All Forum Posts by: Bill Jacobsen

I used a financial calculator with the following inputs: 

Present Value:  30,000

Payment:  -400

Future Value:  0

Annual Rate:  10

Answer is 118.19 months.

If paying $30,000 was going to save you $400 for ever then the return would be 16%.  In this case it is only going to save you $400 for the length of the loan.

Hope that helps.

Bill

Based on your numbers I would have to get it at $52,000 to be a viable flip.  At the offering price it would have to rent at $1,500 to be a buy and hold.

Just my opinion.

Bill

Your total return is a function of cap. rate, appreciation, and leverage.  For a rental I look at an 8% cap rate, and 2 percent appreciation.  Without leverage that gives 10%.

Let's say you can borrow up to 50% at 5% per year.  Now your return is 15%.  If you borrow 80% then your return is 21%.

I loan money out at 12% plus points.  I usually borrow 1/2 at 6% giving an 18%+ return.

On flips, which require work, I budget for 20% profit over a 6 month period.

The secret is that your profit margin has to be great than your cost of money.

Hope that helps.

Bill

I use your interest rate of 4.625% as your cost of money.  I would compare that with your cap rate including property management.  I would want a cap rate of 7.625%.

If rent on a property is $800 per month I am going to base value on that.  If rent could be raised to $1,000 per month because of my efforts I am not going to give the seller credit for the extra $200.   I may give him credit for 1/2 of that.

If rent is $800 per month with a 50% expenses ratio I will value property at $62,951.  I might raise the value to(( $900X12)X.5)/.07625 or $70,820.

I hope this helps.

Bill

I expect as cap rate that is 3 percentage points above my cost of money.  This cap rate has to include all expenses including property management.  This property does not give that return.

If I can increase revenue I am only going to pay 50% for it since I am doing it, not the seller.

Based on that I would not pay $199,000 for this property.

Good Luck.

Bill

I budget 20% profit for each flip.  I also budget 6 months from when my money is need until my money is back in the bank.  I use a partner or general contractor to do the work.  My job is to find deals. Most are brought to me by realtors.

I also do buy and holds.  I expect a cap rate of at least 8%.  Although I have 20+ rentals and 6 to 10 flips per year this is not a full time job.

It is my advice to not quit your job until your real estate income equals you income from the job.  For instance, if you have a job that pays $50,000 per year and you earn an 8%cap on your rentals you need assets of $625,000.

Just my opinion.  Good Luck.

Bill

Brian:

The return on investment depends on how long you will receive the extra $400 per month.  If you were to receive it forever your return would be 16%.  In this case you will receive the $400 when you pay the loan off.

I used a financial calculator to determine how long the loan would have to be.  I assumed a required return of 10%.  The input on the calculator was:  Present value -30,000, payment 400, future value 0, annual rate 10%, periods came to about 120.

Hope that helps.

Bill

If I found a house with an ARV of $168,000 and $17,500 of needed repairs, I would be willing to pay a max of $98,800. This deal sounds better than that so I would take it.

Good Luck

Bill

From a pure math standpoint it would be good to pay it off if you have at least 10 years left to pay on.  Your return would be about 10%.

If I was going to change jobs to one which will pay minimum wage on average and the pay is irregular, I would want to have at least $30,000 in the bank.

Good Luck.

Bill

I agree that your maintenance/Cap ex. seems small.  I would probably be at $1,500 per year.  Insurance seems low.

In most evaluations you should include management expenses even if you plan to manage.  That is probably 10-14%.

If I can get a 4.75% loan I expect a cap rate of 7.75% or better.  This property would not make the cut at the current price.

Good Luck.

Bill