All Forum Posts by: Craig Anderson

You're getting a n 85% LTV, that's awesome! Congrats!

I'm learning about being a better landlord, tenant contracts, and the same Rehab book from J.Scott. After those areas, I plan on continuing my education in BRRRR and Rehabs. Diving deep!

When you are house-hacking, there are more benefits than just cash flow, especially if you are going to be occupying the property for more than 3 years.  The 1-2% guidelines are to weed out bad deals as a "quick" reference. In my opinion, if I was house-hacking, and my mortgage was paid along with other bills paid from my tenant(s), then it's a win because I save that money as well as my mortgage is being paid off as I build equity.  Good luck! 

Hi Sophie, in LA areas it is difficult to find a good cash flowing property. However, there is more to investing than just cash flow. Look at all the numbers, especially Cash on Cash, ROI and Property Value increases in the area. House hacking is a great way to start investing. And, in the LA market, if you're paying half or less than you normally would for your mortgage, and your property is gaining value, then you will come out ahead in the long run, especially, if you will be there for 5 years or more. It's more challenging to do if you plan on moving within 2 years, but you'll be saving money because your tenant will be paying most of the rent.

You can also consider renting out a room in your residence or AirBnB to make up the difference and to help you cash flow.  There are options, you just have to be creative, make a plan, and get a great deal. Just some things to think about and consider.

In my opinion, if you have the opportunity, means and want to House Hack, then this is the best way to get started in Real Estate. You can do this 2 or 3 times if you want. Or, just once, then you have a rental with steady income and your residence.

HI there,

It depends on where and how much you want to invest. I would recommend reading Brandon Turner's Book "Investing in Real Estate with Low or No Money Down".  It was a lot of information on ways to get private funding and being creative on how to invest with little money down.

Here's one of the best and easiest explanations of Cap Rate that I've found:

The cap rate measures your cash flow, relative to property value. Cap rate equals annual net operating income divided by the acquisition price.

Let’s say that you’re looking at an investment property that you could rent for $1,200 per month. First, let’s calculate the potential rent at full occupancy. This is the best-case-scenario.

Then we subtract a reasonable vacancy estimate. This gives us our “Effective Gross Rent.”

• Potential Gross Rent: $1,200 per month, or $14,400 per year
  • Less Vacancies: ($720 per year) at a 5 percent vacancy rate
• Effective Gross Rent: $13,680 per year

Next, we’ll add any other income sources that are associated with the property, such as pet fees or coin-operated laundry income. Let’s say that this comes to $500 per year. We’ll add this to the Effective Gross Rent, and we now have a new yardstick: the Gross Operating Income.

• Effective Gross Rent: $13,680 per year
  • Plus Other Income: $500 per year
• Gross Operating Income: $14,180

Next, we’ll subtract the operating overhead. These are the expenses associated with running the property, such as utilities, water, trash, repairs, management and maintenance. It doesn’t include the principal and interest on your mortgage (I’ll explain why below), but it does include insurance and property taxes.

For the sake of example, let’s say these expenses come to $6,180 per year.

• Gross Operating Income: $14,180
  • Less operating overhead: ($6,180 per year)
• Net operating income (NOI): $8,000 per year

Congrats, you know your net operating income, also known as "NOI."

To find the cap rate, divide $8,000 (your NOI) by the total acquisition price of the house. Let's assume your house cost $200,000, including closing costs and upfront repairs.

$8,000 / $200,000 = 0.04

Multiply your answer by 100 to convert it into a percentage. The $8,000 in cash flow you’re receiving translates to a 4 percent cash flow return on your property value. **You want a Cap rate of at least 5%**

REMEMBER: Net Operating Income is the money leftover after you’ve paid operating overhead. Don’t confuse this with your cash flow (after paying the mortgage); these are not the same.

Hope this helps.

Great response Jeff, thank you for that information as I was considering Roofstock.  However, as I've been finding out, for my bottomline, I don't want to rely on someone else and cut into my profits.

I would also Recommend BRRRR: Rental Property Investment Strategy Made Simple by David Greene.

He has a few chapters on Rehabs, what to do it, and how to do it with what types of materials.