‘analysis’ or ‘paralysis’?

[V G.]

H everyone,

I am a SF Bay Area resident who is looking for alternative investment vehicles for long term-hold. I have been lurking on BiggerPockets forums for months now and thought it is time to come out of shadows.I have listened a number of podcasts and read hundred of posts.

I am looking at turnkey out-of-state or using property manager in areas with 2 hours drive. Based on this, I did some research, reached out to a couple of turnkey companies out of state and talked to REI group. I took their numbers and did my analysis. Not one cash-flows. So, I am thinking ‘analysis' or ‘paralysis'? Please help me validate the numbers and assumptions I am making:

1. Property Management: 10%
2. Maintenance: 5%
3. Vacancy: 5%
4. Move-out: 500 per year a tenant stays
5. Cap-ex: $250 per month
6. HoA, PITI: actuals (provided by company)

Now, if I buy in regular turnkey towns where rent is ~$1K, then first 1-3 and 5 is 45% of rent. 1-4 are coming from the turnkey provider, I have seen higher number recommended for Maintenance and Vacancy on BP. Cap-ex is a number I picked on a couple of forum threads. PITI are actuals and most cases assume 20% down. A couple of examples which I use for reference.

1. Memphis (Turnkey)
   1. Rent: $1100
   2. PITI: $761 (~70%)
   3. PM, Vac, Maintenance: 20%
   4. Move-out, Cap-ex: ~25%
2. Sacramento:
   1. Rent: $2400
   2. PITI: $2350 (~95%)
   3. PM, Vac, Maintenance: 20%
   4. Move-out, Cap-ex: ~10%

Are my cost estimates too high? Or has the market does not make sense anymore?

I am doing my analysis right? Any examples that you can share based on your experience? Am I missing anything on the positive side? I don’t qualify for taking rental losses as deduction. Also, it would make sense to take loss only when you are in hyper-growth market and looking for price increase and not cash-flow.

My goal is to generate $2K cash-flow per month at end of 5 years. My Market & Property selection criteria are:

• City should exhibit both economic & population growth
• B or higher grade neighborhood
• Mix of rental & owner occupied homes in the neighborhood
• Review crime-rates
• Avoid cities with harsh winters (issues with pipes, liability, salt, etc)
• Price range of 75-125K

Thanks all in advance!

Vidur

[Brent Coombs]

@V G., [I'll exaggerate, to make a point]. Another way of phrasing your goal could be: "I want assured positive cash flow, but only by buying in neighborhoods that everyone wants to get into, where I'd be taking no risk whatsoever".

Good luck with that! Welcome to BP...