All Forum Posts by: William Donaldson

As Wayne stated above, you need to include all costs incurred to acquire a property and put it into service in the total cost of the property when calculating a cap rate. The point of calculating a cap rate is to find the annual return on your total investment. If you don't include repair costs the cap rate will be overstated.

Closing costs will be incurred every time you acquire a property and should be included, regardless of whether financing is used. Obviously closing costs will be lower if you're not using financing since there will be no loan origination fees, possibly no appraisal fees, etc.

I think you are confused because you are interpreting the denominator in the formula you provided as "Purchase Price". If it helps you to understand the formula better, you can simply reword this to "Total Property Costs" or "Total Investment in Property".

I know this is an old thread, but maybe the new responses can be of value to other people in the same situation as @Jim Miller

As Mike mentioned above, one downside to buy and hold in SC is the huge bump in property taxes for non owner-occupied properties you'll find in most counties. For example, the property taxes on a property I own in Pickens County come out to about $1,400 for NOO and ~$350 for OO for a property assessed at about $100,000. I know some other people on the site may laugh at our "high" property taxes.

That being said, it's still relatively easy to find cash-flowing rentals in the state. Property prices are generally much lower in our state compared to other states.

I would think it may be difficult/annoying to police the covered parking spaces at an eightplex, assuming you charge an extra monthly fee to a tenant who wants access to a covered carport. It may be easier and more cost-efficient to build a multi-housing carport like the ones here and adjust the rent accordingly.

Having a carport could decrease vacancies and potentially improve the quality of tenant you attract. If it's not in a well-lit area, you could look into adding security lighting around/inside the carport to further compound the value of the carport to your tenants.

The numbers look good but you are taking on additional risk due to it being a 6 BR. I own a student rental in a true college town, and I don't know of any properties having more than 5 BRs other than fraternity housing.

Usually students like to live with their friends. There are plenty of groups of 3 or 4 friends looking for off-campus housing. A group of 6 could be pushing it, and matching up two groups of three, or 6 random roommates for that matter, could be disastrous. You may attract fraternity or sorority members, which would be great for reducing vacancy but potentially terrible for the condition of your investment.

I don't know your market, so maybe filling a 6 BR is relatively easy and straightforward. Let me add that I'm sorry about the taxes in NY (my taxes for a property of similar value is less than 25% of that amount).

Just a few tips if you do go through with the purchase and rehab: Make energy efficient upgrades (windows, appliances, etc.) so the students' utility bills are better than average; have parents co-sign on the leases; and think about including utilities in the rent, such as water and internet, and raising the rent to compensate. It will be tough on the one person who puts the utilities in their name and then has to chase down their five roommates to get payment for their share.

Similar to @Carson M. , I started a landscaping business that grew into a property preservation business. I purchased my first investment property a year ago. I'm now a 21 year old senior and hope to start investing in Charlotte, NC after I move there this summer for my job.

BiggerPockets has all the information you need to get started. I would also recommend attending REI meetings to network with other investors in your area.

I used to do the initial services on recently foreclosed FNMA properties and saw several properties similar to building B. FNMA's process and rationale for certain decisions they would make with different properties came across as highly dysfunctional and disjointed.

Obviously the property will be ignored by OO buyers. I would contact the broker to discover why the properties are being listed for the same price. The broker should be cognizant of the amount of repairs needed for property B and could potentially work with you and the asset manager to arrive at a fair price.

Based on the information provided, I would recommended cutting your losses and moving on to a more lucrative and less stressful investment.

Even though your properties meet the 2% rule they do not appear to be passing other quantitative and qualitative tests. Your investments appear to be not just a headache, but a migraine that just won't get better. You've transitioned from investing to a part-time job that costs you money everyday.

I believe the "2% rule" is short for the "2% rule of thumb." The 2% rule does not guarantee success in the form of cash-flow. I don't have all the data points for your property, but I would assume that your monthly expenses exceed 50% of the gross rents due to the abnormally high taxes, property management, relatively high vacancy rate, and the age of the properties leading to higher Capex and maintenance expenses. I can go for a short drive and find entire neighborhoods that fit the 2% rule in my area, but I would never invest in this area unless I got an excellent price that allowed for a full redo of the plumbing/electrical/HVAC because the properties are old and undoubtedly have deferred maintenance; landlords/slumlords in the area have been known to do the work themselves; and I don't want to deal with countless minor maintenance issues (eg. leaking faucets, malfunctioning outlets, etc.) that are bound to arise in a property with old and/or shoddy plumbing/electrical/HVAC.

I don't mean to sound harsh in any of my response. I've seen my dad wrestle with a similar situation and unfortunately he tapped out too late. I wish you the best in your endeavors!

#1 - Graduate college in May.

#2 - Successfully complete transition to Charlotte, NC and become active in the local REI network. Find a mentor in the area in order to learn more about the Charlotte market, flips, and financing strategies while providing value to the mentor through the use of my skills and experience.

#3 - Purchase second investment property, this time being a 2-4 unit distressed property in Charlotte, NC. Move in to the property and gain "hands-on" experience with rehabbing.

#4 - Develop and stick to a workout schedule. Senioritis (ie. laziness) is no excuse to get out of the habit of exercising and eating right.

#5 - Find ways to volunteer in the local community; preferably find mentorship possibilities for at-risk youth.

#6 - Enjoy life and be content with what I have now without losing the ambition to better my personal life, corporate life, and financial position.

It's impossible to know the handyman's overall financial situation without asking. Losing $400-$600 could cause him financial distress of some degree. Could you work out an arrangement where he provides services free of charge to pay back part or all of the fix? This way there's no cash out of his pocket that he was counting on receiving.

It's important to keep in mind that he has/will probably perform a service or go above the scope of work without charging for it, such as when an unforeseen issue arises during a repair or when he shows up and takes care of something promptly on very short notice. Handymen have other personal and business obligations and it's hard to know when they are sacrificing to keep you happy.

The other week I appealed the appraised value. It was as simple as filling out a form from the tax assessor's office with the property information and justification for the appeal (recent comps).

The appeal may not be processed until after taxes are due and paid, but since I submitted the appeal before the due date I will receive a partial refund if my appeal is successful.

My county works the same as Dave's in that there is a county-wide reassessment every five years. My county's reassessment happens to be this year, so many of the assessed values are probably overstated since they may reflect pre-bubble prices and realistically should come down - but you never know since this would cut into the county's revenue :) .