All Forum Posts by: Andrew Johnson

Terry Smith You said the numbers look better at $500K than $615K. Of course they do, they'd look even better at $400K. My petty comments aside, what you could do (once you get all of the numbers) is figure out what your hurdle rate is (cap rate, cash-on-cash, etc.) and construct your offer price from that. Relay that your offer is at (hypothetically) $517K because that's what meets your minimum cap-rate requirement. If the owner passes they pass on it but at least you know you made an objective unemotional offer. If there are other investors that will take a deal below your threshold, so be it.

Adding to Sadek A. you will have to make sure you have enough to handle the carrying costs while you're getting them rent-ready and then actually rented. Not to mention that you have a cap-ex notes but not monthly estimates for random repairs that come up. Usually those random broken garage disposals are economically easier to handle than replacing a roof or HVAC system. Which, by the way, you should have inspected to ensure they're not near end-of-life.

Edward Apostol Close to me there's a Sears Outlet store which has some "last years" models (like it matters to me) as well as refurbished appliances (which you may or may not like). You should look into the Home Depot or Lowe's credit cards. I think they have good cash back when buying in their stores. The nice thing about a rental is that it's not like you need the appliances to match. As long as you stick with black vs. white vs. stainless I think you'll be fine.

Steve Close Even if you don't see anything on the market I wouldn't get discouraged. You might consider running your numbers/estimates based on the property and come up with what the price is where it would meet your financial hurdle rate. I'm just guessing but I'd think if you built 20 pro-formas you'll start to get a better sense if an offer at the price that works for you would be competitive, marginal, or offensive.

Meaghan Penilla Your first step is figuring out what you want to do. Investing could be buy-and-hold for cash-flow, living in a duplex renting the other side out, looking to flip, etc. The more specific you can be the better, otherwise those you talk to 1.) won't know how to help, and 2.) won't even know if they are the right person to help! You also should figure out what you can bring to the table economically, have potential target geographies, etc. The direction you start doesn't have to be the ultimate direction you go in but you have to aim somewhere.

Kaelyn Hearn I'm in the same boat as John Mathewson when it comes to targeting a 10% cap rate. That said, not all 10%'s are equal. You mentioned that you're a single mom. As a parent, I know I don't want any of my multifamily investment properties to need a new roof when my child is 18-22. So if you're a buy-and-hold investor you do have to make sure the property in its entirety makes sense. If a property you like doesn't hit a 10% cap rate, come up with the number where it does and you at least then have a target purchase price.

Jon S. 30 days (at least) would be my suggestion. I'm not sure if it's "required" but if someone has been there 10 years and you tell them you're out in 2 weeks (or get a ~20% rent increase) it might not go well. You don't want to end up in an eviction process and you don't want concrete down the drains! 30 days notice with a month-to-month offer is likely far more palatable.

@Powell Chee Playing devils advocate here, it's your first property so I don't know how eager I would be to say "leverage yourself to the hilt!"  What if the market goes down and you have to get out of the investment?  What if there's an unexpected cap-ex expense that you didn't budget for?  What if it's harder to rent that you think when a unit ends up vacant?  I'm sure they supplied T12s when you purchased the property but I always assume that expenses are going to be more than I budgeted.  If you drop your cash-flow to $100/month you basically end up with no cushion.  That being said, if you have $100K in the bank as a "just in case" fund my point about risk might be moot.

What I would suggest is the following.  Look at your projected income, expenses, etc. and estimate what your taxable income would be.  Make sure that depreciation and mortgage interest payments match that or maybe exceed it a little as mortgage interest should degree over time and hopefully rents will raise over time.  The net result would be a property where cash-flow equals post-tax cash-flow.

@Rae Edwards Make sure you have reserves in place and just as importantly make sure you have a way to vet the renters.  I would argue that the only thing worse that no renters are horrible tenants.  If you get a little pressed for time you can do engage options like waving a security deposit, allowing pets, use a month-to-month lease, etc. in an effort to get what you believe to be a quality tenant.

As for Podcasts about people who were broke managing to buy their first property you'll usually hear about the success stories and rarely the failures (if your first effort bankrupted then you couldn't stay investing in real estate - let alone make a Podcast!).  There are plenty of people that went upside down after the 2006-2008 crash and had their properties foreclosed on and credit crushed for 7 years.  The mortgage world was different back then with much less aggressive checks-and-balances.

Not that you and tons of others won't be successful but beware of "survivorship bias" when reading or listening to success stories. 

Side note:  Taking the time an diligence to even ask yourself "what if" means you're on the right path!

@Paul Khera  I'm down here in California so there might be 100 reasons why this wouldn't be applicable but:

If you own your house free and clear (mortgage payments paid off) why not do a cash-out refinance?  If you sell your house you will incur fees for realtors, closing costs, etc.  Not to mention if the market keeps rising you'll get the benefit of your current home appreciating.  If the market keeps rising and your renting, your rent will go up.  Is there a tangible reason you need "all" $1.3MM instead of 80% of that?  Use the 80% to leverage a (mid-sized?) apartment building 30 minutes away.