Hi Brett, I think you need to re-calculate prop tax. I believe LA County is 1.22%, which puts it at about $500 per month. Also think $350 a year in maintenance is low, turnover of carpet/cleaning will be significantly more. An average home warranty program is $50 a month alone, which could cover you against a significant loss. I鈥檇 reserve minimum $150 a month for maintenance.
Hi Brett, I think you need to re-calculate prop tax. I believe LA County is 1.22%, which puts it at about $500 per month. Also think $350 a year in maintenance is low, turnover of carpet/cleaning will be significantly more. An average home warranty program is $50 a month alone, which could cover you against a significant loss. I鈥檇 reserve minimum $150 a month for maintenance.
New to Real Estate 路 Los Angeles, CA 路 Member since 2020 路 61 posts 路 26 votes
5y
@Eman Yazdchi 馃槷 thank you for catching that! Wow, I absolutely screwed up on the property tax. It would actually be $479, not $307. What I just found on the LA County Auditor's site was a 1.175 rate. Where did you find the 1.22 rate? Because then it would run $497.
Wow, $150/mo for maintenance? It was built in 2001. It's already in good shape, and I would be getting it even better. That would bring in $1800 a year. If a tenant stays three years, that's $5400. Is it your experience that that's necessary? Now I'm second guessing my capex... 馃
I've never found home warranties worth it. What's your opinion?
@Brett D. I found it online, it depends on where the home is, school assessments, etc. the base rate is 1%, then it is added on to it from that. Also, it goes up about 2% a year, so calculate for that.
I have 2 townhomes I rent and found that when you do need to do work, like paint, carpet, appliances, it can be a significant expense. I recently repainted a unit, and that ran about $2000. I鈥檝e had to replace an AC unit, and that was a couple thousand as well.
I think in general it is better to over estimate, so you鈥檙e prepared for the rainy day, because when the expense comes, it is usually significant.
i personally like home appliance warranty, but I do it for peace of mind also. I have a full time job and don鈥檛 have the ability to find the right specialist, so they usually contact the tenant directly and makes my life easier. For $500 a year, it is worth it to me.
Have you had the rent validated by someone? Is this a townhome or single family home? How many bedrooms and bathrooms? Which area in Santa Clarita as rents can vary a lot?
Flipper/Rehabber 路 Pittsburgh 路 Member since 2018 路 6k+ posts 路 5k+ votes
5y
@Brett D. this is a ton of your cash to tie up AND a lot of debt to take on. I don't see how this makes sense - it's going to make getting your next property very difficult.
$1698 mortgage (25% down and a 3.75% rate at 30 years)
$307 taxes
$175 insurance
$175 HOA
$118 vacancy
$29 maintenance
$59 CapEx
$2561 total expenses
$2950 rent
Does this seem out of line, or reasonable?
Thanks,
Brett
Hi Brett,
$489,000 purchase price + 1% fees/cost = $503,890
$10,000 face lift ~ do you really need this? Seller usually already painted the house, just minor fixes I hope.
$1644.72 mortgage (25% down, and should be able to shop for a 3.25% rate at 30 years fix)
$493 taxes (489000x1.21%), this will only goes up every year. Any Mello Roos?
$175 insurance
$175 HOA
$147.5 vacancy 5% of your rent = (2950x 5%)
$236 maintenance 8% = (2950x8%)
$200/month CapEx for SFH or around 8% for multifamily.
$3071.22 total expenses
$2950 rent? Can you push for 3200k/month?
Doable if you are in high demand location, manage it yourself, and do some maintenance yourself. You can save money on maintenance and keeping the vacancy very low. If you thinking CapEx, that is more long term and you can use tax benefits to depreciate it over time. You will still benefits from principle paydown and property appreciation over time.
New to Real Estate 路 Los Angeles, CA 路 Member since 2020 路 61 posts 路 26 votes
5y
@Eman Yazdchi, I had maintenance (regular) and capital expenditures (bigger ticket items like roof, A/C) as separate, but I get what you're saying. Thanks.
@Rohit Goel, looks like I relied on Rentometer and Zillow too much. Rent would probably be closer to $2600. It's zoned as a condo/townhome, but it's essentially a SFH, 3 bed, 2.5 bath. It's up in Castaic.
@Jin Kim, small backyard, HOA pool, water is included in the HOA.
@Hengky Lim, You said 1%, but then I recently saw it should be closer to 2% for closing costs. Now I'm not sure. It may not need $10,000. I was just allowing a lot of extra room just in case... Since it's my first time. The lowest I found was 3.75. Where do you get 3.25? No Mello Roos. Unfortunately it doesn't seem likely to even come close to the $2950 I originally posted, let alone more. I would be managing it myself and possibly do some maintenance myself, depending on what it is.
Everyone, thank you so much for your input. It looks like this isn't the deal I originally thought it was and will be passing on it. Great learning experience, though... Thanks again!
Rental Property Investor 路 Murrieta, CA 路 Member since 2020 路 338 posts 路 343 votes
5y
@Brett Durfee
Invest for cash flow not appreciation. I know you said your rent numbers were lower than you first listed but be careful only making a$100-200/Mo. If you have any issue you likely will lose the property if you don鈥檛 have a maintenance fund. Good luck
Developer 路 Santa Clarita, CA 路 Member since 2008 路 15k+ posts 路 10k+ votes
5y
Looks like you received sufficient help with your numbers which shows this is a net monthly loss, not gain. I will add to it that several other expenses are missing from your calculations as well. I live in Santa Clarita and know it well (and know Castaic as well). As a long time investor and developer, I can tell you that having a specific strategy and plan to succeed in that strategy is essential as is building your team. Knowing the area and your numbers is also key. As a landlord in CA, there are a lot of hidden and not so hidden expenses like legal costs, accounting, marketing, loss to rent, utilities and lawn care during vacancies, etc.
Your expense ratios should be at least 10% of rent for maintenance and Cap Ex (yes, minimum). People also like to throw out the "well my area shows only a 4% vacancy factor". Well, sure, any area can have that average for a short period of time but over the long haul, it is NOT sustainable and you will get over that number so allow for proper long term vacancy factors and loss to rent.
@Brett D.. Thanks for posting this Brett. As a newbie myself I got a lot of information reading all the posts from your post. I live in S. CA as well and I find it hard, in doing property analysis, to find anything that cash flows but I will continue to search. I have been looking in Lancaster, La Quinta and Victorville. I have not considered Santa Clarita.
New to Real Estate 路 Los Angeles, CA 路 Member since 2020 路 61 posts 路 26 votes
5y
@Rick Rolfe yeah the great information the community brings is really valuable. It seems like the only way to find a deal that would make the numbers work here would be through a wholesaler. Which may work fine. It's just another layer I might need to peel back.
New to Real Estate 路 Los Angeles, CA 路 Member since 2020 路 61 posts 路 26 votes
5y
@Rick Rolfe yeah the great information the community brings is really valuable. It seems like the only way to find a deal that would make the numbers work here would be through a wholesaler. Which may work fine. It's just another layer I might need to peel back.
New to Real Estate 路 Los Angeles, CA 路 Member since 2020 路 61 posts 路 26 votes
5y
Hey @Rick Rolfe, it's not easy around here. I'm taking a look at a property this afternoon... we'll see. Other than that, I'm probably ending up out of state. How about you?
Hi @Brett D.. You're farther along than me. I have not actually visited any properties yet. Out of state has it's perks but, at this point, I don't want to invest so far from home. I know I am hoping for a miracle but I will keep looking in CA to try and make the math make sense.
I hope your showing went well and lets stay in touch.
@Kevin Murray Hi Kevin. I have only looked at properties on paper in Victorville and Lancaster. So far nothing worth making an offer on due to negative cash flow. I could get a real Junker home but I would have to do a ton of work to it. Are you looking in those areas?
Then viola! you get the real tax percentage for the property and it is even broken down into all of the subcategories you are being taxed for down to 6 significant figures.