All Forum Posts by: Edmund Li

Wow thank you so much for all the great responses, guys! I am very glad I posted this thread here before getting all excited and place an offer. 

@Jim K. gave great advice. However, I am going to invest remotely. As much as I'd like to, getting my hands dirty is just not an option (I am located in an area that don't have any property available to generate a reasonable yield, or even if there is, I can't afford). As to @Dennis M.about finding a local handyman, how would you access their work if you can't meet them? I will need to rely on management companies to take care of the day to day management because it doesn't make economic sense for me to fly over unless I have multiple properties in the same area (and that's probably a long way to go since I am still looking for my first purchase).

@Caleb Heimsoth , I also looked at properties at Memphis. My question to you, how do you manage to invest remotely? And prices there are so cheap that I doubt it even covers building a new one from scratch. My research shows that it costs about $100/sqft to build a home in Memphis, and various properties I looked at are lower than $50k for over 1000 sqft. So my number goes, if I buy it without fixing anything. And when it breaks down, I build a new one from scratch, it will cost me $100k, and my rent will be maybe $100 more which is about $800, how can anyone even make money off that? And what you said is interesting in a sense that, if I foresee not having to replace the roof in the next 10 years and selling within the next 10 years, I can just not reserve for it. And when it comes to sell, I just count on the appreciation to offset the roof deprecation, is that right?

@James Wachob , I am taking a mortgage to leverage as I want to purchase multiple to spread out my eggs. To what you said, I feel that unless I get a steep enough discount, it wouldn't make sense to shorten the lifespan of usable items right? If the roof can still last 3 more years, why shorten it to bring up the cost?

Thanks very much for the reply. What you guys said makes total sense. But when a big ticket item comes due, I have to spend the money to replace/fix it. It doesn't happen every month, but it does eat into the cash flow. Doesn't it not make sense in the long run?

Consider this. A $60k property, I am happily collecting $700/mo. Let's say I net $200+ cash flow before capex reserve. Nothing happen for 3 years, then the roof com due for $5k. My total accumulated cash flow is $7200. So I have $1200 left. Then if in another year the HVAC comes due, I will be in negative territory.

Given this math, how do you guys manage to make a profit on cheaper properties? I might be very off, but I am trying to make sense of the analysis.

I am a newbie investor looking to get my hands dirty with my first purchase. I have been in search for my first rental property for a while, and I haven't pulled my trigger because I couldn't get the math right.

I've found some very cheap property with seemingly positive cash flow after P&I, insurance, management fee, property tax etc. However, the CapEx is the part I have been having trouble.

It seems that from various sources, the suggestion of capex reserve is about $180-$230 for a single family home. This makes sense since the prices for the large items don't seem to vary by a lot given the home price. So buying properties that are too cheap with lower rent seems always to be a bad deal. 

i.e. a $60k property with $800 gross rent, the $200 capex pretty much always put the cash flow to negative. While a $150k property with $1300 rent seems to be ok since the $200 capex would take up less portion from the gross rental income. Note: I am comparing properties about the same size.

So my question is, is the $200ish cap reserve pretty close to what I need even for cheaper properties? If so, does that mean cheap properties with lower rental income (even if it meets 1% rule) is pretty much always a bad deal?