All Forum Posts by: David Yee

@David Yee You can use BP calculators 5 times for free, or there are spreadsheets already built in the files section of BP that you can download. The key is to know what numbers to put into the spreadsheet. Almost all use a percentage of gross rents. That can either be high or low based on the gross rents. If you use 5% as a repair budget for a $500 or $1500 property. You will be low on the $500 property and pretty close on the $1500 property. 

If you call a property manager and ask what their vacancy is they may say 3%. That is the equivalent of your tenant staying 33 1/3 months. Banks will underwrite at 5%. You have to anticipate you might have to evict someone or they thrash the rental and it takes a couple of months to get it in shape to rent again. 

A simple repair budget is cost to rehab plus the cost of service calls over a set amount of time. Let's use 5% or 1 turnover every 20 months. Assume $1000 to do a major turn(new paint, refresh landscaping, deep clean, etc). I figure 1 service call per year at $150. For this example I will use 1 1/2 calls for the 20 months.  $1250/20 months =$62.50. Let's say you can do touchups until 5 years and it costs you $500 per touch up. Have 2 touchups and 1 major plus 5 service calls. $1000+$1000+$650=$2650/60=$44.17. 

A capex budget is done the same way. Every item has a lifespan. There are capex budgets in the files section. A very comprehensive one by @ Sam Tato. One item in a budget is floors. Go to your favorite flooring store and ask for the commercial warranty. Most will be 10 years or less. My area it costs me $6 sf to replaces floors with lvp. Assume 1000 sf of flooring. $6000/120 months lifespan=$50 per month for 1 item, Have to account for roof(25 years), appliances(12 years), hot water heater(10 years)Hvac(20 years), etc.

When you know what the meaning of your numbers helps make the decisions easier.

Yes.

Look for a market that is generally good for investors (fair laws, responsive justice system, healthy rent rates). Then narrow in on a local market that is growing. Then narrow it down to neighborhoods with strong schools because that's where good families live and they try to stay put until kids are graduated.

Get your math formulas written down. Build a simple spreadsheet. Practice plugging in the numbers. After doing a couple dozen houses, you'll start to get an idea of what it takes for a property to work or not, and you can "eyeball" a property and tell right away whether it's worth investigating further. This allows you to analyze more properties quickly. 

@David Yee

Are you asking if you should sell stocks now to have capital ready to invest vs potentially waiting to sell later when the market may be down? It's hard to say as there is so much that goes into this decision for each person. It depends what you bought the stocks for, what specific stocks you own, how those have been performing, what your portfolio diversity looks like, if this is in a retirement account, etc. I don't do any stock investing, but I can say that having cash on hand right now to be ready to purchase REI would absolutely be something I would advise.

@David Yee

None of us want to have too much cash sitting in the bank with 40yr high inflation currently, but you will need some. Banks require 3 months mortgage payments as a standard for reserves. My opinion is to have 6 months, or min of $5k per property up to 3 properties before reducing that if the home is newer, or in good condition. It's necessary to have reserves beyond that for life in general, but don't keep it in the bank. Just make sure you have reasonably quick access to capital if needed. A HELOC or LOC could also be a great option for reserves without having to keep capital stagnant in the bank. Keep in mind you will need at least 20% down for a pure investment property if not house hacking.

Don't over think it. Start building enough cash for a down payment on a house that fits your budget. You're going to want more than needed so you have a cushion you can fall on. More than cash, you need good connections and good deals coming your way

Most lenders will require you to have equity in the deal and reserves in the bank. The reserves can sometimes be in the form of securities but it’s not often a 1:1 exchange for reserve dollars. 

The number you need will Be based on the loan amount 

Are you planning on buying a house to live in or to rent.  If it is a rental and you won't be living there, you need 20% down payment plus closing costs.  If you're planning on living there, you can put less down.

Also talk to the bank and see how much you can borrow for a mortgage.