All Forum Posts by: David Heisler

Thanks for all the info on this one! I'm a local broker myself, so I know the market has been crazy the past few months. This would be on a property that has sat for a little - believe it or not those exist still. 

I'm going to do some more research based on what y'all provided. Thanks!

Hello! 

I'm looking at options to do a house hack using a 203k loan, and I'm wondering if anyone in the Denver Metro area has done one before, and has a good FHA contractor they worked with.

Please let me know if you have a rec. 

Hello there! 

Looking to assign a buy and hold deal to an investor looking for a turn key property! 

Cosmetic remodel and newer major systems. 

Rental income: $2600

Less:

Repairs and Maintenance: $83

Utilities: $100

Insurance: $141

Taxes: $194

Management (modeled here, your choice): $208

Bad debt & Vacancy of 5% (2%, 3% respectively): $130

Price: $440k 

Assignment Fee: $10k

Total Basis: $450k 

4.5 cap rate at these figures.

@Yu Liu I use a spreadsheet that my company developed. It's a little more in-depth than what you have created, but I think you've got all you need there! 

Two of the major differences between what I use and what you have are calculations for future years (P&L pro-formas, effectively), as well as calculations for IRR, DSCR, and ER.

@Yu Liu you got it! You're effectively looking at how "efficient" your rental is performing with respect to rent charged. 

Now you can analyze a deal based on the net dollar you make and your net margin. You'll probably want a minimum requirement for both of these numbers to check the "deal" box. 

For example:

If you're only making $50 in cash flow, even if your net margin is 10%+, it's probably not a great deal. At this low net dollar amount, any expense items that come up during the year that exceeds what you've already accounted for will probably wipe out all your return for the year. This could come in the form of something big (water heater), or a bunch of little things (garbage disposal, dishwasher, toilet). 

The entire Front Range is an unbelievable real estate market to invest in, because people want to live here! And who's to blame them - it's sunny 300 days a year! :)

For the past decade we've seen the population along the Front Range explode while new development can't keep up. Our market's demand has outpaced supply for a long time and there's no foreseeable end to this phenomenon. I think this will continue to greatly benefit investors who venture into the markets along the Front Range. 

@Yu Liu another calculation you might want to add to your model is Net Margin. When you analyze a deal it's important to think about the net dollar amount you're making on the deal ($100, $200, etc), but it's also important to know your net margin (5%, 10%, etc). 

Point being, if you're making $150 on a deal you might think it's a good deal. However, if you're renting the property out for $2500 a month, your net margin is only 6%. Now you're able to understand if the deal is operating efficiently from an income perspective. Is all the risk your taking with the deal worth a 6% net margin? Possibly, possibly not - up to what you're willing to risk. 

Your calculation would probably be best above/below the Cash Flow cell, and the calculation is simply Cash Flow / Gross Rents. 

All in all, I think your model looks great though! 

@Raj Pat You may not be missing anything on this one. However, just like any asset market, when an asset's price is discounted there is typically a good reason, especially in a market where information is freely available. Real estate is definitely a market where information is freely available - you comped prices using Zillow, I comp rent prices using it as well.

The discount you see on REO properties typically comes from their condition being less than desirable or the potential for major defects. Banks sell REO properties 'As Is' for this exact reason - they can pass all the risk of the property along to you as the purchaser.

Have you thought about getting into an investment other ways? I'm currently house hacking a triplex for my first deal. It's been a great way to grease the wheels and get me motivated for more, all while learning a TON about investing. I definitely recommend house hacking if you're currently renting. You have to pay to live somewhere, so you should at the very least be paying yourself to live! 

@Carlos Castañon another thing to consider is what typical market cap rates are specifically for the asset class you're investing in. There can be a pretty large difference between cap rates in a SFR property and a large multi-family property, simply because the investors that make up the demand for these properties expect different returns for different levels of risk - all other investors set the market for us. The best way to get an idea of what cap rates look like in your market would be to ask other investors you know that own in your target asset class!

Another thing to consider is hammering out your OpEx assumptions a little more. It pays to be conservative when underwriting a deal, but being too conservative will price you out of a lot of legitimate opportunities. 50% seems a little high to me. If you can hammer down your assumptions and you can get that number down to 40% you'd really be moving the needle on your pro-forma. If we assume $1,000 in rent, that gets you the $100 you're looking for. 

Best of luck to you! 

The One Thing is a great suggestion! I'd also recommend The 4 Disciplines of Execution, The Power of Habit, and How to Win Friends and Influence People. 

None of these books are related to real estate. However, ALL of these books have lessons that you will apply to your real estate investing career! There's also the added bonus of being able to apply these lessons to every other aspect of your life! :)