All Forum Posts by: Bill Jacobsen

Management fees include housekeeping.  We have codos so are not real big.  Housekeeping fees are about $55-65 per cleaning.

We book through VRBO.  Some book without our needing to contact them.  Some call for information.  We do contact with the door code after they have paid.  We have hired a housekeeper who has access to our calendar on VRBO.  We also have a maintenance person that we can call when needed.

Hope that helps.

Bill

We have 8 vacation rental condos in 3 different states.  We only bought after we enjoyed a vacation there.

It is my experience that investment returns are lower than long term rentals unless you are managing yourself.  We are managing about one/half at the current time.  Management fees are usually 30% to 40% of rents.  There can also be city, county, and state gross receipts tax to pay monthly.

We like them.

Good Luck.

Bill

On a flip the money person makes money, the person coordinating or doing the rehab makes money and the person finding the deal can make money.  As a contractor and a broker it sounds like you can do everything but be the money person.

As  broker you can make 3 to 6% on each deal.    If you work at it you can do 30 to 60 deals.  In our area new houses are $250,000 or more.  Even 30 sells X 3% X $175,000 is over $150,000.

I have also funded contractors.  I usually charge 12% +2 points but have charged as much as 10% on money loaned +  50% of remaining profits.  Obviously, the contractor makes money or wouldn't be willing to use my money.

You need to make money as a contractor and broker.  Spend less than you make and build and investment fund.  Then you can make money all 3 ways.

Good Luck.

Bill

Rob has answered your question.  You did make several statements that are not true.  First, if you are a lender your profits are known.  Also, you should be in a better position than the equity holders.

If you are an equity holder you may or may not make a profit.  The amount is unknown.  If there is outsized profits you will share in them.  If there is a loss you also share.

There should be an expectation that a equity partner will make more than a debt partner.

Bill

Yes,more information is needed but based on what you have given us here are some comments.  Is the rent under market in the current condition or after improvements?  Raising the rent should add $30,000 to $40,000 to the value.

Are you going to do your own improvements?  I do the calculations as if I will not do any of the work. 

As a flip I would not do unless I could get $140,000 +.  Whether it is a good buy and hold depends on current financials and the value you bring.

Good Luck.

Bill

I don't like wholesaling.  I have done a few but mostly do the entire flip.  The reason I don't like it is that you have to do all of the same calculations but with little margin of error.  I can build 20% profit in my numbers where you can only build 5%.  If I make a 5% error I still have 15% profit where you have none.

Secondly, each flipper has his own formula and you have to guess what it is plus build in your profit.  An alternative to wholesaling is to become a realtor.  My wife sells 50-100 houses per year with a commission  of 2.5% to 5%.

I will give you my formula.  Remember it will only work if you are trying to sell to me.

First, I determine the ARV. I then subtract 12% for realtor commission to sell, Margin if I overstate ARV, possible payment of buyers closing cost and my closing cost.

Next I will subtract out my 20% profit on the above result.  I also subtract holding costs of about $3,500 in my area.  The next is my estimation of rehab costs.  I actually subtract 120% of my estimate.  I am left with what I am willing to pay.

If you were selling to me you would have to add in your profit to determine your maximum buy price.

I hope this is of some help.

Bill

As I understand it you and a partner are looking at a property which when rented could have a slightly positive cash flow.  You are primarily looking at appreciation.  It is actually easier to project cash flow than appreciation.  I primarily look for cash flow and consider appreciation as a bonus.

I would probably want to estimate the economic value of the property.  To do that I would consider 3 scenarios over the next 5 years.  First, I would assume that the property is worth $750,000 and that is the price you pay.  The cash invested is $200,000.  In the first scenario, property values decline and your property becomes worth $650,000.  I give a 20% probability to that scenario.  In the second scenario properties in your area appreciate at 3% per year or the general inflation rate.  Your property becomes worth $870,000.  I give a 70% probability to that possibility.  In the third scenario there is a real estate boom and properties appreciate by 10% per year and your property becomes worth $1.2M.  I give that a 10% probability.

I can calculate the value by:

$650,000 X .20 = $130,000

$870,000 X .70 = $609,000

$1,200,000 X .10 = $120,000

Adding those together gives an economic value of $859,000.  In this case you are ahead $109,000 over 5 years with a $200,000 investment or about 9.1% per year.

Obviously, you can change the magnitude of change or the probabilities. 

Good Luck. 

Bill

I don't use the calculator but using your $180,000 ARV I get about an $80,000 purchase price. Using the higher number I get about $111,000. The point is that whether you are successful or not depends on your inputs to a math formula. The most important number is the ARV because it is the largest number and repair cost is also important. I always assume that repair costs will be 20% higher than the estimate. I also assume that I won't be able to sell at 100% ARV and that the buyers will want me to pay their closing costs.

Since your profit is the bottom line all numbers above it will have an effect.

Good Luck

Bill

The price is more important if you plan to flip the property.  If it will rent for $800 per month and you can make it rent ready for $40,000 with a 50% expense ratio you have 12% return on capital.  To me it doesn't matter what going rates are in your area, I will take 12% any day.

Bill

One number that is the most important one on a flip is what is the price you will be able to sell the property?  Based on your numbers I would estimate that you would want to be able to sell at about $468,000.

Good Luck.

Bill