All Forum Posts by: Austin Fowler

Quote from @Austin Fowler:

Dear all,

As promised, I have an appraisal back on one of my properties. For context, note that all of my 33 SFRs were purchased in the time range 9/18/2020 to 3/23/2022, and the claim of some has been that these would be underwater. Well... see below.

21003 Emery Mills, Humble, TX 77338

Purchased 9/18/2020 for $175,000

Appraised at time of purchase at $176,000

Appraised 11/30/2022 at $212,000, an increase of 21%

This is certainly in keeping with my reading of market prices for my properties.

Best,

Austin.

 Net sheet if you were to sell right now probably looks something like this?:

$37k gross profit (21%)

Transaction fees (6%): -$12,720I

Capital gains taxes: -$11,000

Interest to investors: -$7,000

Depreciation Recapture: ~$6,000?

$280 net profit...  if everything goes perfectly? 

Quote from @Austin Fowler:

Would love to get a percentage from you that you consider conservative when estimating vacancy and maintenance costs over the long haul. REI Nation's numbers are exceptional, and Chris' data is vast and comprehensive, but this stark contrast in performance between REI and others is also very apparent in my much smaller sample of 15 houses with REI and 18 not.

I really don't like to use percentages for anything other than a very quick, first pass analysis. I have a quick spreadsheet that I use with default settings at 10% for repairs & maintenance, 3% for capex, 10% PM (even though I pay 7%, I find that the effective rate ends up closer to 10% with various additional things that come up which I have them handle). For vacancy/loss I use 7%. There's also a catch-all "additional expenses/other" line item of 3% for Murphy's Law. I would just use this for a quick initial analysis and then move on to a more detailed analysis. I used to always (and sometimes still do) run very detailed maintenance, repair, and capex cost projections based on the estimated remaining economic life of the major components of the property to prepare an accurate net operating income statement. That's the best way to actually underwrite accurately IMO. I look at the age and expected lifespan of each major component or potential expense, estimate when it will need to be done and at what cost, total up all those expenses for the intended hold period then divide by the appropriate increment to come up with a monthly or annual budget. The average number I would compute for a typical Class B vanilla SFR would typically be around $2,500-$3,500 per year, which is why I'd say that any percentage-based analysis which results in a dollar amount lower than that can cause problems. For example I've seen people using something along the lines of 7% of $600/month rent before on here, without noticing that the end result is only a $500/year budget, which is obviously not a realistic number to expect to be able to operate a rental over time. Literally one service call from a plumber sets those investors back several years. So it's easy to get into trouble using percentages IMO and it's important to make sure whatever estimates you're making pass the "Is this actually a realistic number?" test. Every property will need a new roof, furnace, AC, appliances, driveway, drain line, cosmetic updating, flooring, tenant damage repair etc. over time and of course unexpected expenses often come out of left field as well, usually several in a row and at the worst possible time. There are certain costs necessary to maintain a property regardless of what the value of it is or what the rent is (higher end luxury properties will be more expensive to maintain obviously, but even then many of the components cost the same whether it's a $100k property or $1M). So in my opinion calculating based on percentage of rent or other rules of thumb like 1-4% of the property value per year, or $1 per square foot per year can lead to less than sufficient actual dollar amounts. $2 per square foot per year would actually be closer to what I've spent on my properties, but I always look to add value since appreciation is more important to me than cash flow, so I probably spend more than your typical landlord does. In order to get an accurate estimate of cash flow for a property, you have to look at the remaining economic life of each major component/condition and estimate all the actual expenses on that specific property then budget accordingly. 

That said, on my last several purchases I didn't really run much detailed analysis on them honestly because I know the areas where I'm buying house by house now and I simply know a good buy when I see it. A buy for me is the worst house on the best block where I can force six-figure appreciation quickly. Whether it's $200 or $300/month cash flow isn't really important because the forced appreciation I'm getting ends up being around $350 per day. I'm an active investor with real estate, capturing equity through value-add and by purchasing below retail (single family as well, not just multifamily but I've been able to force more appreciation quicker with MF in general). Being able to leverage my strengths in construction and my working knowledge in the market as an agent, finding good deals with initial equity capture and then forcing appreciation through value-add is the only reason I invest in real estate over other investment vehicles. For passive investing I just buy blue chip "aristocrat" dividend stocks.  

I am currently renting out 3 homes in Ohio, fixer uppers I worked on on the side, looking to focus more soley on real estate from now on. What would be my next best move? I dont have a lot of cash to put down at the moment. I could do a cash out refi on one of my rentals. Or have thought about an FHA loan and getting a multi fam house. Also Interested in getting short term rentals in various locations and moving my family to Florida next year. So should I even worry about investing more in Ohio or start branching out now?