All Forum Posts by: Phil Mcnally

Just now finishing renovations on one in Kansas City and will be leasing in a few weeks. Bought as a buy and hold, just did major renovation, gross rents $3,475. I'd probably be willing to sell it for the 1% rule assuming no agent fees.

$347k is not quite the $500k 1% but getting close. I am interested to look. The original $400k became $500k when I understood the loan limits better.

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Originally posted by @Jamie Rose:

Anchorage, Alaska you can find 4plexes for 400k and 1,000 or greater rent fairly regularly.

Oh really. See there is a new place to look that doesn't come up often.

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Originally posted by @Account Closed:

Didn't I mention that these deals don't make it to the market? Let me ask you again. Why would agents/brokers bring these deals to you

I think this is important because you are highly skilled and have invested a lot of time developing a network/business that can develop these deals. But many people like myself will never do that for various reasons. So we look for more boring and steady returns from accessible markets. I can not compare my opportunities to yours I think.

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Originally posted by @Account Closed:

Phil,

Before you get roasted investing OOS using the 1% rule, please allow me to throw in my 2 cents:

Say $700/mo/unit for a 4plex asking $280k.

Property management: $70/mo/unit or 10% of gross rent (don't know if they charge you half or full of first month rent)

Utility expenses: say average $100/mo/unit (Based on my experience)

Repairs & maintenance: say $70/mo/unit

Cap-ex: say $70/mo/unit

Vacancy: let's be optimistic and say 5% or $35/mo/unit

Insurance: say $35/mo/unit

Property taxes: say 1.2% or %70/mo/unit

Your monthly expenses are about 65%. In terms of cap rate, it's a 4.2 cap. What's the interest rate you think you can obtain of this asset OOS? If you borrow anything higher than 4.2%, you're negatively leveraging.

Say in my San Jose market, the average rent is $1,700/mo/unit for a 1-bedroom.

Property management: $85/mo/unit or 5% FLAT of monthly gross rent

Utility expenses: say average $100/mo/unit

Repairs and maintenance: say $85/mo/unit

Cap-ex: say $85/mo/unit

Vacancy: 5%, but the actual number is closer to 2%

Insurance: $35/mo/unit (actual number is closer to $25/mo/unit)

Property tax: say 1.2% for comparison purposes. It's a tad more.

My monthly expenses are about 38%. That's a 7.4 cap. We can borrow at 3.25-3.75% from our lenders here. So the spread is about 400 basis points. Even with 0.8% rule, our assets here still yield better than the 1% rule on those cheaper assets OOS.

1% rule assets are reserved for folks in the inner circle and established closers. They don't make it to the market. ;)

Just want to share my 2 cents and best of luck with your real estate endeavors.

I don't mind getting roasted if I learn something :-)

My current 12 month expenses are about 56% but I have seen them as high as 65% over the years. I have owned some rentals since 2008 and your numbers are about right. As a 'passive' investor I have choices like stocks, bonds, gold or rentals. From the start I have been unsure if you can really make decent returns on real estate if you are not 'inside' the biz hustling for deals. I decided to buy some and find out.

Even though I am not buying hidden treasures and BRRRRing my way to accelerated appreciation etc They have still worked out over time. Between the rental income, Principal paid, moderate appreciation and tax reductions against my W2 income they do far better than good old stocks and bonds. If I can buy a little better than before and max out my conventional loans then I think that will work out in time as well.

Along those lines it would be hard for me to find San Jose properties that match your numbers as I am not a full time, real estate guy, with good connections (through hard work). Even 0.8% rule would be very hard for me to find as a part timer don't you think?

I am happy to look at any links of course.

phil

1 Vote

Originally posted by @Terry Lao:

@Phil Mcnally

Your issue is $500k property with 1% rule. Problem solved. why don't you buy two 4plexs @ $250k each, with 1% rule. The conventional fannie mae, Freddie mac qualify guidelines with be the same either one 500k, or two 250k.

only issue is have 8 units to manage rather than 4. if you were planning to use property manager, then same either way.

Terry

Except that would be two loans.

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No square peg intended. I am not looking in CA.

I think it is reasonable to maximise the available loan if the properties exist. If my available loan allows for a $500k property it would be great to find one (anywhere) that still follows the 1% rule.

The suggested cities are the best chance of finding it. And the thread has been helpful getting that list of possibilities.

In general there are expensive places where $500k properties are easy to find but rents will not cover the cost. Or there are cheaper areas where $200k - $300k 4PLX properties will do 1% nicely. But hard to find the $500k 1% property.

I will update the thread when I find some. Or anyone else feel free to post links to properties that they think are close - for discussion purposes.

phil

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It is the 1% rule with a $400k - $500k property that is the challenge

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I would not suggest anything to them. Just clearly state your rules that they have signed.

Rent is due on...

Eviction will start X days past due.

Then follow these rules

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My guess is that the type of hands off 'don't want to deal with it' buyer you are looking for is also unlikely to be able to see past the 'ugly' current state of the house.I could imagine it working if you show them something finished (model home) and not show them the current ugly state.

I heard a story from a high end ($50k tables) furniture designer who once made the mistake of showing the client the table in progress with clamps, glue and unfinished surfaces etc. He only did it once as the client could never undo the first impression.

phil

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Thanks Chris

So the spouse trick?

I have loans only in my name but both of us had to sign the closing docs in CA (community property state). Wifey currently does not have much W2 income so qualifying is probably not likely anyway. Still it is a new option, I did not know about, to add to my list of possibilities when I talk to banks.

I like your point of using cash out refi's on appreciated properties to close out a loan on another thus freeing up a slot to expand. This will come in time, hopefully.

phil

2 Votes

All Forum Posts by: Phil Mcnally

Phil Mcnally has started 6 posts and replied 74 times.

Post: $400k, 1 to 4 unit property with 1% rule. Anywhere?

Post: $400k, 1 to 4 unit property with 1% rule. Anywhere?

Post: $400k, 1 to 4 unit property with 1% rule. Anywhere?

Post: $400k, 1 to 4 unit property with 1% rule. Anywhere?

Post: $400k, 1 to 4 unit property with 1% rule. Anywhere?

Post: $400k, 1 to 4 unit property with 1% rule. Anywhere?

Post: $400k, 1 to 4 unit property with 1% rule. Anywhere?

Post: Month-to-month tenant just texted they'll be late. 1st week here.

Post: Is this an existing strategy?

Post: Beyond 10 loan ideas