All Forum Posts by: David L.

If the intent is to build a reserve fund for maintenance/capex items, then another method of addressing this that a local investor shared with me recently is to set that money aside up front, and consider it part of your acquisition costs. This way, those costs are still being considered in your projection for cash-on-cash returns (in this case, cashflow divided by down payment plus closing costs plus repairs plus maintenance reserve) so you're not disregarding the maintenance entirely. But this way, you're also not being overly pessimistic with your monthly cash flow analysis, which might make it impossible to find a deal that both works on paper and will stand a chance of being accepted in some markets.

This is not to say that I wouldn't love to buy properties with strong positive cash flow projections while figuring total maintenance costs at 20% of rent (plus 10% vacancy and 10% prop management), but I just wonder if that's not setting the bar a bit too high in some markets, especially for us noobs who are presumably starting with MLS properties.

@Luke M.

I haven't checked out the rental calculator yet, but the more I'm thinking about this, the more I'm questioning that extra 10% for capital expenditures. I mean, if this is meant to capture the accounting expense for depreciating capex costs over time, then it should be treated like Depreciation on the structure, no? Not with respect to depreciating it over 27.5 years, but meaning, it wouldn't be considered for calculating cash flow.

Depreciation, capex and adding back principal pay down would be considered after cash flow, only for calculating taxable net income...I think.

Bottom line, unless you think you'll actually have out of pocket costs at $1,800 per year (20% of rent), on average, for repairs of all types (IRS "repairs" and capex) then you might consider lowering the total of repairs/capex to something below 20%. For some perspective, that seems like enough money to buy appliances and a hot water heater every year, or replace the roof every 4 years...again, I think.

It just doesn't sound right to me. I hope some seasoned landlords will weigh in on this, as well, so we both can learn. :-)

@Luke M.

I'm a newbie, as well, so please take this for what it's worth, but $2.2k property taxes on a $50k home that doesn't need much work seems relatively high to me. Don't get me wrong, there seems to be plenty of people who successfully invest in places like TX with high tax rates, but it may be that the 50% rule of thumb doesn't work in an area like that.

If all your numbers are right, it looks like you should be using a rule of thumb for estimating non-mortgage costs closer to 70 - 75% of monthly rent.

How confident are you on your taxes and insurance figures?

Also, I just noticed you have 10% for repairs and 10% for capex. Is this how experienced buy and hold investors here are doing it, I wonder? I've been using a total of 10% for both (as well as 10% each for vacancy and prop. management) and I'm already having a hard time getting offers accepted at numbers that will cash flow on paper. If I took another 10% of rent off the table, I'm confident I would never buy a property in my market.

Thanks, Tyrus. At that range I suspect it will be cheaper to pay for comps as I go, rather than pay to be someone's assistant, at this point.

Just wanted to say that I read this idea of becoming a realtor's "assistant" on a blog recently, as well. At a local REIA meeting I asked an investor who has his license whether this was something he would ever consider. He had never heard of it before but agreed it would potentially benefit both parties, since he would get some help paying his MLS fees, as well.

@Tyrus Shivers

You mentioned paying a realtor to pull your comps for you. I'm in a similar situation as Wayne Fisher and have been thinking about that approach. Do you know what a typical fee might be in your market for this?

@Steve A., once you've exhausted your borrowing capacity, have you considered taking on a partner to pursue additional properties? For instance, they could bring the DTI and you could bring the bulk of the down payment. The property (and mortgage) could be in both names, and maybe you could have an agreement that they would perform the day-to-day management (since your providing most of the money). This gets you more properties while your income seasons, and it gets you closer to the true passive income stream it sounds like you're looking for.

Also, maybe you could find a local bank or CU that would consider your existing rental income prior to 2 years, or find some private money investors that are cheaper than hard money.

@Tom Meade, if you figure out a way to buy individual notes from Nationstar, let me know, too! BoA just sold a mortgage on my primary residence to them.

Thanks @Raymond B.!

Never would have figured that out. Guess I should have watched the tutorial video. :-)

@Joe Gore, Not sure what makes you think that. Our offer was consistent with what I detailed in this thread. $5k above our initial offer, so less than $15k below their asking, but with them paying closing costs. And the only contingency was financing (with a pre-approval letter submitted with the offer).

I said from the beginning that they indicated this was a multiple offer situation so again I'm confused how you determined we must have low-balled to have been rejected.

Have you found Fannie Mae to have a lot of flexibility below their asking prices?