All Forum Posts by: Ed Matson

@Robert Leonard - While I have no unique insights I can suggest:

Continue your education so you can analyze a deal with confidence.  If you need more specifics, buy Josh and Brandon's new Investing in RE book on BP.  Go to every RE meetup you can in your area.  Many are posted on BP.If there are none, start one.  This is where you can meet people and start to develop relationships that could have you end up partnering with someone with capital.  But you must bring value to this partner.  Make sure its a good deal and make sure you know what you are talking about.  The type of person you want to partner with has cash, but most likely doesn't have a lot of time.  He/she may be willing to invest in a good deal you bring him, but may not want to do a lot of work. Do NOT ask someone to be your mentor. Bring value to someone.  By partnering with an experienced investor you will bring them value and you will get the hands on education/benefit of their experience.  And, truthfully highlight your actual experience.  "I have successfully completed one deal, here are the results.  I am in the middle of my second deal, a house hack.  This is what I have learned, and now I am ready to go to the next step."  Compare this language to your introduction from your first post. Which one might give an investor confidence that you will make a good partner?  They both say the same thing, but one projects confidence, while still being honest and forthright.  Your first deal made a profit.  That's great. Use it as a resume. Doesn't matter if you got lucky.  You got experience from that first deal.  That's more than a lot of people.

Hope this is helpful. 

If its a good deal, you could try partnering with a more experienced investor who has capital. You bring the deal, you act as landlord, he/she provides the downpayment and financial strength to get financing, and you split the profits.  You gain income and experience so that in time you can act alone.  Another option is friends/family private lending.  

And, I agree that posting the actual property address is not a good idea. Doesn't matter if you are ready  to make an offer now or not.  You are still doing work on the deal.  Why do the analysis and let someone come in and snatch it up?

@Robert 

@Robert Leonard - Maintainance is general upkeep of the property like cutting the grass and snow removal, etc. It is often lumped in with repairs, which is defined by the IRS (you can look it up), but is generally understood to be actions taken to restore the functionality of an asset to its working condition. So, fixing a leaking toilet is a repair. CapEx generally relates to costs for actions that will improve the functionality or value of the property or extend its service life. So, big things like a new roof, new siding, new driveway are Capital Expenditures. There's a lot of gray area here in real life. CapEx is not included in operating expenses as they generally are non recurring, but they are very real and equally meaningful to my cash flow and investment decisions. The amount of CapEx to be budgeted depends on the age and condition of the property. We have a 100 year old three family in generally good condition, but still our combined R&M and CapEx costs total about 15%. And that's without any really big cost items like windows, siding, and roof. We also have newer properties where the total is 10% or less. I also like to use the calculators on BP (Tools). I find them easy to use and they make sure I have to actually think about each cost item before making an entry. Lastly, using a high vacancy number like 8% is fine if your numbers work, but it may cause you not to consider a pretty good deal because it could paint too pessimistic a picture of the investment. 8% vacancy means both your units are vacant nearly a month every year. That's twice your assumption that your tenants will stay two year, and assumes that tenants don't give notice that they are leaving (as should be required) on your lease, and that there will be a month's physical vacancy. I normally use 5% vacancy for planning and our actual experience is less. Our properties are B or B-, in good condition, and are fairly priced at market rates.

@Robert Leonard - A few comments if I may. You are assuming a 10% vacancy loss, but estimating tenants will stay for two years. 10% is 2.4 month's rent for one unit. Seems pretty high. Does it take this long to rent an apartment in this market? I normally budget 5% vacancy loss and that has recently been fine. You also have $1300 for vacancy placement. Is this for an agent to lease the place? Is there any way you can do this yourself. I think leasing to the right tenant is one of the most important tasks in the landlord's success. I generally don't like to subcontract this to a third party on a smaller property. The agent's motivation is getting a tenant in place and getting his commission, not necessarily getting the best tenant in place. Plus, you can save significant $. I see CapEx at 10%, but no repairs. For a smaller, older property like this, I think both combined can be closer to 15%. So, on balance I think your numbers are fairly close in total, but I think one area is high, and another potentially low for expenses. Good luck.

If NOI is 30K, and you paid all cash at $500K, then your cap rate is 30/500=.06 = 6 CAP

@Dennis L Lewis Jr, I suggest you use the BP rental property calculator. There are some problems with your spreadsheet. Operating Expenses, which as a rule of thumb should be in the area of 50% of NOI includes everything except CapEx reserves and Debt Service. This means it includes taxes, repairs, and property management. Also Repairs and Maintenance and Property Management are % functions of rental income not cash flow. Same for Cap Ex reserve. Also, check your calculation for monthly debt service. I came out with $2,602/month for $432,000 at 5.0% for a 30 year amm. Lastly, I doubt a 9 unit property can support third party PM at 10% of income.

Also, I now use less leverage as I don't need to maximize Cash on Cash return %, but rather prefer reduced risk.  Again, a personal decision, and a different one than I would have made twenty years ago.

Hi @Mary M., Your question makes all the sense in the world to me.  I find myself in quite a similar situation.  I retired early nearly four years ago and needed to increase passive income to fill the income gap created by my paycheck's ending. My goal was simple, increase income to the point where my personal budget was at equilibrium and I did not need to withdraw from retirement savings until age 65. Through a combination of active and passive RE investments, and fortunate increases in income from existing RE investments, this goal was achieved. So now I only invest in "superior" opportunities.  These allow me to replace "OK" investments with "superior" investments, and still meet my goals, while also diversifying away from stocks.  I guess it really boils down to what are your goals, and are they being met?  In my case, I don't need or want to get bigger for the sake of bigness at this stage of my life. So, I have become more selective.

We have a 15 year old 46 unit complex - 2 buildings.  Operating expenses are closer to 40% including professional management.  Using 50% as a guide may give you an inaccurate analysis.  I would try my best to get real actuals to evaluate a property of this size. So much depends on age and condition of the building.  Also, is the income at market rate?