All Forum Posts by: Bill Jacobsen

One expense missing is maintenance and capital reserves.  I would probably estimate at $4,000 per year.

If I had a loan at 4.5% I would want a cap rate of 7.5% or higher.  Adjusting your expenses to include maintenance I believe you have that at the current price.

Make sure there is no deferred maintenance.

Good Luck.

Bill

I reworked some expenses and added management expenses.  My calculation is that a purchase price of $79,000 would give a cap rate of 8%.  This assumes no repairs needed and rents stay the same.

Good Luck.

Bill

I don't know if it is a scam or not.  If I were scamming you I would present better numbers.  I want a cap rate of 8% if I am buying with cash.  If I am financing I want 3 percentage points above my cost of money.

Good Luck.

Bill

I probably would not buy at the current price.  I want 3 percentage points above my cost of money.  I would need a cap rate of 8.75%.  At a 50% expense ratio you do not have it.  According to my formula It would not work as a flip either.  The property is not worth $102,000.  If it were fixed up it would be worth $102,000.

If you can get it for a few thousand less you have a winner.

Good Luck.

Bill

Some states have no income tax for individuals but do tax corporations and LLC's.

Good Luck.

Bill

When I first look at a property I use the 50% rule.  As I acquire more data I go to detailed information such as taxes, Insurance, Management, utilities if relevant, and on-going maintenance and I also include capital reserves.  I also use vacancies as an expense from the gross rents.  It is pretty all inclusive.

Good Luck.

Bill

I have never used a debt to asset ratio of above 50% overall.  I could probably see someone going up to 80%, but not me.

Good luck.

Bill

I look for cap rates of at least 8% on rentals where I pay cash.  If I am using debt I want at least 3 percentage points above my cost of money.

I budget 20% above my estimate of repairs.  I even add 20% once I have a contractors bid.

I would expect updates of kitchens and bathrooms + general rehab of area on a 15 year old property.

Good Luck.

Bill

There are some costs that are not accounted for.  First, will be insurance.  Next, there is management.  I usually end up paying 10% of rent + 1/2 to 1 months rent to find a new tenant.  There is also vacancies.  I always use 5% unless I have other information.

The last issue is maintenance. The HOA basically covers outside maintenance. I normally budget $1,500 to $2,000 per year for a single family house. Given that there is the HOA I would probably budget about $1,000 per year for the condo.

Of course, if you are including your labor for free the numbers will be a little different.

Good Luck.

Bill

I look for cap rates of at least 8%.  Any appreciation is extra.  I buy most we cash but if I am using financing my cap rate must be at least 3 percentage points above my cost of money.

Hope that helps.

Bill