All Forum Posts by: Adam Fout

@Michael A.

@Michael A.I did not factor in property management, leasing costs, cap-ex, and routine maintenance into my calculations (big mistake!) This is why my ROI number was higher than what you calculated.  Fortunately,  I backed out of this deal after I received the results from the property inspection.  There were many more issues with the property than I had anticipated.

There are couple of lessons here: Always factor in expenses such as PM, Cap-ex and regular maintenance into your ROI calculations. Always have a property inspected by a professional and make sure there is a clause in the contract that allows you to terminate the contract based on the inspection.

Ariel G. See above

Ariel G. What I meant is that rental rates are typically not affected by market cycles. If you are investing for cash flow and not appreciation, a down market should not hurt you as an investor. It should only present opportunities to purchase more properties at discounted rates. Appreciation then becomes an added bonus on top of cash flow!

Jonathan Beemer It makes sense to buy in a down market but what happens if the market stays up for 2, 3, or 5 years? There are deals to be had now and you would be missing out on years of appreciation, loan pay down and profits. Good deals may be harder to come by, but if you put the work in, you will find them. I honestly feel that trying to time the market is not the best strategy. Buy right, manage properly, hold for cash flow and do not wait for a market crash. Waiting is just an excuse not to take action. If you find the right deal, a market crash will not affect your cash flow. If and when the market does come down, use creative financing, like the equity in your properties, to purchase another property at a huge discount.

Since it has been some time since I posted on BP, I thought it was time for an update. The last several months have been very busy for me. Since the my last post, I successfully found an off-market four-plex, purchased the property, partially renovated 1 vacant unit and I am getting ready to advertise the unit this weekend.

I found the property by sending yellow letters to absentee owners I found on the county auditor’s page. I did not go crazy, I only sent out about 100 letters to test the waters. I did receive 3 phone calls and 1 of those happened to be a local investor with a single family home for sale. My offer was too low for him, not even in the ballpark. After declining my offer, her asked me about multi-families and told me he has a four-plex he is looking at selling. Long story short, I looked at it, like what I saw, made an offer, he accepted and we closed the deal. The most difficult part about this is the seller did not use a realtor and was not willing to pay buying agent fees so we did it all without agents. I drafted the purchase contract, negotiated the terms to a number we agreed upon. The seller made the arrangements with the title office for closing.

I did have an inspection done which was interesting with a four-plex. Here is a hint, get multiple quotes. I found a guy who started his own inspection company and wanted to get his name out there and get some experience under his belt. He inspected all four units for $450 which was much cheaper than many other quotes I received.

I inherited 3 tenants with this property and the 4th unit went vacant right before closing. So I cleaned out the apartment (the tenant left it full of trash and belongings), painted the walls, put new carpet in, bought a new fridge, replaced the toilet, had the tub faucets changed out, replaced a window and now the unit is ready to rent. I am going to rent this unit starting at

Tenant management has been a learning experience, especially with inherited tenants. The previous landlord was very relaxed on his policies so I am having to train the tenants and increase the rents to market value. I drafted my own lease using examples from Bigger Pockets (Thank you Brandon Turner) and examples online. The tenants will be required to sign the new lease for 2017. I decided to keep them on month-to-month leases and only raise the rents $25 so I do not scare them off. These are long term tenants I would like to keep and they appear to take care of their units. I am on the fence whether I should raise rents again in 2018 or sub-meter the water which I am currently paying. More on that later!

Maybe I got lucky on finding an off-market deal after sending only 100 yellow letters maybe not, but either way my strategy worked! Even though I have spent over a year reading books, reading forum posts and listening to podcasts every day, every step of the way has been a great learning experience. Our current plan is to sit tight for a year and stabilize the property by increasing rents and taking care of a lot of exterior deferred maintenance. I want to see what the economy and housing market does over the next year and then start getting back in the market for another property. I am loving the idea of multi-family properties right now. I currently have 1 unit vacant and I am still making money. I am looking into the idea of buy a turnkey property through Morris Invest and get into a market with a lower price point for entry. I am a hands on person but I am thinking I want to give the hands-off approach a try for expanding my portfolio. Thanks to Bigger Pockets for the wealth of information you have provided me. I probably would not be where I am not if BP did not exist!

Thank you all for your feedback on this topic. 15% COC return seems to be a common number and a good goal for me to shoot for.

@Brandt Smith This is solid advice and I would love to be able to find a deal that meets this criteria.  These types of deals seem to be few and far between in my current market in central Ohio.  Prices are high, inventory is low and competition is fierce for deals.  

When analyzing a deal, should an investor who finances the deal with a conventional loan factor in ROI on debt pay down and ROI on appreciation?

Example: I am looking at a property to purchase for $132,000, 25% down on a 30 year note and the monthly rent is $1,050. Total upfront cost is $37,440 (Closing costs, repairs, down payment) After expenses, the ROI on cash flow is 4.77%. This seems low until you calculate the other two. Annual loan pay down is $5,671 which gives a ROI of 15.15%. Ohio's average appreciation rate is 3.52% so using that percentage The property should appreciate $5,533.50 the first year with an initial FMV $155,000. The ROI on appreciation is 14.78%. When you add these three together you get a total ROI of 34.7%!

The problem I see with this model, is if you rely on all 3 numbers you could have negative cash flow and still calculate a positive ROI. Just wondering what other poeple's thoughts are on this subject?

Ed,

Thanks for the reply, it is good to hear from another local investor.

That is a great tip on converting a multifamily to a single family to improve your exit options.

Are you investing outside of Delaware?  Are you finding other areas that are better suited for buying investment properties?

I am currently building an absentee homeowners list and plan on sending out yellow letters in hopes of generating some leads.  For now I am focusing on one neighborhood (Mill Valley, which has hundreds of homes) since I know the rental rates and the economics of the area.  I am also thinking about pursuing sheriff sale properties which I know are inherently more risky, but there good deals to be had.

Good luck on your latest deal!  I look forward to hearing how that works out for you.

Hello BP! I created my account some time ago and have been in analysis paralysis for the better part of a year now. Well, I have finally crossed that invisible barrier and decided to take action by finding and purchasing my first rental property.

My area of focus is single family rentals as buy and hold investments in Marysville, OH 43040. The deal has to be 20% below current market value and must have some way for me to add value through renovations or improvements to the property. Ideally the property should have 3 BR 2 BA and be between 1,200 and 2,000 SQ. FT. in size.

I recently offered on a property and was in contract up until last week. The inspection revealed way more deferred maintenance than I originally anticipated so I chose to walk away from the deal.  Below is the property analysis before I realized the property needed over $20,000 in work!  The only reason I accepted the seller’s counter offer after my first low ball offer is because I deviated from my criteria.  I justified the purchase price because I could take out management expenses, manage it myself and get decent cash flow.  Moving forward I will always factor in management expenses even if I plan on self managing (thank you BP podcasts).

One thing I failed to see at the time is because of the size and style of the home, it would be really difficult to sell to anyone but another investor. The purpose of my criteria is to keep my exit options open to both investors and homeowners in case I need to liquidate the property quickly.

This property had existing tenants who wanted to stay and were currently month-to-month. I see this as a potential positive or negative. We would not have to screen tenants and would have immediate cash flow, but by not having the opportunity to screen the tenants, it is hard to tell what kind of tenant issues we would have with in the future.

Needless to say, the $400 I spent on the inspection was well worth the price to get out of a potentially bad deal. I now have a clearer vision of what I want and I am going to focus on finding a deal within my set criteria. I have been researching my local market and what I have found is property prices seem elevated and good properties are typically in contract within a day or two after hitting the MLS. Deals through the MLS are difficult to find and I am not seeing many foreclosures or distressed properties to take advantage of. Maybe I am not looking in the right places? I am going to try some direct mail marketing targeting absentee homeowners. I am creating my list by manually searching properties on our county auditor's website. It is a slow and tedious process, but last night it only took me one hour to find 30 addresses with absentee owners.

I am sure there are faster more efficient ways to find these lists, but for now this process is getting the job done.

I look forward to becoming more involved in BP community as I begin and develop my investing career! Thank you for listening!

Hi John,

I would recommend listening to the bigger pockets podcast.  I listen to it daily and they interview a new person each day.  They explore in detail their personal investing strategies and past experiences.  I wish I could steer you in one direction, but I am new to this myself! Good luck!