Where does money come from for repairs in rentals

Question

lets say you find a property for 50k you plan to fix up and rent. do you need your own cash for the down payment and repairs?

Brendan J. · Answer

Kenneth, you realize this thread was 21 months old right? Or perhaps that Doug hasn't even visited the site in the last 15 months? Lets stop digging all this stuff up.

Michael Rossi · Answer

The 50% Rule has absolutely nothing to do with the rehab expenses.  Getting the property up to rental standards is part of the acquisition cost, not an operating expense.  Once you get the property up and running, then the maintenance and capital expenses will be included in the 50% Rule.

Good Luck,

Mike

Bill Gulley · Answer

Yes, but it is an opportunity to make a comment now.

I doubt seriously, that there is any property leased in my county, or adjacent counties, where a proeprty rents for 2% of the purchase price. Much closer to 1 to 1 1/2%. This happens out west and larger cities, but not in the mid-west.

Kenneth LaVoie · Answer

the more units, I think the more it will cash flow .... but I think it's also good to do an actual line by line analysis and then "double check" against the 2% / 50% rule. I'm new, so keep that in mind (2 years). But using those rules in a strict sense, to me, poses the danger of making you "myopic" or tunnel visioned.

So with 2%, you'd need to pay no mroe than 40K AFTER REPAIRS for an 800 rental. Possible, but a little more challenging. BUT ... this is where a little more analysis comes in. Here in Central Maine, VERY FEW tenants pay own heat. It's simply not the rule. But with houses, they do, or a duplex with separate heating system. So your expenses should be lower for a unit where you don't pay the utilities. AND at least in my experience, the rent doesn't decrease as much as the savings, so all in all you can pay a LITTLE more per unit for tenant paid utility deals. My two cents.

Doug P. · Answer

ok got it, but now an even simpler question. with that 2% rule it says you should rent a property with a total acquisition cost of 60k for a $1200/mo.

How reliable is the 2% rule do you always follow it?

Doug P. · Answer

Wait... it seems like it would be very hard to find a property that you could use the 2% rule on. wouldn't it always cash flow way more then $100/mo?

Doug P. · Answer

so how do you use the 50% rule when after you buy the property you have another 25k for repairs?

Josh Green · Answer

yes.

unless you are doing a HML loan, then you can typically get some $$ for repairs.

Doug P. · Answer

so where do you figure in the repair cost for a house you are planning to rent.
          
          like lets say there is a house that is listed at 50k and your mortgage at the full 50k would be $300/mo you would need to get at least $800/mo to rent it out and cash flow the $100.
          
          But it needs 10k in repairs before you can rent it and you have to pay for them cash. Would you say the house really cost 60k and you mortgage would be more like $350/mo so now you only would cash flow $50mo at $800/mo rent making it a bad deal?

Where does money come from for repairs in rentals

Most Popular Reply