All Forum Posts by: Ben Wilkins

@Chris L. - if you are asking for a number, I generally estimate closing costs to be 4% of the purchase price. This isn't an exact number, but it is usually pretty close for my calculations.

Good evening @Josh Cohen!

There are several methods for running numbers on rental properties. The first is called the "50% Rule", which estimates that 50% of your income will go toward general expenses (basically calculating your Net Operating Income: everything other than mortgage). After that, you subtract your monthly mortgage and you have a guess on what your income will be for the month.

After that, you can do a deeper dive into a property and get more details than the 50% rule will give - actual property taxes, actual utility bills, maintenance fees, etc.

BP has some calculators under the Tools section, which can give you a good idea. There are also a few tools on my website that you can use (navigate to the Tools section)

If you have more questions, ask away! Many people have questions, but just wait for someone else to post them ;)

First calculator had some outputs added, based on feedback - NOI and GRM:

Second calculator is up. While the first one gives you numbers based on a purchase price, the second tool gives suggested purchase prices based on rental income and desired cap rate. It uses the 50% rule to estimate NOI, and then generates a purchase price from the NOI and cap rate that you put in. A second method given is based off of the "2% Rule", which estimates that monthly rent should be around 2% of purchase price. Of course, this is just an estimate but it gives another data point.

As always, input is welcome to make the tools smoother and add features.

The first calculator is online - clean and quick to use, just put in your basic details and find out what your estimated income and cap rates are calculated as.

If you find any errors, let me know so I can resolve!

There are more tools coming. Leave me some feedback on what tools you want to see next

Here is the link to the tool.

@Brian Garrett - thanks for the feedback! 

Good afternoon BP,

After receiving a lot of feedback, comments, and requests, I have decided to make a website so that people can get the latest tools.

All of the tools that I am making will be available in Excel Spreadsheet form for you to download and use. In addition, I am working on my Java skills so that I can put the tools on a webpage so you do not have to download any files.

The name of the game is convenience, after all.

Take a look at my website and go to the "Tools" section.

I haven't decided if these will stay free forever, so I'm going to be proactive just in case.

The first 200 people who fill out the form will always receive free access to any tools that I post on the website. I've gotten 50 replies so far, so maybe I'll hit that limit!

@Rob Barry - The key to small apartment complexes is to staff them efficiently, both in terms of coverage and monetarily. 

Having an off-site property manager that oversees a portfolio is a good way to do this, as @Jonathan Twombly mentioned. Managing it yourself is an option, but that is up to what you are willing and able to do. A third option would be to have one of your tenants take care of minor work: showing vacant apartments, for example. You don't need a full-time property manager, but you will need something in place to handle some of the scenarios.

As far as maintenance, you will need to either by good at minor repairs yourself, or have a handyman in your contact list - someone that you can trust to do the work without overcharging you. Do you want to fix that leaky toilet, or do you have a handyman that can do it? The last thing that you want to do is call a major plumbing contractor to fix a minor leak!

Some more ideas for value-add that may be obvious, but are not always stated:

• Rent that is below market average. If you can raise rent by 10% and still be below or at average, this is an easy value-add
• Underutilized space. A complex that I am in the middle of buying has two commercial offices that are being used as $40 storage units when they could be earning $700.
• Staffing. A lot of complexes have their staff in place - lawn care, property management, maintenance, etc. All of their cap rates are based on their numbers. If you can find better service for a lower price, this is a value-add.

As easy(er) value-add opportunities, the three points that I have mentioned are all things that I look at when deciding on a property. If you can negotiate a purchase that is below the value of the property, plus add more value, you can get a pretty good deal.

The top things that I look at are cap rate (I aim for 10%), cash flow, and value-add opportunities.

Welcome to BP!

Out of curiosity, do you know what you're saving up for as your first purchase?

An option for short-term investments would be to become a private lender (some risk involved) or invest in crowdfunding.

As a second option, you could consider doing a joint venture with another investor in order to get started sooner. Just find someone that shares your goals and is in the same boat as you, and pool your finances and efforts together to purchase your first property.

@Zach Shuler - the "50% rule" is to take the monthly income, subtract 50% to estimate expenses, then subtract your monthly mortgage payment. The resulting number is your estimated cash flow for the property.

I have found that 50% is a good starting point, but really depends on the location of the property. What are taxes like? Who pays utilities (since it is a single family home, I'm guessing the tenants do)? 

Take a look at the 50% rule - if it still looks good, feel free to shoot me a message and I would gladly go through a more detailed analysis. As an alternative, the "Tools" section on this website has a calculator for going into more depth, but you can only use it a few times until you have to become a member.