All Forum Posts by: Daniel O.

Hey folks,

I'm looking around at new markets and wanted to take a look at the Spokane area. I was wondering if any investors in or around Spokane might be able to tell me their rule-of-thumb monthly allowances for capex?

On a single-family property, what rough dollar figure do you use to estimate ammortized monthly cost of capex?

On a multi-family property, what rough percentage of monthly revenue (or alternative guide) do you use?

Thanks so much!

Hey folks,

I'm looking around at new markets and wanted to take a look at the Portland area. I was wondering if any investors in or around Portland might be able to tell me their rule-of-thumb monthly allowances for capex?

On a single-family property, what rough dollar figure do you use to estimate ammortized monthly cost of capex?

On a multi-family property, what rough percentage of monthly revenue (or alternative guide) do you use?

Thanks so much!

First off, I am not a lawyer, blah blah blah. Make sure you talk to a lawyer and don't take advice from some yahoo on the internet ;)

Obviously the answer is always "it depends," but here are a few factors to consider:

1. Is this a disregarded entity (or put a different way, is this a single-party LLC, i.e., just you or you and your spouse)? If so, the additional accounting cost per LLC can be very, very low provided that you are doing the basic bookkeeping yourself and passing off to a CPA at tax time. If it's a multi-member LLC, on the other hand, the accounting costs to operate the LLC might constitute a material sum depending on your operating margins.
2. What is the cost of a) establishing and b) maintaining (annually) an LLC in your state? There is a huge variance in the cost of LLCs, and you need to make sure that the maintenance costs for your LLC don't just immediately wipe out your margins.
3. How much are you willing to lose at once if things go south? A properly-formed, properly-operated LLC is like a firewall for liability: everything inside might burn to the ground, but the fire won't get to things outside the LLC. So how much are you willing to put in one bucket? If you're happy with the idea that you might lose half a mil at once, you can put two small rental properties in the same LLC. It's a risk, but it's an explicit, calculated risk with which you have acknowledged you're comfortable.

@Andrew S. good to know. Thanks!

My biggest concern is that sweeping reform (which feels imminent) would take me from cash-flow positive to in-the-hole fairly quickly. I'm not worried about making less money, but I am worried about being on the hook for out-of-pocket costs on large quantities of real estate. A small % negative cash flow across large holdings could add up to a ton of money. 

There are TONS of ways in which this could happen in Seattle, and it feels like King County as a whole is not far behind. For instance, changes to tenant laws, enactment of rent control, continual increase of property taxes, etc. could all throw the math out of whack. And none of them feel far-fetched. (I'm specifically trying to avoid getting into political opinion. Just laying out what I see as the facts.)

@Andrew S. super interesting. Thanks for the link!

Any recommended reading to learn more about this approach? To be honest, I'm a little worried about investing in King County in general.

@Eric Thompson, very interesting. I'll have to check it out indeed. Thanks!

Oh, definitely not in terms of cap rate. That'd be pretty incredible! I was talking about cash-on-cash return, but TRUE cash return (e.g., including things like the reserve fund for each property that's just sitting there, amortized cost of legal, accounting, insurance, etc. for the overall business, inspection, loan fees, closing costs, rehab, holding costs, etc.). Things start to look better if you consider estimated total return (e.g., considering loan paydown, depreciation, appreciation, etc.), not just cash return, but that starts to get a bit speculative.

To be clear, I'm sure the answer is that I'm not looking in the right places, or perhaps not analyzing accurately. The fact that the old guard seems to be doing just fine (albeit with a bit more effort) suggests that this is probably newbie error :)

And just to clarify, by "amazing" I mean "anything that's roughly competitive with the stock market." For that matter, I have yet to see anything on the MLS (I haven't found a good source of off-market opportunities yet) with a cash ROI above a 10-year treasury bond (once all costs are taken into account).

I'm already heavily invested in other non-RE assets (stocks, bonds, etc.) so for me to go in on a property that needs rehab, management, etc., it better be worth the extra hassle.

@Eric Thompson not really. I've since gotten all my ducks in a row and am poised to strike if the opportunity arises. I've been devoting a lot of energy to Kitsap county (Bremerton specifically), but haven't seen anything amazing yet. Based on @Dana Ogan's point I may start looking at Tri Cities.

What about you? Any amazing epiphanies/opportunities on the horizon?

I would love to come but may not be able to make this one. If you do it again I'll definitely be there!