Hello... I NEED HELP!... but how much should it really cost?

[Bill D.]

Hello everyone!  My name is Bill and I am a real estate addict ;)  I found BP about 2 years ago but just started logging in regularly this month.  I NEED HELP!

Timing... I have always been interested in real estate since I was 14 years old and my parents moved across town in northern NJ; they kept the older home as a rental. Out of college I bought a REO condo in 1994. In 1995 I got my real estate license in NJ. In 1998 relocated to the Denver, CO area where I still live today. Saved Aggressively. Managed to do one flip in a ski resort town in 2004. In 2007 after reading the Millionaire Real Estate Investor and the deals started showing up, went all-in on the SFR market here. Buying in a down / scared market allowed me to make money without being exceptionally detailed in my property analysis. I did my best with Excel spreadsheets based on the book to cover all the bases.

Now it is 7 years later and I have a portfolio of 6 income producing (as best as I can tell ;) ) properties. Now I am on a mission to create systems that allow me to organize and optimize that portfolio (then I will think about acquiring more).  Quicken, Excel and a wall covered with white boards are my only tools today and I feel that I am not keeping up.

I am seriously considering making the move to Quickbooks, but in a prior career I was a software consultant and I can't help but be skeptical of how much value will Quickbooks bring to the table considering the purchase cost, education, set-up consultations, hardware upgrades, security, etc...

Currently reading "The Real Estate Investor's Pocket Calculator" and trying to decifer which calculations I should be using to evaluate my properties and make better decisions regarding improvements and rents.

I am VERY OPEN MINDED and WILLING to investigate any direction or leads you might suggest regarding software and/or services to help me get my business optimized (or at least running more efficiently with better data). Maybe I need to create it but... it seems to me that there are a lot of real estate investors who continue to re-invent the wheel.  Shouldn't there be a piece of software where you can just input some of the details of the property and it gives you all the analysis and metrics you need to decide if it will be profitable as well as how to keep it profitable (What-if scenarios)?

Thanks in advance fellow investors!

-Bill

[John Chapman]

Bill, I'm sorry, but I'm having trouble figuring out precisely what you are looking for. From your post, it seems that you own 6 SFR and are looking for some sort of software that will allow you to more precisely measure your returns, repairs, and optimize your profitability. My first observation is that I think you're probably over thinking the buy and hold business a bit. As you know, this is a pretty basic business (manage properties, fix them when they break, respond to tenant requests, fill vacancies, etc.). You can optimize your business by cutting expenses (getting things done cheaper, hardening your rentals, protesting property taxes, reducing insurance, etc.) or increasing revenue. I'm not sure what value a software that gathers or organizes data better than what you have going has to offer you on these points. Is there something you're looking for specifically? I guess from my perspective, all you just need is something that lets you see your income to and expenses to see how well each property is doing.

Second, in terms of whether to continue to hold on to a property or sell it, that strikes me as more of a macro-type analysis that can easily be addressed with Excel.  Where are rents going, where are property prices going, plug in your inputs, and calculate your returns.  Again, what would the software that you are looking for do on this point?

Third, I will say that I do think that after a while, Excel gets cumbersome and it gets difficult to really monitor performance.  I did this until Property 14 and it was unmanageable. I switched over to Buildium have never been happier.  It has a Quickbooks like component to it that allows me to manage my books.  I will say it's very easy to monitor what's going on.

I'm not sure if I addressed your question, and if I misunderstood what you are looking for, let me know.

[Peter MacKercher]

Welcome to Bigger Pockets Bill. I am in STL please let me know if you need anything. 

In the meantime here are 7 tips to help you grow your business using BP:

1. New to BP? http://www.biggerpockets.com/starthere

2. Develop your own business strategy. -- Don’t just be a “jack-of-all-trades"

3. Grow your business by developing your business plan. - Remember there is a difference between goals and a plan. http://www.biggerpockets.com/files

4. Locate and attend several different local REIAs as they’re great opportunities to network and meet wholesalers, lenders, and contractors.

5. Stay away from the “guru” sales-pitch events - they rarely increase your investment knowledge, they merely empty your wallet!

6. Spend some time every day on Bigger Pockets by connecting with “colleagues,” perusing blogs and videos, and engaging with others on the forums: http://www.biggerpockets.com/meet

7. Set yourself up to receive free alerts to be notified of subjects that interest you: http://www.biggerpockets.com/alerts

[Peter MacKercher]

@Bill D. Are you looking for property management software? tax software?  or just want to know how to be more organized?

[John Chapman]

Bill, I'm sorry, but I'm having trouble figuring out precisely what you are looking for. From your post, it seems that you own 6 SFR and are looking for some sort of software that will allow you to more precisely measure your returns, repairs, and optimize your profitability. My first observation is that I think you're probably over thinking the buy and hold business a bit. As you know, this is a pretty basic business (manage properties, fix them when they break, respond to tenant requests, fill vacancies, etc.). You can optimize your business by cutting expenses (getting things done cheaper, hardening your rentals, protesting property taxes, reducing insurance, etc.) or increasing revenue. I'm not sure what value a software that gathers or organizes data better than what you have going has to offer you on these points. Is there something you're looking for specifically? I guess from my perspective, all you just need is something that lets you see your income to and expenses to see how well each property is doing.

Second, in terms of whether to continue to hold on to a property or sell it, that strikes me as more of a macro-type analysis that can easily be addressed with Excel.  Where are rents going, where are property prices going, plug in your inputs, and calculate your returns.  Again, what would the software that you are looking for do on this point?

Third, I will say that I do think that after a while, Excel gets cumbersome and it gets difficult to really monitor performance.  I did this until Property 14 and it was unmanageable. I switched over to Buildium have never been happier.  It has a Quickbooks like component to it that allows me to manage my books.  I will say it's very easy to monitor what's going on.

I'm not sure if I addressed your question, and if I misunderstood what you are looking for, let me know.

[James Wise]

@Bill D. 

welcome to the site.

[Bill D.]

@John Chapman 

 Thanks for the response.  "...over thinking the buy and hold business a bit."  LOL! BINGO! Do you have a spycam in my office??

Sorry for the confusion but I guess what I was getting at was a way to better track my numbers and know how well/poorly each property is doing.  For example:

Here is my real life scenario today... feel free to drop your 2 cents on this one. I am thick skinned and open to learning.

I have a 4 bed, 2.5 bath, 2500sqft SFR that I have owned for 6.5 years. It has had tenants in it from day 1 with no real improvements from me other than a new dishwasher. Purchase price was $245k in 8/2008 (REO) with 20% down. It is now on a 15 year fixed which started in 10/2010 at 4.125%. That 2010 refi cost me about $3k. Current PITHI is about $1887/mo and rent is $2100/mo. Mortgage balance is about $150k and zestimate is $325k.

Current tenants are moving out this spring 2015 and I want to bump rent to about $2400/mo. It is in the process of getting a new roof and exterior paint due to a hail storm last summer (putting that insurance policy to work). What improvements should I consider and what budget to increase my cashflow? It desperately needs new flooring throughout (original 2001 carpet in place). My plan is to do a laminate type product on the entire first floor, carpet on the stairs and upstairs (plus buy an extra 6 feet to redo stairs in about 5 years). Other than that it has laminate counter tops, golden oak cabinets, brass fixtures, 4 inch white tile baths, you get the idea... 2001.

Based on my research of comps on rentals.com it is very obvious that there is a line somewhere of diminishing returns when updating a rental, but I haven't been able to exactly pinpoint it yet. That is what has brought me back to ROI, ROE, COC, etc... there has got to be some way for the math to tell me how much I should spend on this house and avoid the over improvement trap...

Currently working my way through "The Real Estate Investor's Pocket Calculator" to better understand the metrics and ratios I should be using. Other properties have required improvements and refinancing over the years and I am now trying to evaluate where each individual property stands as far as being profitable compared to other opportunities out there (multifamily?)

[John Chapman]

I guess my first observation would be, why on earth would you want to keep this as a rental? That is a really big house for a rental and is currently only $200 over PITI. (I realize you're on a 15 yr note.) Maintenance, make ready's, painting, flooring, etc, are going to kill you on a going forward basis. With a 2001, I'm also guessing you're approaching the end of your HVAC system and roof, so that's some pretty significant cap ex you're facing. I would submit you got lucky and/or kept the rent below market to keep the tenant there that long; I would not assume it will happen again. You are almost certainly going to face many more expenses on a going forward basis. (I had a similar situation where the tenant stayed for 7 years. I thought I was a genius until I got it back and it needed a ton of work.)

You also have a ton of equity locked up in the property.  Why not just fix it and sell it, since you're going to be fixing it anyway even if you rent it?   (You're return on equity has got to be very low at this point.)  Based on your description (and I'm assuming this is a higher end rental), you're going to probably spend pretty close to the same to get it rental ready vs retail ready.  I would take the cash and go buy a bunch more rentals that make sense as rentals.  (I'm not saying this to be harsh as I'm the process of cleaning up my portfolio at this point; the simple truth is that big SFRs really do not make good rentals, at least in my area.)

[Bill S.]

@Bill D. Here are the rules I use for improvements. They must pay for themselves in 4 years. So if you get $100 more per month in rent due to an improvement, then you have about 5K you can spend to get that $100 in rent. Some use 3 years instead of 4. 

The caveat is, there is a minimum standard or you start paying in other ways like reduced rent and poorer quality tenants.

Solid surface flooring offers a number of benefits. For example you have to replace the flooring since it's bad already so your "improvement" cost is the difference between the solid surface and carpet. They since you don't have cleaning that reduces turnover time so perhaps it saves you a month of lost rent. So while it may not bring too much more rent there are a number of benefits that you should account for. 

Vacancy is the hidden cost of dated rentals. 

[Kelly Sennholz]

I love John Chapman's comment. I would only add that if you are not using quickbooks or similar, you are likely wasting a lot of time. 

I follow my investments with a spread sheet, as I have clear goals and objectives and it is a great inspiration to watch them quickly manifest. I can go back a year or two and easily see my situation then, compared to now. Great fun. 

I have multiple spreadsheets for various issues, i.e. RE numbers, budgeting, net worth and projections, etc etc.

Not only makes life easy, but it is clear where my expenses lie when doing that. Many people try to shoot from the hip on that, but there is nothing like the cold hard facts to inspire change in habits.

Hope that helps!