All Forum Posts by: Bill Jacobsen

I would want a 7.5% cap rate based on your cost of money of 4.5%.  I usually pay 10% + one months rent for new renter for management.  My maintenance costs are also a little higher.  Based on that I would value at about $38,000.

Good Luck.

Bill

I calculate  operating expenses at $4,735.  I usually would include management costs to calculate value of property since whether you manage or not does not change value.

I want 3 percentage points above my cost of money.  If it is 4% then I want 7.

My calculation of NOI is $9,600 less $4,735 or $4,865. If you use 7% then the value becomes $69,500. You are stating your cost as $75,500.

This would not normally be a buy for me because it does not meet my required return and I have to do my own management.

I hope that helps.  Good Luck.

Bill

 I add the cost of management into the expenses to value the property.  The fact that you are going to manage will help your cash flow but does not add to the value of the building.

I always look for at least an 8% cap rate and based on $1,500 per month rent I value the property at $104,000 to $113,000.  Your total cost on a $115,000 offer is $130,000.

Good Luck.

Bill

I use $1,500 to $2,000 per year for maintenance and capital expenses.  I do not use an accounting or tax definition.  Maintenance are the expenses that happens every year and capital expenses are those which would happen periodically.  For instance, a new roof would be a capital expense.

I don't use a percentage because the cost does not seem to differ whether you are charging $500 peer month as rent or $1,000.

This is not the only way to do it but only my way.

Hope it helps.

Bill

I tend to use the same cap rate for all sizes of property in an area.  Properties of all sizes are competing for my investment dollar.  I have no idea what that number is in your area.

I suspect that the under rent situation has something to do with the large amount of deferred maintenance.  If we assume an 8% cap and 50% expense ratio then $2,500 a month would equate to $187,500.  $3,200 per month would equate to $240,000.

You would want to know if the cost of rehab is less than the additional rent.  By the way, I don't want to pay more than 1/2 the value of raising the rent.  For instance, if the rent amount is not because of deferred maintenance,  I would only want to pay $187,500 + 1/2($240,000-$187,500) or $213,750.

I hope you can follow my logic and plug in your own numbers.

Good Luck.

Bill

I require a cap rate of 8% if paying cash or 3 percentage points above my cost of money.  In either case with cost of money at 5% the cap rate would be 8%.

I have estimate expenses at $6,500 for taxes, $950 for insurance, $4,000 for maintenance and capital reserves, Management at $3,960, utilities at $3,600, and vacancies at $1.980 for a total of $20,990.  Your rent is $39,600 so your net operating income is $18,610.  At an 8% cap rate you have a price of $232,625.

You need to make your own expense estimates.  You may be lower than my numbers.

I only like to pay 1/2 for the ability to raise rents.  For instance, if you can raise rents by $300 per month I would want to pay $19,125 more.  $3,600 in rent -5% vacancy - 10% management.

I evaluate properties with the cost of management included to allow apples to apples comparisons.

Good Luck.

Bill

Only you can determine whether this is a good deal or not.

Determine the after repair value.  Tax value means nothing.  What are houses like your selling for.

Determine your cost of rehab including your labor. 

Determine your required rate of return on your investments. 

These are the things you need to know before you can decide whether this is a good deal.

Good Luck.

Bill

My profit margin is 20% of cost of project, not ARV. I do have a 20% cushion on my rehab cost. For instance, if I can buy for $50,000 and rehab is $10,000 I will count rehab as $12,000. My cost becomes $50,000 + 12,000 + holding costs(ie,$3,400) for a total of $65,400. I then want profit of $13,080.

Hope that helps.

Bill

I now calculate the value at about $75,000 counting purchase price and rehab.  I do not give additional value to the house just because you are going to self-manage.  Of course you will make more money if you add your labor.

Good Luck.

Bill

The 3 percentage points gives me enough return over my cost of money.  I will take more if I can get it.  I have been able to borrow at 6% and loan out at 12% giving a 6 percentage point difference.

If you have a $100,000 house and I could borrow 100% at 5%, I would want to rent at $1,333 per month.  At a 50% expense ratio I would have an 8% cap property or 3 percentage points above my cost of money.

My net income would average $666.50 and my mortgage would be $536.82.

Hope I have explained why I use the numbers I do.

Good Luck.

Bill