All Forum Posts by: Bill Jacobsen

I usually use cash to buy houses to flip.  Obviously, you must buy houses where the price you can get for the house after fix up is more than buy price, fix up cost, and profit.  Most will not sell for less than they owe. Motivated sellers are more likely to provide houses that will do the above.  My experience is that vacant houses are more likely to have motivated sellers than lived in houses.  You are on your way to finding a deal.

Make sure that you understand the math on what is a good deal.  Remember that there are selling costs and rehab costs are hard to estimate.  I automatically add 20% to my rehab costs.

Good luck.

Bill

Only you can decide whether the potential reward of investing is worth the risk.  This is true every time you consider a purchase.  When the property value goes to $80,000 you will still be wondering.

What will you do with your money in the mean time.  I am choosing to buy real estate.

Bill

Hi:

You mentioned a total of $2,600 per month in rent which is $31,200 per year.  If you assume a 50% expense ratio you have net income of $15,600.  If you required a 6 cap on the investment you would value the property at $260,000.  This is after the rehab.  The rehab would cost about $30,000 (labor and supplies) which gives a price of $230,000.

If I buy a property with a ARV of $260,000 with $30,000 of rehab required, I would try to buy in the $150,000s.

I hope this gives you a start.

Good luck.

Bill

We started out doing flips.  We wanted to use cash only and only had enough to do one at a time.  After 60-70 flips we bought our first rental.

We budget for 20% profit in a six month time for flips.  We also budget a 6-8% cap rate rate on rentals.  There is also potential for appreciation.

We also like vacation rental and look to buy at 5 times yearly rental or less. We have to self manage to make money.

Hope this helps.  I don't think there is a wrong answer.

Bill

I agree that flipping or long term hold is a personal preference.  My problem with this is that I don't think it is a money maker either way.

Figure 6 months to buy, fix, and sell.

Interest on loan to be over $1,500 per month

holding cost to be $483 per month

estimate for ongoing maintenance and management if a hold.

Estimate selling costs to be 7% if a flip.

Good Luck.

Bill

As I understand it you are borrowing $80,000 at 5% and paying $55,000 in cash for a house for a total cost of $135,000.   My criteria is that I want 3 percentage points above my cost of money.

First I assume that my expenses ratio is 50% of rent.  At $1,000 per month and the expected expense

ratio of 50% I can expect cash flow of $6,000 per year.  Your interest expense is $4,000 per year leaving $2,000.  Your cash outlay is only $55,000.  You have made 3.6% on your investment.

Quick and dirty, this would not meet my criteria.

Hope this helps.

Bill

I would ask the PM what he thought the rent would be and show him your other numbers.  My experience is that PM charges an extra amount to find new tenants.

I am seeing a cap rate of 5% which is low.  Capital expenses are not part of net operating income nor in the calculating of the cap. rate.

Good Luck

Bill

I would think that 1/2 of the 50% would be paid out in the month or at least in 3 months.  I think it would not be worth the trouble for the little you might earn.

Good luck.

Bill

When I look at a property I project rent for a year.  The problem is that vacancies occur.  I use a vacancy rate so I am calculating a rent rate less a vacancy rate.  The question is, "what happens if I have a vacancy and I have no investment funds to cover the ongoing expenses?"  What happens if there is a capital expense?  

Companies and individuals go bankrupt because of cash flow problems.  I have purchased many properties from other investors who did not pay attention to cash flow.

Just my opinion.

Bill

If you plan to buy and hold then I would stick to my valuation based on cap rates.  Duplexes are valued on comps but it has to make sense to you as an investment.

You stated monthly cash flow as $1,100 per month.  At a cost of money of 5% I would estimate a monthly payment of $1,194.    Using a 50% expense ratio that would put your rent at $4,588 per month and about a 6.2% cap rate.

I see a minimum cap rate and an overvalued property.  I would pass.

Good Luck.

Bill