All Forum Posts by: Account Closed

Hi @Kevin Siedlecki,

Here's my expense breakdown:

8% Vacancy = $88

Taxes I estimated at 2.3% value, which is $142

Insurance .4% value, which is $25

Property Management 10% of rent collected (subtracting vacancy) = $101

2% cap ex and 3% repairs (as a percent of rent collected) = $50

Annual expenses for things like rental license and inspections $260, so $13/mo.

Total expenses $330, rent collected $1010, $275 mortgage, $400/mo cash flow.  

So you'd estimate 10% cap ex and repairs, and an additional 10% for maintenance, and 2% extra for vacancy.  I calculated my percentages based on my net rent (rent minus vacancy), not my gross rent.  This may make sense for property management, but not for other expenses.  Changing that to gross, and updating the other percentages, I get a similar number to you.

Hey BP,

In my electronic housing search, I've found a property that seems like the type of deal I'd like to invest in.  Please take a look and let me know if I've missed anything.

This property is in the Woodbourne-McCabe neighborhood of Baltimore.  The Trulia crime map shows that it's adjacent to a bad block but is itself on an okay block.  

List: $69k. Hopefully I'd get a deal, but assuming I don't.

Estimated rent: $1100 based on craigslist comps; zestimate is $1250.  Is this a reasonable market rate or is this a Section 8 rate?

50% expenses (including property management): $550.  This is a bit of a worst case scenario.  My detailed list comes to $350.  Also, the property seems recently renovated so cap-ex should be low for the first few years.

Mortgage with 25% down and 5% interest: $275.

Cash-flow: $275

rent-to-price: 1.6%

I think this meets all of my criteria.

Price: $50k - $125k

Rent-to-Price > 1.25%

Trulia crime rating; Lowest/Low

Rent > $1000

Cash Flow > $250/mo

CoCR > 10% (with 25% down)

Square Footage > 1100 sq ft.

Recently renovated, rent ready

Thank you so much for any input and advice you have.  I'm really learning a lot from BP and I hope to get started very soon.

Hi BP,

I was reading through liveBaltimore, and I found this list of incentive programs offered by the city for various people and projects.  I was wondering if any of you have used these programs as an investor and what your experience has been.  It seems like grants for lead paint remediation would be super useful, but I wouldn't be surprised if it was for primary-residents only.  Thanks for the feedback.

@Account Closed, thanks for bringing this to my attention.  I wasn't aware of these kinds of "minimums" banks might have!

@D'Aydra Allen, just out of curiosity, what is your renovation budget for a project like that?  If you're buying a property for $5k, you'd need tens of thousand of dollars in materials right?

@Ned Carey, my understanding of the 50% rule is that I should use it to roughly estimate expenses and decide if the property is worth a detailed analysis.  Do you not try to "itemize" your expenses?  I agree that my expenses seem a little low, but I'm not sure which item is the culprit.  

When you say these kind of properties are all over the city, are there other neighborhoods with this kind of unit that would not require Section 8?  I'm still thinking that Section 8 is not what I'd like to do with my first property.

@Jack Edgar jr, yes I'm basing the vacancy number on the assumption that I get to keep 11/12 months rent.  I figured one month would be plenty for turnover, but I guess this might not take in to account make-ready costs or tenant acquisition costs.  Is this where you'd account for that?  What would be a reasonable vacancy rate for Baltimore? 10%?

@Account Closed, 1) Good point. 2) Is water a common bill paid by the landlord in Baltimore? What about trash?

Hey BP,

I came across this listing on Trulia, and I'm hoping that someone else can check my work.

I did my analysis on google sheets here, the result of which is that I expect a healthy cash-flow.

Overall, its $46k to purchase, maybe $5k in surprise fixes, $1200/mo rent, $400/mo expenses, $250/mo mortgage. Cash-flow is about $600/mo, and CoCR is 41% if I finance 20% down.

• Are these numbers reasonable for Baltimore?
• Is a 8.5% vacancy rate too pessimistic? What is typical of Baltimore?
• Did I miss or underestimate any of the expenses?
• What are typically provided utilities in Baltimore?

At the same time, I'm unsure about investing in an area with lots of section 8, bad schools, higher crime, etc. Investors that target these areas, what have your experiences been?

I'm still trying to narrow in on what my criteria are, so thanks for the help!

Hi @Ned Carey, thanks for the reply.  I've looked at other opportunities that would have better cash-flow, but I would keep finding them in areas that Trulia would list as "high" crime and poor schools.  Should that not dissuade me?  Would a house like this one be something to consider given that it's in good condition and could fetch a reasonable rent?

https://www.trulia.com/property/3236315297-3212-Ly...

Here's an even better link.

http://www.keytlaw.com/callclaw/ca-member-non-ca-l...

California "takes the position that a foreign LLC does business in California if any member, manager or agent of the foreign LLC conducts business in California on behalf of the foreign LLC." The example at the link is making phone calls on behalf of the LLC, getting a loan, preparing taxes, etc.

So in my case, an LLC would cost me $800 in CA and $300 in MD, totaling $1100 annually. I don't have significant assets, so I think I may not benefit from this $1100 "insurance".

@Account Closed, I think that's correct.  I'm researching this topic as well and this other BP thread is much less equivocal.  

https://www.biggerpockets.com/forums/51/topics/204...

As I understand the advice there, California residents owning a foreign (out-of-state) LLC are operating in California.