Congratulations ! You have just closed on another investment. Only a small % of the population (roughly 15%) have made the step from being a mere consumer of Real Estate to being an Investor and purchasing a home or property that they do not intend to use for themselves.
Now that the ink is dry on the closing documents lets take the paper off the package and see what you have purchased.
A mid 60's 4 plex of 2 bedroom units (commonly referred to as "McKuen" the original architect of this Investors ATM of a building). It's design offers each unit a sense of separation while maintaining a very condensed footprint. The estimated rents for similar units in this condition is around $650 a month , For a total potential income of $31200 Annually. With a purchase price of $155k. (57% off its Price of 4 years ago) you have a Gross Cap Rate of 20.12% ! That was a very nice package that you were fortunate enough to be able to pick up off the shelf.
You may be saying to yourself, what does this have to do with "The Things Tenants Do ! " and what the heck is a Cap Rate? Both are legitimate questions and both will be answered as we share the Real Life Investor Experiences of hundreds of actual Investors with you.
The first answer is the easiest to deal with and all we will be able to get to today.
Tenants are both the source of Income for your Investment property and the biggest cause of unplanned Expenses in your Investment property. No matter what type of property you have , A high-rise tower in Manhattan or a beat up shack on a swamp, the common source of risk shared by both is ( and always will be ) the parts of the Investment comprised not of bricks and mortar but rather flesh and blood.
As my father used to say " people are the strangest folks i know".
Tenants and their actions (or inaction) are the unpredictable portion of the spread between the Gross Potential Income (what you could receive) and what you actually get. This is the primary reason that most successful Investors use the services (or invest additional resources to build their own team ) of a professional management team.
In this case the selection of the occupants was made by the previous owner , we do not know why the previous owner decided to sell his property , after all the previous owners cap rate should have been 11.12% based on his $280k purchase price , still not a shabby return in this market, however once we look at his or her tenants (expense generators) we may be closer to understanding his choice to sell.
More in Post #103