All Forum Posts by: David Morrow

Thanks, Jon Holdman. Not what I wanted to hear, but very likely what I needed?

Everybody else out there feel the same?

I'm looking at a 2-unit property, and I want to make sure I'm not letting my emotions get involved. I LIKE this property, but I'm not sure if the numbers add up:

Since late 2008, the previous owner has replaced roof, siding, furnace, and A/C. The larger of the two units (where the previous owner lived for several years) is immaculate with good paint, new-ish bath and kitchen, nice carpet. The other unit needs a full aesthetic makeover, but the seller is realistic about adjusting his price accordingly.

If I applied the 50% rule, this thing falls short of my cash flow goals based on what I can rent for in the area (in 2-4 unit props, I consider less than $100/unit unacceptable). Of course, I can't use hard numbers, either, because recent maintenance records and/or Schedule E's would show an inflated maintenance cost average.

Would you consider it okay to factor maintenance and management costs at LESS than 50% for a recently updated, immaculately maintained property? Or would I be stretching numbers to make them work just because I want them to?

Natasha Hylton - average household price (at least based on the last 12 months of sales) of the zip code in question is 60k, which is representative of a much larger sector of the city. This neighborhood is significnalty higher than that, but I don't know how to find numbers that quantify it.

Again, I am curious why household income is relevant when purchasing a rental.

Not close to shopping or schools. It is on an island where people tend to pay more to be isolated from many of those things. No public transportation in the area.

I am also a noob, but I'll throw in 2 cents:

It seems to me that the assumptions are all possible to attain, but should never be counted on as common. Said another way, those make for great criteria to look for in deals, but shoud never be relied on as assumptions.

10% down means your employing creative financing. Traditional mortgage loans start at 20% for Non-owner-occupied properties.

10% immediate appreciation means you have to find properties that have a minimal amount of neglect, where a small investment in aesthetic improvemtents yields a big return. Be careful that you're not looking at a more comprehensive neglect, though, where the cost of all the deferred maintenance eats you up.

The national average for appreciation is 3-4% (I think this is a rule of thumb more than an up-to-date mathmatical fact). Therefore, you have to scout and research cities, areas, and neighborhoods to find those higher appreciation rates.

In short, all of those metrics sound very realistic to me, but none of them come without significant research and due dilligence.

Kevin R. - good advice. you can bet that I will be utilizing that
OO financing as soon as I can transition to a job that allows me to justify having a residence. Right now, no family of my own and 300 days a year on the road doesn't make it plausible.

Like Mehran Kamari said, though, it reduces my overhead to near zero and keeps my DTI looking nice!

Thanks, all, for your input and words of encouragement!

Thanks everyone for your feedback. As this is an educational excercise, please allow me to respond with questions to better understand the advice you offer.

J Scott - analyzing for buy-and-hold rental.

Tom Goans - Does your advice to completely understand the demographic also apply to an absentee owner? I would not be in a position to be a problem solver or a landlord. And what tools allow me to better understand the neighborhood? In this case, I am familiar with the area, but if I were shopping in Memphis or Atlanta, I would not have personal experience to draw upon.

William Strong - I failed to post some of that info that I had already.

In 2012, this house paid 3421 in tax on 154,000 assessed yeilding about 2.22% tax rate.

I looked at rentometer.com for this neighborhood and saw rents ranging from 1200 to 1600 for 3 bedrms. If I used the 50% rule, and placed my rent in the middle of the range, this prop would be solvent but have minimum cash flow.

I did not find a hard number for median sales price in this neighborhood, but can see at a glance that this property is cheaper than most. Many 250k and above in the area.

Lastly, why does income in the area matter when buying a rental?

Several of the sources I've read talk about analysis of a community, but I haven't yet found a newbie's step-by-step guide. So, as an excercise I am attempting to analyze the area surrounding 15021 Tesoro Dr, Corpus Christi, TX 78418 with my the rudimentary knowledge I have acquired so far, and would like your help, BP, to learn how to interpret the info I have and where to go for more. Here's what I know:

The city of Corpus Christi has a 3-yr apprciation rate of 5.9%
The city of Corpus Christi has a 1-yr apprciation rate of 6.7%
Zillow predicts that the neighborhood will appreciate at 7.4% in the next year.
The house is on an island, so expansion is limited but has not yet capped as there are still vacant lots scattered in this area.
This address is in the best school district of the metro area
The city experienced 10% net population growth 2000-2010
The city's two main college campuses had a combined enrollment of over 22000 students in 2011.
The city's top ten employers are in the sectors of military, education, health care, contruction, government, and grocery (local grocery chain headquartered there)
The house is a 3 bed 2 bath, which is on the small side of avg for this area.

What more what YOU need to know before deciding to invest in this area?

Brandon - your blog post linked above was one of the first pieces I read after subscribing here! I hope that you can help me in my quest for a mentor or mentor/partner. Sending a colleague request now. . .

Ps - why doesn't my @SomebodysName function seem to work? Anybody have trouble with this on the IPad, or is this operator error?