All Forum Posts by: Edward B.

The general rule of thumb is 50% for all of that. Sometimes vacancy will be higher, sometimes maintenace will be higher. As @Justin R. pointed out, though, it really depends on your area and the type of property. If you have newer properties your maintenance and capex could be lower, at least initially. It you have longer staying tenants then your vacancies will be lower, etc. etc. Your estimates are just above that 50% mark so if you can find that deal you should be fine. Unless it is a 100 year old property where the tenants turnover every quarter of course. You get the picture.

The deal isn't AS important but it is still important. As mentioned, make sure that the numbers will work down the road, not just now. And make sure they work without you supporting it as one of the tenants.

One expense that sometimes gets overlooked in multifamilies is the utilities. Make sure you know how they are billed. Are they separately metered? That's great because it is easy to pass on to the tenants. Or is it one meter running into the building? Often the case with water/sewer and sometimes with gas and electric. In which case you need to account for it. Also, even if you are going to self-manage, always, always, factor in a management expense when you run your numbers. At a minimum you need to understand the risk if you decide to do a deal that doesn't necessarily work with outside management.

More doors is more expense but much more income too. I see many people stall because they don't want to take on more payments than they could make with their primary source of income. They think it is too risky. However, it is often times actually more risky to go with fewer units. There have been many occasions when my vacancies and/or unexpected repairs have been carried by my other properties. If you only have the one unit though, it all comes out of pocket.

Good Luck,

Ed

Welcome to the wonderful world of real estate investing. Sounds to me like you have handled this perfectly. If you have adequate coverage and a decent protection plan in place then you should be fine.

Best way to look at this is as a cost of doing business. Just like having a hurricane rip your roof off. Sucks. And you are gonna have to pay the deductible, but bad things happen to good people some times. Just don't let it get you down, inhibit you from continuing to invest, or lose too much sleep over it.

There may be some lessons here in terms of tenant screening or the types of properties you should invest in. If you don't like these kinds of headaches then look for different investments, but there is money to be made here so if you can tolerate it then drive on.

I will also say to just let the insurance company deal with it and don't worry about whether or not these people profit from their scam. They likely will to some degree. As long as it does not come out of your pocket then it should not bother you. That's why you have insurance and the insurance company will make their money too, they'll be ok. As for the scam artists, they will get theirs. They may have their little pay day but it will catch up to them, arguably already has if this is how they live their lives.

I concur. I know a lot of people who used student loans to pay for things other than school, (weddings, etc), but it is specifically prohibited. You are not likely to get called on it, BUT if you are it could be bad. Kind of like robbing liqour stores. If you are smart you will get away with it the vast majority of time. However, you only have to get caught once and you are screwed. If you had the funds, as mentioned above, then you could use loans to pay for school so that you could use your other funds to invest. But taking more out then you need to fund your RE habit would be illegal.

I have never heard that but then again it has been a long time since I qualified for a conventional loan. I remember when they just took 75% of your rental income and applied that to the mortgage in order to determine the hit or help it applied to your debt to income. Then they switched to requiring 2 years of tax returns. That was better because it showed what you were actually clearing on the properties but assumed that the underwriter knew how to back out depreciation, which in my experience not all did.

Banks often have arbitrary standards and apply them as a one size fits all, and it rarely fits the average real estate investor. I would say shop around, maybe find a good mortgage broker. However, most banks will be looking to sell your loan in the secondary market or at least have that option, so if this is a new standard you may be stuck.

There are always other ways to finance deals. I would look into that before I poured money into properties that are cashflowing just fine. Personally I don't believe in locking your money up in a property; there are much better returns to be had elsewhere.

For $300-$400 per month? No.
To get started on a path to financial freedom? Absolutely!

There is nothing wrong with renting to students. They tend to be harder on a property and turn over more but just account for that in your calculations. The key is tenant screening and with the response rate you got you should be able to pick tenants that will provide the best return on your investment.

There really is no reason to be afraid but I know that advice is very frustrating to someone who is afraid. Instead I will tell you that it is ok to be afraid as long as you don't let your fears control you. It sounds like you have done your due diligence so trust that it will be fine. Don't worry about it being ideal or going exactly according to plan. It won't, so there is no reason to be afraid that it won't. It will work out, though, and the experience alone will be worth all the fear you are feeling.

I have fired 4 different property managers in my time. It's funny because I actually came across BP in the first place because I was looking for ways to find a halfway decent PM. It is more about finding one that you can tolerate rather than one you are happy with. If I fired every PMC that made me madder than you know what at one time or another I would be in the same place you are, self managing.

If self managment is your only other option then make sure you are ready for that. If you have a good tenant it is great, but if you get a challenging one, you may never invest in real estate again. The PMC should at least have the systems in place to respond to tenants needs, such as 24 hour response for emergencies.

If you don't want to deal with those headaches then it is possible that you will get better performance from the PMC if they know that you are going to stay on top of them. The squeaky wheel gets the oil theory. Just ride them for a little while until they understand what your expectations are and know that you will be calling them if things are not on the up and up. There are lots of articles on how to manage your property managers and you should absolutely expect to have to do that. Theoretically they are more hands off than dealing with tenants but none of them are set and forget.

@Bryan Hancock

Thank you, that is pretty much what I thought, but it is good to hear from someone with real experience in the matter. The information on 506(c) vs. 506(b) and Lamp NAL is new to me though and worth looking into.

There are a lot of investing opportunities that are only available to accredited investors, particularly in the realm of Real Estate. I began to look into this as a worthy goal or milestone for a real estate investor so that you could at least consider these opportunities.

It seems to me that most investors will hit the $1M net worth qualifier before the income qualifier of $200k for singles or $300k for couples over a two year period. Of course, nowadays you have to prove that your net worth is over $1M, they won’t just take your word for it. And the few opportunities that I have looked into would require a credit report and appraisals dated within the last 3 months. Is that for real? Surely you aren’t required to get appraisals for all of your properties every three months or every time you want to invest if your appraisals are older than three months. What am I missing here?

I read one investor who says he maintains his license simply to be considered a real estate professional. As such he can claim unlimited losses from his real estate investments against all of his income instead of just the $25k passive loss cap, which starts phasing out after $100k of AGI. Can anyone speak more to that?
I have also read that you should avoid being labled a real estate professional if you are strictly passively investing. Otherwise, anytime you sell it could be considered income instead of capital gain and taxed accordingly. Probably need a CPA to weigh in on this.
Point is though, that there may be unintended tax consequenses to getting your real estate license depending on your strategy. I honestly don't know...but would like to.