All Forum Posts by: Chris Taylor

@Sam Shueh

Correction to the above post. I wouldn’t use the 50% rule to determine the cashflow of a property but it helps determine how you are judging your expenses.

@Sam Shueh

It is a decent deal. Just doesn’t fit my short term plan. I would not gain equity quickly enough since it is turnkey so my money would be tied up for longer than I would like. For my first investment I would like to have some forced equity to roll into the next purchase.

@Jason Bott

Thank you very much! It definitely helps. Especially the last point about the City requirement. I would have never guessed that would be a factor.

@Henry Shen

The 50% rule is just a quick calculation that some investors use to quickly estimate cash flow without doing a full analysis. I use the BiggerPockets rental calculator and enter in actual expenses or at least to the best of my ability. BiggerPockets automatically adds the 50% rule to the end of the analysis to give you another comparison. There's an article somewhere on BiggerPockets that explains the reasoning in more detail. But basically what they are saying is that over time you spend 50% of your gross rental income on expenses not including your PITI. So you take your gross rental income, divide by 2 then subtract your PITI and that is your estimated cash flow. I would use that because as you can see it can vary from actual expenses. But it also gives you and idea if you're estimating your expenses too low.

@Bob B.

Just spoke with my agent. If you have $150k in coverage you are insured up to that amount regardless if it is a partial loss or total loss. Surcharges are added to your premium based on the number of units. The more units the higher your premium. These surcharges are meant to account for properties with multiple units. So no matter what happens you are covered up to the insured amount. In this case $150k.

Now if the building catches fire and 3 of the 4 units are destroyed I would be covered up to $150k. If the cost to rebuild those 3 units is more than $150k then I would gladly take my 20% profit (remember I bought the property for $125k) sell the burned property as is, and walk away with a nice return on my money.

Side note: this coverage also covers up to $15k in lost rent which is also adjustable based on your preference.

BiggerPockets actually did a podcast on this subject so it surprises me there is so much difference of opinion on this topic.

@Bob B.

I will contact my agent to clarify.  But based on my initial conversation with him and the written quote he sent me, the landlord policy he quoted covered any loss up to the insured amount.  In this case I had him quote $150K of coverage as the asking price for the property was $125K.  Obviously if I ended up offering on the property, I would have it appraised and base my coverage on that amount plus 20%.  I talked this through with my agent because the replacement value of the building was something like $350K.  Wouldn't $350K be over insured?  My agent seemed to think so because he said I'd be crazy to insure at that kind of replacement cost for a rental property.  He also said out of the 30 landlord policies he has that none of them are insured at replacement cost.

@Jose Alvarado

Great insight!  Thanks for sharing your experience.

@Brandon L.

After reading your profile I am surprised you don't encourage people to pursue obtaining a license.  It certainly seems like it helped you in more than one way.

@Brandon L.

I don’t know that you busted any myth about gaining knowledge by taking educational courses. Maybe your definition of knowledge is different. I was not implying that by taking the course work or getting your license it would teach you about investing. But it certainly could provide you with tools to be a better investor. I am also wanting to learn about the laws in the real estate industry along with the technical aspects of the transaction process. I was was simply quoting a very successful real estate investor and broker in my area @James Wise who said being an agent helped him become a better investor and being a better investor helped him become a better real estate agent. I can see the logic in that statement and would tend to agree with his opinion. I’ve talked to people who carry their license simply because they use it for purchasing investment properties and I have already experienced a situation that if I had my license I would of had an inside track on a deal compared to someone who would need to contact a realtor and set up an appointment. Yes it costs him $2000 a year but it pays for itself in a couple deals. I also understand that it can be an expensive initial investment. But so is college and people still go to college. A sales class would definitely be beneficial but at this moment I am in the buying market not the selling market.

@Brandon L.

I appreciate the feedback.  I am not looking to be a full time realtor or make that my occupation.  Just exploring the possibility of getting my license for the knowledge, to be able to find my own deals and write my own offers, and to become a better investor.  If I can help other people along he way that would be great too.  I would think that any real estate investor is passionate about real estate unless you are just trying to do it passively by giving your money to someone else to invest for you.  Having passive income is my goal not passive investing.    

Just to provide an update for anyone interested...

I connected with @Damon Rucker on a different thread and he was paying something like $210 per month for insurance.  This is what started me on this subject because the few real estate investors I know are paying around $75 to $100 per month.  So I contacted my agent to get a price quote for a deal I was analyzing.  This particular property was quoted at $80 per month but relatively close to what I had heard from other people.  Damon messaged me yesterday to tell me he contacted my agent and was pleased to find out that he could insure his property for much less than $210 per month.  I also talked to another investor I work with yesterday. He has multiple properties with mortgages all insured for a little over what the ACV is.  His properties are all duplexes valued between $60K and $100K and his insurance runs him about $75 per month.

I think how your insure your property is really up to you as an investor as long as the insurance covers any amount you may owe lenders.  Of course I would want more insurance than what I owe on the property (at least market value plus 20%) but in my opinion replacement cost is not worth the premium.  Especially when you are dealing with sub $125K properties built prior to 1960.  The replacement cost could easily be double what the actual market value of your property is depending on when it was built.  So when deciding to go with ACV or replacement cost coverage you really have to consider what you owe on the property, what the market value is, and how that compares to replacement cost.  Just my opinion as a newbie.