All Forum Posts by: Kevin Boylan

Lisa,

I have looked over my posts and am missing where I may have insulted anybody. I'm sorry if I said anything that you took that way. I was just trying to help by running some numbers for you.

In fact, now that you have provided the interest rate that you would be working with (which is really a good one if you are not going to live there yourself by the way)...

at 6.5% 30yr fixed, 40% operating expenses, and zero cash flow, you still can only afford the house to be about $308,000 in order to break even on cash flow and count on appreciation only.

Kevin

You're right. For this particular property. But there are plenty of properties out there where you can make WAY over that 11% and the risk is probably lower that you'll lose if you correctly run the numbers. But, it will be more work than just sticking your money into a mutual fund.

MikeOH,

That was the whole point I was trying to make to her, that she could not come close to affording the house at the price she was going to pay, even with unrealistic expectations. No magic wand. Your quote cut out the part that said that if she keeps the house for the long haul, she'll see those capital improvement expenses that will be delayed because it is a new house.

Kevin

You can download the spreadsheet from a few posts above and play with the numbers. It depends on what rate you can get on your mortgage, how much cash flow you want, and what your operating expenses will be. The best I come up with, given $2600 in total monthly rent and assuming you want something like $400/month cash flow ($100 per unit), and a 7% loan is a maximum purchase price of about $218,000. And that is with you risking that you will only have operating expenses of 40% given that your management cost that you stated is only 6% and also allowing that your capital improvements will be low since the place is brand new. But, if you keep the property for the long haul, you will likely end up seeing those capital improvement costs.

You would have to KEEP operating expenses down to 32% and break even (no cash flow) in order to pay for a purchase price of $332K.

This doesn't account for appreciation of course, but you can't always count on appreciation. You can play with the numbers and come up with different scenarios depending on what the terms of your loan would be and how much cash flow you actually want.

BTW, I uploaded a newer version of the spreadsheet since I just realized that I was calculating the monthly cash on cash return, not the annual. :-\ So the the roi looks a lot better now.

Sorry, my assumption was correct, my terminology was in error. That's what I meant to say. I call it maintenance but it entails everything except for mortgage. The comment in that cell explains it. I'll need to change the label though. Thanks!

After a lot of playing with numbers I am not sure I agree that the 2% rule is all that great, but I am becoming convinced that the 50% rule is valid and can be useful. I found this on the internet which explains it pretty well

http://www.redbrickpartners.biz/images/SFH_Yields_new.pdf

I have attached a spreadsheet that I put together that I THINK can help with determining how much you can afford to pay for a house based on how much rent will be and how much cash flow you want to get. If anyone could look at this and see if I made any mistakes, or if it isn't realistic for some reason, let me know, I'd like to modify it to make sense.

It simply assumes that after taking maintenance (correction: Operating Expenses) and your desired cashflow out of rents, what is left over is what you can use for a mortgage payment. So it calculates backwards to figure out how much of a loan you can afford. If you pay all cash, there isn't anything to base the maximum price of the house on so I do use the 2% rule in that case.

Thanks,

Kevin

Thanks. Since I posted that question I have found a couple of sites with these types of postcards. One is postcards4you.com. postcardsolutions.com is another.

There are plenty of internet sites out there that have postcards for real estate agents, but has anybody found one that has postcards for investors? I'm talking about postcards that say things like WE BUY HOUSES.

Thanks Josh.

Are charges for advertising for and screening tenants usually included in the percentage or is that typically a separate charge?

Do most property managers charge a percentage of total gross potential rent, or total collected rent?