All Forum Posts by: Dave Younts

Sure.  I live off 23.

Ugh.  I hate Fayetteville.  Be prepared to deal with things you never imagined you'd be confronted with.  I doubt you'll have military tenants either.  Probably former Soldiers who were chaptered out for bad conduct and never left town.  Make sure you have good insurance on it.  I wouldn't be surprised if it burned down or got shot up.

@Amy Ranae  I got the number by subtracting your vacancy (0.1*Gross Rent) and operating expense proxy (0.35*Gross Rent) from your Gross Rent.  $108,000-$10,800-$37,800=$59,400.

Knowing that a bank wants a DSCR of at elast 1.25, you can figure out your max P&I for the year. $59,400/1.25=$47,520/year ($3960/month)

Now, mess around with a conventional mortgage calculator using different inputs for number of years, purchase price, and down payment and see what you can offer that has a P&I of less than $3960/month.

Without having a detailed record of expenses, a bank will most likely use a proxy 10% vacancy rate and 35% operating expense (this is what Wells Fargo does). The bank will also want to know that you have at minimum a 1.25 debt service coverage ratio (DSCR).

Given your scenario, they will guesstimate that your Operating Income is $59400.  Therefore, your principal and interest payments for a year shouldn't be higher than $47520/year or $3960/month.  By working backwards, that equates to a roughly $555000 loan on a 20 year amortization schedule.  If you put 20% down, you are basically able to offer up to $694000 for the property using conventional financing.

Their expense estimates are high because they are a bank and banks are conservative.  However, this will give you some idea of whether the asking price that the seller is seeking is in the same ballpark as what the bank will support you buying.  

As an FYI, FAs tend to be pretty handcuffed when it comes to how much advice they can give on outside investments.  There are pretty strict rules are "selling away" that many firms have.  Of course, if the FA is your buddy, he will give you the best under the table advice he can.  However, the firms like Merrill and WF don't want the FAs giving advice on securities that aren't regulated (such as your rental house) because they don't want lawsuits.

Financial Adviser here as well.  Personally, I believe that it depends on where you are in your "life cycle" and where your RE business currently stands.

For instance, if you're 25 years old, you most likely won't need to make withdrawals from your investments to support your lifestyle for ~40 years. Therefore, you have a higher risk tolerance because you have more time to recover from recessions. This is called the early accumulation phase. It is very similar to when a new company is spending large amounts on R&D and CapEx. At 31 years old, I am in this phase. I invest on a 1:1 ratio ($1 to my 401k, IRA, brokerage account : $1 to down payments on RE). However, I have about 80% of my net worth in real estate and 20% in equity investments. This is purely because my RE has performed very well.

Late accumulation phase and decumulation phase investors should consider getting advice.  This is because a portfolio's Beta is much more significant when you are making withdrawals on a regular basis.  You need a very diversified portfolio where one investment balances out the others.  This is why you see may investors begin investing a significant portion in bonds at this time.  High correlation is a killer in the decumulation phase.  Have a professional run a Monte Carlo simulation and you will see how different allocations affect your likelihood of success.

Steven Wade Offered $526k but they went under contract with a higher offer. Will be interesting in a month or two to see what they got for it when the city updates the sales records.

Taxes do seem low but I pulled them from the city tax records. Consulted with a few real estate agents and they all felt that the recent lease at $900 on a two year lease is good evidence that rents for all units can be increased substantially to get at least close to that number once the current tenants move out.

Rich E. Thank you for the analysis and thank everyone else who has helped too. Offer is in! We'll see what comes of it. I have a small trick up my sleeve that I'm hoping works out on this deal too. I'll let you guys know when I hear back.

@Neil Nev Do me a favor an make him an offer at $400k to soften him up for me lol.  $699k is a no-go.  I'm going low $500ks in order to make the debt service coverage ratio work for the bank I finance with.

@Patrick McKenna  I am always open to partners.  Shoot me a message.

@Dan Kelley Nothing secret about it.  There are some features built in that you need special software for.  The green areas are actually Crystal Ball inputs that I use to run Monte Carlo simulations.  If you send me a message with your email I will forward it to you without the Crystal Ball stuff.