sat Nov 14, 2020 10:06 am I really appreciate everyone's comments, you've given me a lot to think about. To answer the questions about whether this is "too good to be true," etc... I don't think so. Based on what I've seen, there is a robust rental market in this town but SFHs don't appear to sell as quickly. This house has been on the market for ~30 days. The town had a major employer leave ~2 years ago and values fell as well, but as I mentioned above, there is good demand for rentals, especially due to short-term need for energy (oil and windmill) jobs.

In terms of the structure itself, I've had it inspected and while many of the fixtures (cabinets, flooring) are original, the rental market doesn't seem to mind. And I'm planning to do some basic renovations DIY as tenants leave so that I can consider raising the rent and attracting better tenants. One thing I did was join a Facebook group for people looking for rentals in this town in this price point and I think these are "market" in terms of what is being offered.

I've taken everyone's thoughts to heart and think I absolutely need a property manager - the concern will be whether I can find a good one at this price point. Heck, just driving there and back takes a tank of gas ($40) so it would be worth it. Ideally I'd like to find other similar properties in the area, which would hopefully make it more financially advantageous for both me and the property manager.

In terms of exit strategy, I'm thinking of this as a long-term investment, but if I needed to sell it, I think it would sell. I also think some of the excess capacity in terms of structure and employees that were lost as a result of the large employer who left will eventually be taken up by a new employer coming into the area. That would only be a positive - presumably, I think we're at the bottom of the market in this particular town.
Sounds good to me, an amazing property you found in terms of cap rate. 5~6% is normal, this one coming in around 25~30% if fully occupied and remains that way.
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gr7070
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Re: Buying a Triplex?

Post by gr7070 »

This is an easy yes. Even with the less-than-preferred distance landlording - just hire a PM.

Gotta agree with all on the price being crazy low, but obviously we don't know the market.

Assume you'll have more vacancy annually than typical based on size and price.

I'd move quickly if you want to own rentals - so long as you've done your due diligence on it.
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thatme
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Re: Buying a Triplex?

Post by thatme »

I think the point about more than average vacancies is reasonable, especially since the norm appears to be shorter than 12-month leases in the area. I'm thinking with a bit of paint and renovations I might be able to attract some of the better than average tenants and hopefully have slightly less turnover. I'm looking into the PM and talking to a few people in town.
neverpanic
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Re: Buying a Triplex?

Post by neverpanic »

thatme wrote: Sat Nov 14, 2020 3:38 pm I think the point about more than average vacancies is reasonable, especially since the norm appears to be shorter than 12-month leases in the area. I'm thinking with a bit of paint and renovations I might be able to attract some of the better than average tenants and hopefully have slightly less turnover. I'm looking into the PM and talking to a few people in town.
Without knowing the area or type of area, I'm left to my imagination to think of what a $400 apartment looks like.

$800/year is an incredibly high price to insure a $45,000 building, but I have to assume that full replacement cost for the structure would be at least 2.5-3x that?

But keeping those numbers where they are, I LOVE this deal, even if you:

1) hire a property manager (I would expect to pay 1-1.5 months rent for each new tenant, then 10% ongoing)

2) only have 2/3 occupancy

Yes, it's far away from you, so everything will be arms' length, but speaking strictly to you as an investor-landlord, the numbers are incredible. Yes, you are going to need a handyman, but most property managers have someone they use if you don't have your own person already. Do the deal.
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thatme
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Re: Buying a Triplex?

Post by thatme »

I spoke with my realtor in the area and she offers PM services. She doesn't do it much but said she'd be willing to act as PM until I find someone else as it's not her primary line of work. I don't know if I'll use her, but she was helpful in telling me the market for the area - 10% of gross rent, no additional fee at move-in. She didn't seem to think I would have trouble finding a PM service for only three doors, and if this goes well, I might expand in the not too distant future. I went ahead and made a revised offer (I was under contract on this property two weeks ago and backed out post-inspection largely due to the distance, but have been rethinking it), and we'll see if the seller accepts. This thread has been really helpful.
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gr7070
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Re: Buying a Triplex?

Post by gr7070 »

thatme wrote: Sat Nov 14, 2020 5:54 pm I spoke with my realtor in the area and she offers PM services. She doesn't do it much but said she'd be willing to act as PM until I find someone else as it's not her primary line of work. I don't know if I'll use her, but she was helpful in telling me the market for the area - 10% of gross rent, no additional fee at move-in. She didn't seem to think I would have trouble finding a PM service for only three doors, and if this goes well, I might expand in the not too distant future. I went ahead and made a revised offer (I was under contract on this property two weeks ago and backed out post-inspection largely due to the distance, but have been rethinking it), and we'll see if the seller accepts. This thread has been really helpful.
Do not use her as a PM!
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thatme
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Re: Buying a Triplex?

Post by thatme »

gr7070 wrote: Mon Nov 16, 2020 12:27 pm
thatme wrote: Sat Nov 14, 2020 5:54 pm I spoke with my realtor in the area and she offers PM services. She doesn't do it much but said she'd be willing to act as PM until I find someone else as it's not her primary line of work. I don't know if I'll use her, but she was helpful in telling me the market for the area - 10% of gross rent, no additional fee at move-in. She didn't seem to think I would have trouble finding a PM service for only three doors, and if this goes well, I might expand in the not too distant future. I went ahead and made a revised offer (I was under contract on this property two weeks ago and backed out post-inspection largely due to the distance, but have been rethinking it), and we'll see if the seller accepts. This thread has been really helpful.
Do not use her as a PM!
Anything specific or just better to focus on someone who does this as a primary line of work? To date I haven't found anyone in the city that only does PM - the ones I've located have all been realtors as well.
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gr7070
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Re: Buying a Triplex?

Post by gr7070 »

Assuming one can be found, the general reasons as well as.

A good PM:

Has a network of maintenance personnel to contact. That do a good job at a fair rate.

Knows how to screen well.

Has a good system to get new renters in, quickly.

Can navigate many other issues that might come up rarely they have experience with.

Obviously, you have some market limitations. This may make the distance a greater issue. Maybe not.
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thatme
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Re: Buying a Triplex?

Post by thatme »

gr7070 wrote: Mon Nov 16, 2020 1:00 pm Assuming one can be found, the general reasons as well as.

A good PM:

Has a network of maintenance personnel to contact. That do a good job at a fair rate.

Knows how to screen well.

Has a good system to get new renters in, quickly.

Can navigate many other issues that might come up rarely they have experience with.

Obviously, you have some market limitations. This may make the distance a greater issue. Maybe not.
Thanks, that's helpful.

The seller accepted my revised offer this morning (revised downward based on some electrical stuff that came up during the inspection), so it looks like we're moving forward with this adventure.
Bobby206
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Re: Buying a Triplex?

Post by Bobby206 »

thatme wrote: Fri Nov 13, 2020 3:42 pm I'm considering buying my first rental property. It's a triplex consisting of three, small 1 BR/1BA apartments in a small/medium-sized city about 2.5 hours from where I live. Purchase price is $45K, each unit rents for $400/month. I think the rent could go up a bit if I do some basic renovations (paint and flooring primarily, nothing huge). Roof is in good shape, key appliances (furnace and hot water heater) are old and will need replaced in the next few years. I had an inspection and things are generally in decent shape for what it is. I would be paying cash.

Insurance is $800/year, taxes are similar. If it cash flows $1200/gross per month, I think I would net ~$800/month after expenses. This would be my first rental property and I'm considering it generally because I'd really like to get into owning rentals and this seems like a relatively low-risk way to give it a try. I'm sure things will go wrong, and I'm sure being 2.5 hours away will be inconvenient at times. I'm hoping to find a local handyman person that can help when things go wrong but I am not planning to engage a property management company.

$800/month doesn't change my financial life - my goal is more being able to scale this and buy more rentals in the future, especially as I begin to understand this business better. I welcome people's thoughts on this idea.
The numbers are good. I would buy it and just hire a local property manager. Obviously that cuts your profits down significantly but you will still learn about the business and can scale room there. Plus, being your own property manager just makes it a job. I am not looking for a job but rather an investment when I buy real estate. I just factor in the costs of a PM, hiring people to do all repairs, etc.... For such a cheap price why not give it a go!? Do make sure your insurance coverage is more than minimum coverages. We have $3m umbrella on our rental properties and I really am thinking of bumping it to $4 or $5m. Good luck!
BrooklynInvest
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Re: Buying a Triplex?

Post by BrooklynInvest »

thatme wrote: Sat Nov 14, 2020 5:54 pm I spoke with my realtor in the area and she offers PM services. She doesn't do it much but said she'd be willing to act as PM until I find someone else as it's not her primary line of work. I don't know if I'll use her, but she was helpful in telling me the market for the area - 10% of gross rent, no additional fee at move-in. She didn't seem to think I would have trouble finding a PM service for only three doors, and if this goes well, I might expand in the not too distant future. I went ahead and made a revised offer (I was under contract on this property two weeks ago and backed out post-inspection largely due to the distance, but have been rethinking it), and we'll see if the seller accepts. This thread has been really helpful.
Just me but the realtor's desire to close a sale might present a conflict here.

I've owned a 2-family house for 15 years. This afternoon I cleaned the gutters - my tenant had a small water leak after a downpour last night. Not only could you not do that from a long way a way, you're paying someone to do it OR beholden to the property manager not benefitting further from repairs that may not need to be made.

Love the idea OP, but the distance will present complications and additional costs.
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Re: Buying a Triplex?

Post by LittleMaggieMae »

I haven't seen any mention of 'utilities' with the $400 per month rent. Who's paying for electric, water, gas, cable/internet, trash pickup? Who's paying for lawnmowing and snow removal? Since the building sounds like a what would be called a 3 Flat in my neck of the woods - that's a building that was originally built with 3 units. I'm guessing at least ONE of the utilities (water) is paid by the landlord (for all three units) and also Trash Pickup. This kind of building would have 3 gas meters, 3 electric meters, and 3 old fashion telephone lines coming into the building.

If it's a house that has been converted into 3 separate living spaces - I would guesstimate that there is only one gas and electric meter (depending on local codes) so you the landlord might be responsible for paying the monthly bills. That's gonna eat into your $400 *3 = $1200 a month "cash flow".

If the tenants are paying for the utilities - I would look into HOW the transfer of utilities happen (can you do it on line?). I would also look into who pays/what happens if a tenant doesn't pay and the utility is shut off. (if they are only there for 6 months - they may just up and leave - and who cares if there is an outstanding bill OR a "turn it back on fee". )



The services a property manager offers can be all over the board. My property manager handles the leasing of my town house. they advertise, interview/credit check prospect tenants, hold the "security deposit", inspect the property once a year (even if a tenant renews their lease), handles all the calls from the tenant, sends out "repair people" as needed. I have an added issue - an HOA - so the property manager works with the HOA if the tenant is not complying with the HOA (all of the things the tenant is responsible for is in the lease that they signed.)
Topic Author
thatme
Posts: 192
Joined: Wed Feb 18, 2015 12:54 pm

Re: Buying a Triplex?

Post by thatme »

LittleMaggieMae wrote: Mon Nov 16, 2020 2:45 pm I haven't seen any mention of 'utilities' with the $400 per month rent. Who's paying for electric, water, gas, cable/internet, trash pickup? Who's paying for lawnmowing and snow removal? Since the building sounds like a what would be called a 3 Flat in my neck of the woods - that's a building that was originally built with 3 units. I'm guessing at least ONE of the utilities (water) is paid by the landlord (for all three units) and also Trash Pickup. This kind of building would have 3 gas meters, 3 electric meters, and 3 old fashion telephone lines coming into the building.

If it's a house that has been converted into 3 separate living spaces - I would guesstimate that there is only one gas and electric meter (depending on local codes) so you the landlord might be responsible for paying the monthly bills. That's gonna eat into your $400 *3 = $1200 a month "cash flow".

If the tenants are paying for the utilities - I would look into HOW the transfer of utilities happen (can you do it on line?). I would also look into who pays/what happens if a tenant doesn't pay and the utility is shut off. (if they are only there for 6 months - they may just up and leave - and who cares if there is an outstanding bill OR a "turn it back on fee". )



The services a property manager offers can be all over the board. My property manager handles the leasing of my town house. they advertise, interview/credit check prospect tenants, hold the "security deposit", inspect the property once a year (even if a tenant renews their lease), handles all the calls from the tenant, sends out "repair people" as needed. I have an added issue - an HOA - so the property manager works with the HOA if the tenant is not complying with the HOA (all of the things the tenant is responsible for is in the lease that they signed.)

Good questions. The owner sent me last 12 months of utility bills, and you're correct that the landlord is responsible for water, sewer, trash, and gas - the tenants pay their own electric (there's a bit of "common room" electricity that the LL pays as well but it's minimal). I factored that into my numbers above.

One thing I'm considering is whether to offer some additional services - mainly adding a washer and dryer in the basement and possibly including Internet access because it would be easy for each apartment to work off of common wifi, which would then allow me to raise the rent above the costs of those additions. The basement already has W/D hookups but the current owner doesn't have a W/D down there.
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thatme
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Re: Buying a Triplex?

Post by thatme »

Hi everyone - thanks again for all of the good advice. We're planning to close on this later next week, but I need to decide on the insurance. I have two options - both from Allstate, which was the most competitive rate, and where I have all of my other insurance at the moment.

For $920/year I get $107K in dwelling protection (actual value), or $1477/year for $214K in dwelling protection (replacement cost). Deductible is $1000, all other coverages are the same. So is it worth $550 extra each year for double the coverage for the structure? I'm paying $42K for the structure as it sits, and frankly, I could not imagine spending $107K or $214K to rebuild in that neighborhood, it just wouldn't be worth it.
av111
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Re: Buying a Triplex?

Post by av111 »

thatme wrote: Fri Dec 04, 2020 10:29 pm Hi everyone - thanks again for all of the good advice. We're planning to close on this later next week, but I need to decide on the insurance. I have two options - both from Allstate, which was the most competitive rate, and where I have all of my other insurance at the moment.

For $920/year I get $107K in dwelling protection (actual value), or $1477/year for $214K in dwelling protection (replacement cost). Deductible is $1000, all other coverages are the same. So is it worth $550 extra each year for double the coverage for the structure? I'm paying $42K for the structure as it sits, and frankly, I could not imagine spending $107K or $214K to rebuild in that neighborhood, it just wouldn't be worth it.
OP

More importantly look at the liability coverage. Lowest replacement cover is fine for a 45k property. You will never rebuild.
AV111
Topic Author
thatme
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Re: Buying a Triplex?

Post by thatme »

av111 wrote: Fri Dec 04, 2020 10:38 pm
thatme wrote: Fri Dec 04, 2020 10:29 pm Hi everyone - thanks again for all of the good advice. We're planning to close on this later next week, but I need to decide on the insurance. I have two options - both from Allstate, which was the most competitive rate, and where I have all of my other insurance at the moment.

For $920/year I get $107K in dwelling protection (actual value), or $1477/year for $214K in dwelling protection (replacement cost). Deductible is $1000, all other coverages are the same. So is it worth $550 extra each year for double the coverage for the structure? I'm paying $42K for the structure as it sits, and frankly, I could not imagine spending $107K or $214K to rebuild in that neighborhood, it just wouldn't be worth it.
OP

More importantly look at the liability coverage. Lowest replacement cover is fine for a 45k property. You will never rebuild.
The quote includes $300K/occurrence liability. Is that pretty typical for something like this? I don't have a lot of info re what's standard.
av111
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Re: Buying a Triplex?

Post by av111 »

Triplex? I would go higher.. Maybe 1m
AV111
IMO
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Re: Buying a Triplex?

Post by IMO »

thatme wrote: Sat Dec 05, 2020 6:30 pm
av111 wrote: Fri Dec 04, 2020 10:38 pm
thatme wrote: Fri Dec 04, 2020 10:29 pm Hi everyone - thanks again for all of the good advice. We're planning to close on this later next week, but I need to decide on the insurance. I have two options - both from Allstate, which was the most competitive rate, and where I have all of my other insurance at the moment.

For $920/year I get $107K in dwelling protection (actual value), or $1477/year for $214K in dwelling protection (replacement cost). Deductible is $1000, all other coverages are the same. So is it worth $550 extra each year for double the coverage for the structure? I'm paying $42K for the structure as it sits, and frankly, I could not imagine spending $107K or $214K to rebuild in that neighborhood, it just wouldn't be worth it.
OP

More importantly look at the liability coverage. Lowest replacement cover is fine for a 45k property. You will never rebuild.
The quote includes $300K/occurrence liability. Is that pretty typical for something like this? I don't have a lot of info re what's standard.
I would look at least a $2M liability protection. Check if the triplex would be covered under a normal umbrella insurance policy.

Think about it this way, $300K probably will just barely cover the legal fees of a significant claim, let alone any actual damages, etc.
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Harry Livermore
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Re: Buying a Triplex?

Post by Harry Livermore »

OP,
It sounds like you have already decided to buy it. The rest of my response is formatted as if you were still thinking about it...
Sounds like a great price point to enter the game. I'm guessing working-class type tenants. How is the neighborhood? Up and coming? Static? I assume you are buying for cashflow and not appreciation. The raw numbers sound good.
However, I think the distance is a problem. 2.5 hours is so far away that you will either be discouraged from checking in regularly, or the burden of checking in regularly will kill your taste for RE. As others have pointed out, repairs, turnover, showings, or any kind of mishap will either cost you money to have someone else take care of it, or cost you time to drive 5 hours for each occurrence. Are you even sure you can get a property manager for so little money? Our vacation rental is 5 hours away, but it's in a development geared towards short-term summer rentals, with on-site management who take care of everything... and at times even that property is a stress point in our lives. Not often, but sometimes. Our SFH rental is 10 minutes from our residence, and I am there quite often. We just had an issue with raccoons getting into a crawlspace under the detached office building. I went over twice on Friday, and I need to do a small carpentry project today or tomorrow to prevent it from happening again. I was also there yesterday to meet the chimney cleaning guy. I consider myself fortunate to not have to plan a long weekend around those two tasks, or allocate $$$ to have someone else do it. So, I am sometimes busy working on the rental, but since it's right around the corner, that is not a stress point.
Your proposed insurance limits are far too low. As others have suggested, $1MM or $2MM. Or put the property on your personal umbrella policy (a good idea anyway if you are not going to do this in an LLC or corp) See if you can get one insurer to cover everything in your life. I can imagine a slip and fall at the rental that end in two insurance companies pointing fingers at each other and trying to wiggle out of it.
When I read the title of the thread, I assumed you were going to live in one unit and rent out the other two, which I have heard is a great way to start (but not without its own set of issues, by basically living WITH your tenants)
In short, it will probably work out, and with a management company involved, with few headaches. The cash flow will not be impactful, as you point out. But it could be a good learning experience, and the price of admission is low. Best of luck!
Cheers
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