All Forum Posts by: Ricardo R.

 @Jennifer Beadles thank you for the input. Yes that is for sure a concern of mine but then of course I'm trying to thread the needle on this deal. What are your thoughts of PITI with them signing a lease (for liability), collecting a security deposit, and making them responsible for paying for all repairs that come up... essentially I hire they pay the bill for repairs?

Hi everyone... I'm in the middle of a deal over the next week and wanted some input from you guys:

I'm purchasing a single family home (SFR) for buy and hold - to rent out. I have all the numbers crunched and it's a great investment. Here's the issue: the Sellers are having difficulty finding a home but want to sell, so they are asking if they can sell but stay for 6 months and pay PITI (principle, interest, taxes and insurance) at which point I can raise it by $100 every month until it flattens at $1,400 for 6 more months. I need to be at $1,550/mo on rent to meet my NOI/ROI. What are your thoughts?

Essentially they are asking to pay all costs of my new mortgage payment for 6 months (so really no cost to me) and then rent from me for 6 more months at $1,400/mo after which point they will sign a lease for the rent amount I choose or move out. 

How do you guys see this? a good deal to make the sale go through or should I counter? and if so what other options can I give them?

Any input would be appreciated.

Alex

Okay I understand now... yes all of the above. This is what my spread sheet includes, I'll share: The 1) purchase price, you're down payment, your rate and your term which will = your principle; 2) then you need to factor in your taxes and your insurance + your principle will give your monthly mortgage payment. 3) your rent - (your mortgage payment + your monthly vacancy 8% (which is almost 1 month a year) + management fees + utilities + maintenance 5% + CAPEX 5% (but may be more or less depending on age and type of property) + HOA + Other monthly costs) = your monthly cash flow. 4) You're monthly cash-flow x 12 = you're net yearly income or NOI.

Now to get your ROI: A) you're down payment + you're closing costs (about 2% of purchase price but varies + renovations + appliances + advertising/listing fees = your total cash invested.

Take your NOI and divide it by your total cash invested and you get your ROI.

I typically like to get at least $300 (the minimum) in monthly cash flow and no less than 12% ROI but aim for 15% when you consider that the average stock market return over 40 years has a return of 7%-12, of course this can change for your area and even so, what deals you get. I hope this is not to confusing if you'd like I can email a copy of my worksheet. It's worked for me but feel free - anyone - to shoot holes in it.

Hope this helps. 

Alex 

David, I guess it's really up to you. Light blue is a great color however, if you think you'd like to change it, stick with neutral tones as those will appease most people and make your rental seem 'higher class'. Tan would be a good tone for hallways in at least an eggshell sheen because hallways are high traffic areas. Tans tend to hide more scuffs and nicks and additionally all of which can for the most part be wiped off if you stay away from flat. I hope this helps. 

Alex 

Red, I guess it depends, What type of deal is it? a flip, buy and hold, wholesale?

Sean it all looks pretty good to me. Just a few points: 1) are you factoring in closing costs? ; 2) are there any renovations that need to take place before renting and if so are you factoring those as well? 3) I don't know if you have homestead taxes in Cal. in MI we do, so you have to convert those to non-homestead (if you're not house hacking) if homestead applies to Cal. Also, remember that taxes on the MLS maybe due to an old assessment and they may go up once your sale goes through for you since it is I'm assuming a higher price than previously; 4) The last thing is your educated assumption of expected rent, have you done your due diligence to verify you can get the rent you think you can (make sure you have some wiggle room)? --- Lastly, I think you're insurance looks good but again you're in a different state, call in for a quote on insurance make sure they know you'll be renting it out - if you haven't done so yet - to narrow that variable down. If this all checks out then just make sure the 'Net Monthly Cash Flow' and ROI is worth it for you. Personally, I have a set Monthly Cash Flow and ROI which I want to meet for it to be worth it for me.

I hope this helps. 

Alex

Hi Scott, I feel your pain. We originally started off by having a strict 'no pets' policy, however with that said. Realize that an astounding number of renters do have pets. By allowing pets you essentially open up to bigger share of the market and yes, as you mentioned higher cash flow. Here are some pros and cons: 

Pros:

1. Bigger pool of applicants/tenants

2. Higher cash flow to compensate for pet damages

3. Happier tenants

4. Less turnover since tenants with pets have slightly less leasing options than those without

Cons:

1. Obviously damages to your investment

2. A bit more vulnerable to liability 

3. Other applicants without pets may view your 'pet friendly' rental as dirty and something to stay away from especially if you have carpet. 

Conclusion, totally up to you. However, if you do decide to allow pets you should have a 'pet clause' in the lease detailing what type of pets are allowed, how many, their type and or size and any pet fees associated with such. I personally don't play with the rent amount, for instance if your rental is originally 1700/mo and you raise it to 1850/mo because of pet(s), what happens if the pet died while the tenant is renting? will you lower the rent back down? it just becomes messy... personally I like to keep things 'clean' and organized in the lease and would rather make 1700 the 'base rent' and '150' as the pet rent for that particular pet. Again your 'pet clause' should outline what pet(s) we are talking about and what fees and consequences, if any, the tenant will face if they acquire additional pets. We personally charge a one time 'non-refundable' pet fee which is used for any pet damages and to return the rental back to a non-allergenic status for future tenants which may be allergic to dogs, remember a 'non-refundable' fee is different than a security deposit, check your states laws, but typically you can use it as you wish. 

Additionally, I would suggest that if you do allow pets that your pet clause include things such as; 1) the tenant is responsible for all actions regarding their pets and that you are unaccountable for all incidents regarding such ; 2) all vaccinations must be up do date; 3) Pets must have been vaccinated for rabies; 4) pet must not display aggressive behavior; 5) tenant must still reimburse you for all damages cause by their pets. ------------ Lastly, we encourage our tenants with pets to bring them to the showing or lease signing so that we can meet the pet and verify its temperament.  

Hope this helps. 

Alex

Shannon, yeah that is an average going rate for property management; first months rent, some do half-month's rent plus a 9-10% of your ongoing rent. Property management really, really, really eats into your profits. If you think about it may eat away as much as 50% of your cash flow, you have to consider that they charge 9-10% based on your rent not net. Really if you ask me, the hardest part of managing your property will be moving in a tenant and move out.... everything in between is super easy. You can find all the tool you need here on biggerpockets and even some other sites, however if are going to spend money make your lease a priority. Go on line and find lease examples and write down things  you didn't think of then go find a real estate lawyer and have him/her draft up a lease merging their standard lease (most re lawyers have a standard lease) with your concerns... it may be as much as $500 or so but, remember you're not just paying for the lease you are paying for representation and the solace that the lease is enforceable. Show, application, background, security deposit, first month's rent, lease and you've done 80% of what a property manager can do for you. 

If you truly can not manage it yourself consider instead paying that 10% to a trusted and vetted general contractor. When you hire a property manager those fees of 1st months rent and 9-10% doesn't cover any repairs that need to be done, they will instead take the order from the tenants, task out a contractor and then send you the bill. If you could find and place a tenant yourself, you could instead hire a general contractor (trusted and vetted) by paying him 10%, in this manner you would essentially be paying him for materials only - cutting out the middle man - sure he/she would collect their fee even on the month's that you don't need them but your stipulation would be that when you do need them, they be available 24/7 and make your work order priority (still cheaper and better than a property manager). Another option is to forgo the entire 10% bit.. and hire a general contractor (again trusted and vetted) as needed, place a key lock box on the property (do not give code to tenants), when something needs to be done, call your general contractor which you have set up ahead of time, give them the code to the key box, have them take pictures before and after, have them send you the bill, verify that the tenants are satisfied and done. 

I hope this helps, my favorite is 'Rich dad poor dad' it's more on investing than 'landlordism'. 

Alex

1) what are taxes? ; 2) what do you expect to pay in insurance? ; 3) Are you financing and if so what rate do you expect and I'm assuming 25% down? ; 4) What do you expect to pay in utilities? ; 5) What do you expect rents to be?

1) Are those utility calculations per month?  2) what do you think your insurance is going to be? 3) what are the miscellaneous expenses? 4) what rate do you think you qualify for?