All Forum Posts by: Tony K.

Yes, the auction looked good at first - but we're skeptical. They have unlisted reserve prices and they were just having tours and asking full price a month ago. I imagine they are just trying to get more people in and NOT desperately trying to sell everything left. So I doubt any majorly good deals will be had... But maybe we're wrong :) Regardless, one of us may go anyways, just for practice.

Thanks for the txcv link. We'll get in touch with them, too. The companies we'd inquired with have gotten back to us and they both charge 20% - so we were overquoted by the agent we'd talked to before. We're still considering managing it ourselves, too!

I'd read about the 50% rule before I posted this, but I found more on it and the 2% rule after I did so. I think things make more sense now.

It seems you use these 2 figures to determine if it's even got potential as an investment (surprisingly, many deals that seem good don't actually come close to meeting these criteria). Then, you can go look at the property and work on getting actual numbers if you're legitimately interested. Right?

I imagine all the answers to most of the questions we could ever ask are here somewhere, just have to find them...

:)

Originally posted by Rich Weese:

I believe you would make more profit from the condo choice.

You mean the cheap condo, not the luxury one, right?

When we played around with numbers, it seems cash flow would almost be equivalent with the 2, assuming we got a GREAT price on the new construction (which we probably wouldn't) or a foreclosure price on the cheap one (which we probably would). And, of course, we'd have a much smaller down payment and much less risk if everything fell apart and we couldn't cover the mortgage with rental income. So cheap condo = less money down + less risk with same profits. Definitely makes more sense to get the cheap one.

We're trying to do a deal analysis on a condo on the beach to be used as investment property and vacation home, but it seems like there's a lot of guessing involved. How do you get the details for the prices in the property analyzer worksheet?

For example, bldg cost and land cost - how do you know which is which? For the condo we're looking at, I assume that the land cost is $0, right? Bldg cost would be based on an appraisal. But you can't have every single property you look at appraised, right? So do we use the MLS for this?

What about calculating insurance expenses? Do you actually get a quote from an insurance agent for every deal analysis you do? Or is there a good general rule of thumb for this?

What about just forgetting about the details and using the 50% rule of thumb?

In the case we're looking at, a conservative estimate for rental income would be $36,000/year (that's estimating 9 weeks of rental during high season and 8 weeks of rental during low season at rates quoted by the condo's real estate agent that seem to be valid based on what's on VRBO).

So expenses estimate would be $18,000 (50%) and mortgage would be $13,000 if we got our target price at auction. (MLS is $440K, starting bid is $165K, we're estimating what would happen if we got it for $200K. We know this is probably lower than their unlisted reserve price, though, so may not be realistic.) With these numbers, cash flow would be $5K per year.

When I plug in my estimates for expenses into the property analyzer spreadsheet, though, it shows a cash flow of NEGATIVE $17K per year.

The estimates I used were 30 year mortgage, 6% interest, property taxes at 2.5% of MLS-which I'm assuming would be close to the appraised value, $1000 property insurance, 30% for property management, $1000 for repairs and maintenance-it is new construction, $500/mo for utilities - electric and good cable, $1000 for accounting and legal, $279/yr for advertising on VRBO - though we wouldn't be paying this if we used PM, $700/mo HOA-quote from agent.

What are we missing here???

I guess Jon H wrote while I was replying to Jon K.

Thanks, Jon H for notifying us of the other expenses. We're actually moving forward with a sample deal analysis now and are going to go post some questions in the deal analysis forum.

John,

We have not set our plan yet for price range. We're still reading and trying to learn how to do a deal analysis. So, once we've learned enough, we're going to look at a sampling of properties and figure out what makes sense. We're interested in everything from a $45000 foreclosure in a busy but small and not-so-nice condo on the seawall to a nice large beach house in West Galveston to a luxury condo (Diamond Beach). Honestly, it seems we may make more profit from the small, cheap condo that's foreclosed because its occupancy rates are much higher and the price would be much lower. For personal use, though, we'd prefer one of the houses (one we like and have stayed in before seems to be going around $180K if you can get a short sale) or Dmd Beach, but we'd have to not pay retail on that to make any profit (they are having an auction soon, we just saw!). Dmd Beach also has high associations fees - $600-800 a month, if we remember correctly.

And, the small condo we could come up with the down payment easily whereas we may have to look into other funding sources for the larger places.

When we visited Dmd Beach, I think they said the estimate for occupancy rates is 2/3 of the year. We're obviously going to try to find out more on this as we look more diligently at places.

Right now, we really are just trying to figure out how to calculate costs so we can actually sit down and do some analyses, then go find a deal that fits into our plan.

Thanks, Rich & Todd, for sharing your thoughts.

Originally posted by Rich Weese:

FamilyK- being only a couple hours away, you could probably oversee this yourself if you have that interest, and save a large part of the %.

I appreciate hearing how it's worked for you, Rich. If we could really do most of the management by phone/computer, that'd work. We could physically travel down for a weekend every 2 months or so. Maybe a little more often. We would not be available to get up and go anytime, though, because of wife's career and the kiddos.

Is all you really need a maid and a handyman? If so, that woudn't be much different than having a relationship with a PM company. I imagine we could find a maid service there who is used to doing quick turnovers.

What about the simple task of passing over keys to each rental? How do you do that when you aren't there?

Can you trust a maid to do inspections for damage between tenants?

And, one of the advantages one of the PM companies claims is "Provides you with protection through proper lease agreements, deposit forms, addenda, late notices and other legal documents." - how do you handle these things yourself?

Thanks!

Thanks, Marc. Yes, the rentals would mostly be daily or weekly, especially if we get a condo. Sometimes the houses will rent for a month or so, at least in the summer.

We've got a couple of calls out now for rates - we'll see what they say!

As one of our initial investments, we want to buy a vacation home (probably a condo, maybe a house) in Galveston, Texas. We live a couple hours away so could theoretically use this to vacation ouselves when it's not rented (although we are more interested in having a good investment, knowing we could use our profits to stay in a nicer place if desired). There's lots of foreclosures there now, so we expect to be able to get a pretty good deal.

We're trying to look at numbers and come up with a plan before we start looking at places. It seems like we would really need to use a property management company - first, cause they do a good job down there. Second, we would likely draw more tenants through them. Third, we're too far away to be dealing with day-to-day issues, like leaving a key for a renter.

From what we've been told, the companies charge 25-30% of collections.

Does this sound right? Are we missing something here? Or do we need to be accounting for this type of expense in our plan?

And, what other expenses do you have if you are using a PM company? HOA and insurance, I would think. Anything else?

Terry,

Thanks so much for your threads! We are learning a ton from them, and feeling very excited!