All Forum Posts by: Ben D.

@Christopher Brainard: Thank you Christopher for you feedback. That really helps fact check the numbers!

As I mentioned, this is an out of state area which inherently one wouldn't know well when getting started. Short of moving there, my thinking is that I have to rely on information from other people, who seem trustworthy, especially for the first couple of deals. At least initially. If that's the wrong approach, I am open to correcting my thinking.

With that said, I don't feel like there is an 100% trustworthy way of doing deals remotely. I have done some research on my own, looked at crime maps, called the city planning office, looked at employment numbers, rents, income statistics etc. and do plan on checking out the property as well as looking at the area while there. I also have a local real estate investor friend who has some rentals in the area who I can run things by.

Apart from that, do you have any recommendations for how to best learn the area being remote? 

Thanks again. Really appreciate your quick feedback!

Ben

@Kathy Henley: Thank you Kathy. That helps. 

How did you vet your team? Do you fly out there often? Would you be sight unseen? If so, how long did it take you to get to trust your team to that point?

Hey everyone,

I am looking at purchasing the following rental but thought the return may be too low. Am I being too conservative?

It's an out of state rental, but according to realtor it's in a desirable area with 3 very sought after schools. According to the realtor I'm working with, it's also in move-in ready condition. This is rare for the area it's in. The house has new vinyl siding, fresh paint and a metal roof that was serviced about 7 years ago. Septic tank was also cleaned about 3 years ago.

I called a property management company and they estimated it could rent for an average of $1,050 / month. Based on my research I could bump the rent to $1,100.

The conservative numbers are as follows:

Asking price: $120k
Offer: $106k
Closing costs: $3000
Down Payment: 20% = $21,200
Loan Amount: $84,800
Rate: 5.125%:
PITI: $541.72
Gross monthly rent: $1,050
Management Fee: $105 (10% + first month of rental)
Maintenance: $100 (10%)
Utilities: $0 (still validating that tenant pays all of them)
Reserves/CapEx (5%): $52.50
Vacancy rate (3%): $31.50
Total Gross Annual Income: $12,600
Annual Operating Expenses (no mortgage): $5,373
Annual NOI: $7,227
Operating Expense Ratio: 42%
Monthly Cashflow: $131.78
Annual Cash-on-cash: 6.53%
GRM: 8.41
DCR: 1.30
BER: 86.62%

I am still getting quotes from lenders though so if I do the following:

Rate: 4.125% (buy the interest rate 1 point down or go with different lender)
Closing costs: $4,000
Rent: $1,100 / month

Then the numbers look more like:
Monthly cashflow: $219
Annual cash-on-cash: 10.45%

This doesn't seem like a screaming deal to me. Not in the 15-20% that savvy investors would look for when balancing out of state rental risks. However, it does offer the ability to reduce my taxes as well as the possibility for appreciation given the area it's in.

What do you guys think? Is this worth the risk being my first out of state rental?

Really appreciate your feedback.

Ben

Hi everyone, I am looking at purchasing an out of state rental property and had the following questions when it comes to financing it: 1. Do you recommend using a bank that's local to me or local to the property? 2. Would you suggest a credit union or a national bank? 3. If you live in a non-recourse state, but the rental and bank financing it are in a recourse state, what happens if you default on the loan? Thank you in advance. Ben

Thank you everyone for your prompt responses. Really appreciate it!

@Ruth Bayang: Yes. If rents stay the same as they are right now, there would be a negative $3,000/year cashflow. This is even with 10% down and accounting for management, reserves and vacancy. 

Rents are too low for one side to cover the full mortgage at $825 each. Taxes are a bit on the high end, about $3,000/year so that jacks the monthly cost up a bit. They will have to pay out of pocket roughly about $550/month.

I guess the negative cashflow might provide tax benefits for them. Not to mention the tax deductions from the interest would probably offset that cost. Overall, duplexes seem to go for much more than 245k in this market. 

@Steve Moody: I agree with you about making a larger payment a month. The lender has actually indicated that they can recalculate the mortgage for every 10k chunk of the principal that's paid down. So that should help reduce costs as well. 

I looked up rents in rentometer and average for the area is $830. median is 825 and 80th percentile is $735–$950 so there might be some room for increases later down the road. 

@Alex Chin: Good point about riding the market cycles out. 

@Chris Parrish: Thank you! I'll reach out if this pans out. 

Thanks again everybody. I really appreciate your help!

Ben

Hi everybody,

I've been helping one of my family members look for an affordable SFH for a few months now but given how hot the Portland (and vicinities, i.e Salem) Real Estate market is, it's been a very challenging experience. This is due to the nature of the prices that keep rising, the buyer competition and the time commitment involved from everybody.

We have also been looking at a duplexes with the intention of living on one side and renting the other, to lessen the impact of a more expensive property but the numbers don't seem to pencil out. Another issue here is that the, the vast majority of the somewhat affordable ones are not in the best areas or need a lot of work. Given that they will live in it, it makes me pause for a moment and try look at things outside of the investor mindset. 

We have come across a somewhat nicer one outside of Portland, selling for about 300k, with a GRM of 13.54 and current Cap Rate of 5.32% (if both sides are rented, which they won't be since they'll live in one). What I'm thinking is that given that it is a 20 year old duplex, it shouldn't require much maintenance. With that said, I do account for management fees (10%), CapEx (5%), Vacancy (3%) etc. for worst case scenarios in my spreadsheet when I run the numbers. This GRM seems high from an investment perspective but seems to be the norm in the current climate, especially in Portland where I've seen GRMs as high as 17.

What has made this a bit more difficult is that the agent I've been working with has not been able to provide rent pro formas for surrounding properties so I'm manually evaluating the rents through Craigslist, Rentometer etc. to see if there is room for an increase. Is there an official database of reported rents similar to RMLS? 

The questions I have are the following:

1. In a competitive market such as this one, all properties seem to be overpriced and don't seem to meet any of the basic investor rules, 1% rents, 50% expenses etc. Does it make sense to buy such property? 

2. Does living on one side reduce the value of "numbers have to pencil out" thinking? The agent I'm working with has suggested that they should be happy if they get a place that's safe and don't pay more than asking price. Any extra income should be considered a plus. 

3. The question that everybody wants to know the answer to...when is the market going to bottom out? 

My concern with this is, I don't want them to be in a pre-2008 scenario to where the value of their property drops 25-40% a yer or two after they buy and then they get stuck.

However, with the same token, my other concern is that as we sift through properties, prices keep going up. Would now be as good of a time to buy as ever?

What do you guys recommend? How would you address this situation?

Thank you very much,

Ben

@Michael Le, @Steve Smith

Thank you. I agree that those numbers don't make sense but that's what's on the listing itself. There is no information on CapEx, insurance or vacancies. What's the best way to go about filling in those details?

@Tammy Richards, thank you. That's helpful. I'll check out the file list and look at the calculators. 

Forgot to mention, this specific one has 2 bedrooms, 1.1 baths on each side. Each unit is about 900 square feet.

Hello everybody,

I'm having a bit of a hard time figuring out how to quickly filter properties that are worth it vs ones that are not. What's the best approach to doing that without seeing the property, and just performing the initial evaluation by looking at listing and photos? At least to narrow a big list down to properties that are worth visiting in person. Is it mostly looking at comps?

I've listened to a number of Brandon's podcasts about using the excel spreadsheet but any pointers before you get to that point?

To give you an example, I've been keeping an eye out for duplexes, triplexes or quads with at least 1 unit having 3 bedrooms 2.5 baths, or even 1.5 baths with the intention of adding a second bath. However, they've been harder to come by than I thought. 

Is this 2 bedroom per unit duplex worth pursuing you think? According to my REA it's in a nice neighborhood. 

Here is some additional information:

SQ FT: 1,800
Sale price: $260k
Year built: 1980
Taxes: About $3,500
Gross income: $20k/year
Rent multiplier: 12
Operating Expense: $10k/year
Net income: $11k
Parking: 2 car garage

Rents include water/sewer/garbage/landscaping and according to the REA it's been well maintained and always rented. It has been on the market for about 2 months now.

Thoughts?

Thank you!

-Ben

Hello everyone,

When you apply for a 203k loan, do you have to take a portion and allocate it to rehab costs? For example, if a house is worth 200k, with rehab costs of 25k do I have to take 225k out? Can I just take out 200k?

Thank you,

Ben