All Forum Posts by: Austin Fowler

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?

Quote from @Juan Ayala:

I'm looking to get a business LOC and would like to know what people think about transferring the deed to a property into the business; would this be beneficial to the LOC approvalWe

 @Nate SanowWe are looking into business LOC as well and found a local credit union that says our numbers on the application look good but most of our equity is in rentals (we have 4 rentals under the business name). They can use our equity in the rentals to approve LOC if we agree for them to put second lien on the properties. We are just very new to second lien and not sure if we should let them do it. But we have to have something to use as collateral to ease bank's mind, right?

@Meg K. my lender does not charge closing costs for the HELOC and yes there will be closing costs for the cash out refinance and most lenders will only allow you to borrow up to 80%. So given you have at least 20% equity from the down payment you made with the funds from the HELOC + additional equity that was either already in the property or from renovations, you should have enough equity to pay back the HELOC and pay closing costs.

Hi, All!

I just applied for a HELOC with my credit union that is offering a 5 year draw, 15 year repayment at a 5.49% fixed rate. 4.99% fixed rate for a 10 year repayment. I went ahead with the 15 year repayment. This is my first investment property and first time using a HELOC. I would like to know how others have used a HELOC for just a down payment on an investment property. Is it best to refinance the investment property soon after purchasing to quickly pay back the HELOC? Obviously 30 yr investment mortgage rates are much higher than the HELOC but I am not sure I should keep 3 loan payments (primary residence, HELOC and investment property). Or do people use the full 15 years to pay down the HELOC and keep 3 monthly loan payments? Paying on a HELOC means I am paying interest on my equity which somewhat does not seem smart. Just looking for what has worked for others. Thanks

Everett,

Send me an email.

Hi Rudy,

In case it can help w/ your funding plans, you might also consider unsecured funding. Funds can be used for down payment or gap funding, as well as 100% funding of a purchase. These can report to your business credit and therefore not show on your personal credit.

Be happy to connect.

Best,

Dave