All Forum Posts by: David Roberts

That's a nice post. Thank you very much.

I agree,  and that's what I said.  I don't see how that 2% rule is accurate around me.  I can't seem to get the 50% rule to work sensibly either for this area.  Following that rule,  on a 100k home 20% down at say 1200 a month,  thatt leaves 600 to pay mortgage and cash flow.  I'd have to have a rent of about 1700 to get just 300 cash flow a month.  Can't see it.  Wouldd have to get that house at a huge discount... But then likely big expenses up front for that cheap.  I Understood what she said.  She was just wrong then.  She sounded a little unsure  but then said, it was correct.  Oh well.  I've had  tto set financial advisors straight at Wells Fargo before on their own 401k rules so why would I expect anything else?

Well if that's not giving it to me straight, what is? right?

I bought my first primary home in 2003.  Converted it in dec 2010 to a rental and moved to my current home when homes were 40% discounted.

I've never owned an egress, just stating what the neighbors are saying that had theirs put in with their new construction homes.  I'm not a contractors and don't have tons of experience in that area.  I only know what I've experienced.

I understand it is a good thing to keep slumlords out and it benefits the city to keep property values up.  I was just wondering how serious most investors take rental inspections or occupancy inspections.  

Like I said, I had never even heard of those inspections until I happened to look at the city websites around me and found that there are those.  I even opened a rental inspection checklist, and it seems that other than new construction, 99% of homes are somewhere out of code.  I would venture to guess most homeowners attempt to replace something that 'needs a permit' at some point, without getting the permit.  Codes change very often, and if homes aren't updated, then aren't they out of code?  This could be a crazy expense to an investor looking to rent the home.   Would be wonderful to have everything all legal-like, it just seems insanely difficult to do that, all while sticking with that 50% rule.

Yes, as I was asking some questions I started thinking up more, sorry about that. 

Been reading around for the past 2 hours and thought about my own rental, and how that 50% rule makes a lot more sense than when I asked about it earlier today. I still don't know how, given in my area, I could achieve the 50% rule on an SFR, knowing what the rent people are getting is, and the cost of the homes.

But I guess if that is truly the answer, then I don't buy rentals in my area.  After doing the analysis of my rental, one big purchase (a driveway) pretty much put me at the 50% mark assuming I was at 300 a month cash flow (which I haven't been, since it's on a 15 year and i'm actually at a -20 a month).  About to fix that though, and initiate a refi out 30 years.  Then I'll be at 320 a month cash flow, but following the 50% rule, I would be at high risk.  The roof is aging, but every other big ticket is newish or new.  But it only takes 1 big purchase to kill 3 years of 500 bucks in expenses and make the calculations ugly!

My question, as I've been wandering around realtor.com and others, is:

Is it better to pay a little more for a very nice home with updates to the kitchen and such that the homeowners who clearly took pride in their home want, or is it better to find a non-updated home? The purpose is to rent out an SFR, and I noticed the price swings in my city alone on similar homes was quite a bit. Obviously homes that are 40 years old will need SOMETHING, but in my experience with just owning a couple of homes is the big tickets like the furnace/AC, roof, foundation, and concrete, if those are all sound, then the other repairs are usually cheaper.

Is it better to pay a little more for the "move in ready, done" home versus the less updated, not so much done home which is cheaper?  I could crunch a bunch of numbers, but from your experience, what is better off?  Less cash flow but the lower risk of problems, or more cash flow and a higher risk of problems, and maybe a less desirable dwelling to rent out?

I haven't seen it yet on the site, is there a blog or something to read on how to accurately predict the cost of repairs and expenses for repairs/replacements, other than just real world personal experience?

I don't have any contractor friends to discuss with about that kind of stuff.  It would help me better estimate price on buying my next rental and cash flow.

Thanks very much.

This thread is interesting, and I'd like to piggyback on it.  If you love your tenants (and I know, you want to keep emotion out, but by 'love', I have tenants that pay me early every month, and are literally no trouble.  They live simply.  They don't like to be bothered (in fact they put a no soliciting sign on their front door which I can appreciate), so I generally leave them alone unless they call me.  And, when they call me, it's to fix something.  They hvae never demanded anything out of me, demanded that I come right away, etc.

So, when I read the question of "if there's a clogged drain and I have to call ti get it snaked, that should be their responsibility", how do you break the news to them without damaging the relationship?

In fact, about a month ago they said there was sludge coming from the basement drain, which was blow the kitchen, downstream from the kitchen 2" waste pipe, and I had it snaked in this area about 6 years ago (when I still lived there).  They said black sludge was coming up.  I called a plumber since while I had a 20 foot snake and had an idea that the clog was there and not somewhere else since I carpeted over another drain in the basement and it wasn't wet over there and I know the layout of the sewage pipes, I I couldn't get the cleanout cap off for the life of me, and I had a pipe wrench, and using my 200+lb bodyweight LOL.  Anyway, I didn't want to break the pipe so I called someone out.  This was not their fault.  The plumber siad there was some sand in the pipe and that over time that section may need replacing, but that's years and years out.  No trees are in the area, it just might have leaky wax seals or something (house built in 1972).

But if they had found a tampon or several, or something jammed in there, how would I break the news that they were going to have to pay for that?

Money is money, but do you guys let your very good tenants slide sometimes even at your expense?  And while on this topic, do you also sometimes raise their rent 'less' because you don't want to lose them?  And, when you inform tenants in general (not necessarily your lovely ones) that rent is going up, do they ever try to call and negotiate it to be less of an increase (and do you listen to that?)

Hi Guys,

By the way, I'd love to connect with everybody from my area, so add me if interested (Detroit Metro Michigan).

So I read through the 8 chapters on the site, and have some questions, that probably have been answered in the thousands of posts around here, so I apologize for my redundancy.

I have 1 rental already which was a conversion from my primary in 2011 when I moved into my new home.  I was viewing it as just getting a renter in there to cover costs, but now I am wanting to start a business and grow wealth over time...that's my goal in a nutshell.  So, first act of business, I am about ready to initiate a refi on it from my 15 year mortgage (11 years left) back out 30 years which will generate 320 a month in cash flow.

But, after calling the credit union and reading the beginners guide, I came up with some questions.

I asked the loan agent how many investment properties I could own.  She said up to 10 free and clear.  She said I can only carry 4 mortgages at a time though.  I have read elsewhere that others have heard this, but then there was discussion that it wasn't true and 4 mortgages through 1 bank only, but then you could go to another bank and get 4 more, and so on and so forth.  Is this true?

And if I owned 10 investment properties outright, and wanted to own an 11th, why couldn't I?  Does some law prevent me from owning 11?  I find that one hard to believe.

If I convert myself into an LLC, couldn't the business own infinite?

I have read about using the other financing options like hard money and such, but what if I just wanted to use 30 year mortgages every time?  Am I limited?

The 50% rule struck me as a surprise, and the real world example wasn't pertaining to SFRs which is what I'm interested in owning for now. In my area for a 100k home, you can't get 2k a month and pay the PITI of 800 on a 20% down 30 year conventional out of half that and have enough cash flow. That rule doesn't seem to work out, and 1000 a month for repairs seems insanely high. On my current rental I probably spend 500 a year on the rental for maintenance, and that's with having to call a plumber or fix the garage door, or do something I can't do (and I'm fairly handy). I put a new driveway in for 3500 2 years ago, so that hurt (with negative cash flow), but unless it's a driveway, furnace, roof, or some odd expensive issue like foundation problems, I would likely not run into a 10k repair.

I was looking around on the local city websites and it is apparent that every city now does 'rental inspections' and 'occupancy inspections', since 2010?  I had never heard of those.  Do you (other investors) try to follow every rule?  I mean, is any house ever really up to code?  I can tell you that my rental was never 'rental inspected' and the rule was in place at the time.  LIke i said, my renters moved in dec of 2010 just after christmas, and I was never contacted or anything by the city, or fined, etc.  

When we bought this home (8 year old home) in late 2010, the rule was also in place, and no occupancy inspection was done.  What is your take on all of these inspections?  Seems like money grabs.  I get that you want to avoid blight in your city, but codes change constantly.  Who would make money if they had to keep up with every code?

Even this home, build in 2003, is now out of code as it doesn't have Eggress, and I"ll be damned if I'm going to add one of those leaky SOB's.  My neighbors have them on their new homes (built after 06) and they all complain of leaks.

When calculating Cash on Cash ROI, the example given in the guide was very simple, 20k down is the investment, take your annual income, subtract PITI and expenses, divide by the 20k and there's your ROI.

But, should I be taking the principal from the mortgage payment and adding that to the investment, since it is going into the property and is technically my investment money still?  Which means, then i'd need to add the yearly interest (i did this with amort schedule, actually did it for 10 years out), and add the yearly principal, and get that calculation.

It's a more detailed calculation, but is it called something other than cash on cash ROI?

I had tax questions up the wazoo while sitting at my cubicle at work today but I can't remember any of them right now! 

I'm starting to assemble a spreadsheet and I'm starting to toy with scenarios, like if I buy a rental every other year for 5 years, then one a year for 5 more years, what's my net worth?  Stuff like that.  That is a lot of fun...

Thanks guys for all of your help.  By the way, for you local investors, the guide said to offer something when starting friendships.  I am a hard worker, and fairly handy, and anal about my work, and am more than willing to lend a hand if needed.  Just sayin...

Thank you much.

Dave

I'm from 20 minutes outside Detroit (looking forward to talking with you local investors by the way), and when someone says Detroit, if they are actually talking about Detroit and not Detroit metro, meaning cities outside Detroit, I wouldn't touch it with a 10 foot pole, not unless you were getting into a new condo building downtown.  The neighborhoods look like a warzone and you can imagine the difficulty with crime still.  It's a different world in the neighborhoods there.  

The new construction that has gone up downtown is very nice and fetching a lot of rent.  My sister, who is clueless about money and I tried to convince to stay out of there but "she just loves downtown", was paying 1400 for a 2bed 2 bath apartment in a large many story building that was newly constructed.  It was very nice...but I'm not a big city guy, and I am not a fan of wandering around Detroit.  That aside though, if you were lucky enough to buy some of those apartments/condos downtown in 2010-11 and held on, I bet you're doing well.

The statistics on the news here is that wayne county (that encompasses Detroit city proper) property values have come back quite a bit. The problem is, metrics are skewed, and even if there was a bounce in SFR, the values fell from 100k down to 5k, and maybe bounced back to 30k. My colleague at work jsut finally convinced his mother to move from Detroit. She had the nicest home on the block, could have gotten 123k in 2007 for her home, but ended up selling last year to an investor for 23k, and her home was well maintained and the prime home on the street, and everybody knew it. But, she was robbed by 2 scammers, and her family finally convinced her to get out.

Just be careful guys, if any of you are messing with Detroit.  I don't like to hear people losing money.

Thanks all. Looking forward to the discussions. I'm through the first 4 chapters of the must read for beginners, getting into the exciting stuff.  I have so many questions already, things I didn't know, mainly questions about laws and regulations, things like that.