All Forum Posts by: Christa S Rickard

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*This link comes directly from our calculators, based on information input by the member who posted.

This report shows what I'd like to offer for a purchase price plus the rental income based on the median rent for the market from Rentometer. Are there any expenses I'm missing? What are your thoughts? 

The numbers that I was looking at where the actuals for the property - not proforma. Property management was not included in the expenses because he was self-managing. And while I agree that self managing is still an expense that needs to be accounted for, he was not doing so in his actual expenses. That was only one of the things missing from his expense categories. Because his expenses excluded management and other necessary fees, his NOI I ended up looking larger then it really is.

I also completely agree about what people are buying. I posted somewhere else about not understanding how others are making money with some of these purchases. I've been running my numbers and most them I just don't see being cash flow positive. Most of what I'm seeing just seems overpriced based on my numbers. But I'll keep plugging away and hopefully find something.

Ok, I think I understand what you're saying, but isn't that the same as saying in-state investors are using lower expenses - which is why they are seeing higher returns? If they accounted for the same/similar expenses, the cap rates should be the same. 

Do you see expenses as low as 21% for a B property in your area? Again, I haven't bought my first property yet, but I thought expenses ranged from 45-55% of gross income. And I thought the 45% range was for new buildings. This building was built in the early 80's.

Thank you for all the responses. The broker is fairly new and  that could be part of it.  

I had made an offer on an 8 unit townhome-style building. The list price was $575,000 and the cap rate was 8%. However, expenses were only 21% of the gross income and did not include Property Management fees. When I brought expenses up to 50% and used an 8% cap, the price dropped to $364,500. I knew it was substantially lower than list price and the seller would probably just turn his nose up at it, but after explaining my numbers the broker said that my calculations sound right and He asked me to submit an LOI.

So I wrote up a cover letter explaining how I derived my offer and submitted the letter of intent. He called me a couple days later and told me that the seller decided not to accept my offer at this point in time, which is what I expected. The broker said he had a few other properties coming up that I might be interested in but wanted to let me know that in this market, which is Chattanooga, the 8% cap rates are usually only seen by in-state Investors whereas out-of-state investors typically see 6%. I thought the comment was strange which is why I wanted to ask the question. I'm assuming that the difference between 6 and 8% is because in-state investors are self-managing and not accounting for it in the expenses.

I was on the phone last night with a broker who informed me that the 8% cap rates in his market are for in-state investors. He said most out-of-state investors only get 6% cap rates on buildings. I had never heard of this before. I have yet to do a deal, but in all of my reading I thought the cap rate for a building was set based on market demand not the location of the investor. Am I missing something?

Unless he means the expenses for an out-of-state investor are usually higher, which lowers the rate of return? I've only been looking for deals for a couple of months, but I have never seen anything that lists 1 cap rate for in-state investors in 1 for out-of-state, so I'm just guessing at what he meant but it didn't quite make sense to me.

@Vlad Denisov 

I understand your concern. Like you, I am new to real estate investing and I'm just starting to analyze deals and make offers now. And like others have said, I am of the mindset that if I find a deal where the number's work for me, I'm going to buy it. I do think a lot of the buildings I've seen marketed are currently over-priced. Or I guess I should rephrase that and say I don't know how people are making money on those deals. 

With that said, I have no intention of giving up. I fully believe that there are deals out there, they're just harder to find. As long as I can buy a building that cash flows well enough with my financing, then it doesn't matter if the market goes up or down. My financing is based on fixed rates and I make sure that I have enough wiggle room in my rent assumptions that if rents freeze or need to drop a few dollars to be competitive in the future, I'll still cash flow albeit for less, which is fine. As long as the asset I purchase is covering its own expenses, and ideally putting at least a couple dollars in my pocket, I can wait out a recession. 

@tj Hines I'm moving to North Carolina in a few months.  So I'm starting my research now  for properties in that area.

Awesome. Thanks so much for the feedback! If I get this, it will be my first deal, so I'm both nervous and excited at the same time. Trying to cross all T's and dot all i's as much as possible.

I found a property in North Chattanooga, near Red Bank, and would like thoughts on the area. I wasn't actually looking at this market, so I don't have  much research into the area just yet but the numbers on the property look promising. The crime rate there is low compared to downtown Chattanooga, but I'm not sure if Red Bank is an up-and-coming neighborhood, an established neighborhood, or a place people are fleeing. Does anybody know the area? If so, is Red Bank considered a decent place to live? Also, any thoughts on downtown Chattanooga? Is it being revitalized throughout? Or are there certain areas you just don't want to invest in?

Any thoughts would be greatly appreciated.

Thanks @Tom S. I hadn't of flood insurance. This is central NC, so I should be fine. I'll double check just to make sure, though.