All Forum Posts by: Adam Detig

Exactly, just change the rent to be the total of all units. 

For 1-4 units, the value is based primarily on comps. To get a ballpark, ask a realtor to pull some comps for you.

For 5+ units, the value is based primarily on it's ability to make money: income - expenses. There is a factor called Cap Rate that is market dependent and it plays an important role as it can change the value greatly. Ask a realtor who does large multifamily to get you the Cap Rate for the market if you need it.

Here are the numbers I use for analyzing a property.

- Vacancy (7%), Taxes (get actual #), Insurance (get a quote), Cap Ex and Repairs (15%), Property management (8%), Trash (get quote if needed), Landscaping (get quote).

You can change them around as you see fit, i.e. it was just remodeled so there won't be as many repairs/cap ex.

Good luck.

BP has a couple lists of "top ~20 books to read", and has good books of their own. Start there. Also, lots of videos to help learn the lingo and understand the concepts.

@Wayne Yahnke

I usually keep expenses lower than 50% of income in realty but that is my goal for initial analysis. Any improvement to that number just means more profit.

Basically, yes. Make sure it cash flows enough. My minimum is $100 cash flow per door but I like to see at least $200 per door. This allows for if there is a down turn, you can drop rents if needed and still not be bleeding money. 

You are at the same place I was a year ago. You are planning well and hoping to go bigger (8, 16, 32 units) eventually. House hacking with be a great place to start. You will figure out the process, set up your systems, learn the lingo, and begin to network. Networking is key, both in the business world, and personal world because the fastest way to grow into the bigger units is to use other people's money. That comes from people knowing what you are doing, trusting you based on your results, and you showing them good opportunities for investing.

Good luck

Hey Wayne.

I use an excel sheet to analyze every deal. I believe I originally got it from BP's files but have slightly adjusted it as needed.

In general, keep everything (expenses, vacancy, repairs, etc) as percentages. You won't need to worry about per door that way if you just use the total income and use percentages.

My business partner and I use the following percentages (we are located in the East Ten market for reference):

Vacancy: 7%

Taxes: Get actual number. Usually can find it online.

Insurance: Get quotes for actual number.

Cap Ex and Repairs: 15%

PM (we self-manage but you have to budget for it): 8%

Utilities: Varies with property. If you have to pay them, look up last 12 months and average it.

Pest/landscaping/trash: Needs vary with property. Call and get quotes.

We try and keep all expenses under 50%.

Hey Zak. Real estate investing is a massive entity to learn about. Fortunately you don't have to know it all. You can learn about specific areas (like multifamily) and you don't even have to know everything about it. Just know who to ask.

In terms of your questions:

Year built: varies so widely with location you won't be able to get a precise answer. Don't worry too much about age as an inspection will tell you what you want to know.

Walk through: If you don't know what to look for, pay someone who does. This can be a friend who knows construction or a contractor. Walk through with them and get their feedback and learn what they are looking for.

Finding financial records: this is your realtor's job. Have him get the financials from the seller. No realtor: just request them yourself.

What needs to be checked: Everything. This is the purpose of paying an inspector to comb through everything. Don't know one? Get a referral from your realtor.

Hedge against market turn: This comes from knowing how to analyze a deal. Practice practice practice. Finding a "good" deal means there is wiggle room in case there is some change in market.

FHA or LLC: If you are living there, forget the LLC. It's either you get the tax benefits for your LLC or your personal taxes. FHA is a tool. If the numbers work with a FHA, then use it. If not, then don't.

I have found my properties online such as realtor.com. And from my realtor sending me stuff.

Good luck.

@Alex Shapiro the BRRRRRR (however many R’s there are) is a great strategy. In fact I just got approved for the refinance portion on a project I started last summer and I will absolutely be using it more in the future. The two aspects to it that must be considered is 1. Personal risk tolerance and 2. Do the numbers support it.

It sounds like your family member has either a lower risk tolerance and is using a vague “crushing debt service” phrase to reflect it or has never thought about it. I would challenge the person to define that term to allow for further communication. Does “crushing debt service” mean the mortgage payment exceed the rent you are getting, or does it mean the payment is higher than it could be. Explaining how it is still cash flowing with the higher payment and using that refinance to get a better return than the banks interest rate may help facilitate conversation.

It could also be that she had never heard of that strategy and is therefore scared of it. Fear is lack of knowledge so it makes sense she would be fearful. I know some investors that have 10-20 single family homes that self manage and self repair and when I brought up apartments of 30-50 they could not understand how that is possible because they wouldn’t have enough time in the day to do all that is required and refuse to outsource any of it because of all the “lost profits”. Some people just don’t understand the various tools available to them.

Good luck.

@Darin Dutson

Now can I relate to you! I’m currently in my second year of PA school, married, however no kids.

PA is a great degree and career to get into and congrats on getting in. It took me 12 applications, 1 interview, and a waiting list to finally make.

During my didactic year I decided to buy a duplex that needed A LOT of work. I made so many mistakes in estimating timelines, having to move into it quickly, studying, and everything else. But it’s done and it’s currently listed. I’m still working on my side.

I would not recommend buying a single family home, that’s not investing. Investing adds money to your pocket at the end of the day. A single family home is only going to take money out, although you do get equity at the end of the long road.

Buying a 2-4 plex will bring income, and the availability to move whenever (like when you graduate) as you can put a renter in your unit.

I caution you that if you are going to take on that risk (which all investments are), that you should know how to analyze the deal upside down and backwards. Make sure you get a deal worth making.

Also make sure the wife is on board. Real estate is a different world that requires a different mindset. It’s better to have a similarity in that.

@Brooks McLean a simple way is to do 50/50. The worker (you) gets 50% and the money (your investors) get 50%. It helps to make the paperwork more clear by setting up an LLC for the partnership and using the proper loan documents (lawyer can help with all that). If your investors are willing to do work and bring money, then both of you can bring money and effort to the table and split it 50/50 (that's what my brother and I have done on our partnership).

Another option that we have done is to offer your investors a percent return for using their money. The percentage will fluctuate based on how long you use their money and how much they are willing to investor for (can be 5-15% annually). You will simply have to just add these costs into your analysis to see if it is worth it.

Adam