All Forum Posts by: Hao Kung

@Ned Carey in regards to tenants and lower vacancy that was sort of by design in my selection of properties going in. I was skeptical of the quality of tenants when getting lower priced smaller units that tend to meet more of the 1-2%/50% rules that are used on here. I decided to go into the fatter part of the tennant curve with mostly 4 bdrm homes getting 1200-1500 rent range as opposed to the much lower quality tenants I was getting in the 1k/mo range. The difference between tenant pools is ridiculous. I sold the properties with lower quality tenant pools as soon as prices rebounded :). Let the hedge funds and their armies of managers deal with them too much of a headache. 

So the houses range a bit in age, a few built in the 1990's, some built in the early 2000's, and the rest built mostly 2004+, so mostly in the 10-20 year range. I sold several units to hedge funds a few years back, the ones with worse mortgages, lower quality tenants. But yeah the average months per property is between 36-68 months. I'd gladly sell some more if I had anywhere else that I could get anything close to the CAP rates I have on these. But I don't really have any good alternatives right now, so just going to have to sit on these for cash flow for a while, and hopefully get out before the huge repairs start rolling in...

I've had a few tenants bail but no evictions, my property manager does a good job on screening, and runs a tight ship, so no issues there really.  I'm remote so that 8% mgmt cut is well worth it in my book :)

Got it, well I've had my share of repairs already. Large mold issue for 13k probably about every water heater go out. A few roof leaks. Etc etc all of those are included in the repairs/maint. it's not a typo. I have 656 months of rental data for my properties combined.    That's not calendar time that's just the the total sum of each month of ownership for every property.  I do indeed have a cash flow xls that projects expenses costs cash flow like that. But the purpose of this exercise was actually to attempt to validate how accurate those estimates are. So I don't set aside future expenses they will just come immediately off cash flow % . In general they seem to be pessimistic (which I think is a good thing for estimation). Like so far expenses are definitely not 50% so that rule seems a bit pessimistic even if I were to assume some deferred wear and tear over time  

Okay guess I can't edit my own posts?  Full breakdown to 100% :)

Overall Vacancy rate: 14.5 / 656 mos ~ 2.7%

Interest on mortgages: 35.8%
Cashflow / Principal Reduction: 29.7%
Property Tax: 11.2%
Mgmt Fees: 8%
Maint/Repairs 7.2%
Insurance 3.1%
HOA Fees: 2.1%
Advertising/Fill Fees 1.4%
Utilities: 1%

Yeah I didn't bother going down farther than that, Mortgage = Interest yes.  Vacancy has been pretty good, it doesn't show up since I was just looking at income/expenses from a quicken report, vacancy has been: 17.5 months out 656, so roughly 2.6% vacancy.

I'm not sure what you mean by capital expenses?  If you are talking how much I put down etc, that's a lot harder since I've sold 5 properties and cashed out a fair bit of appreciation which I don't really want to factor into the landlording/cashflow side of the equation.  I'll update my post with the rest of the categories for completeness

So I finally decided to take an aggregate look at my numbers instead of year by year slices, since I now have a reasonable number of rental data on my own properties (656 months)

Here's the breakdown of where the rent monies have gone:

Mortgages: 35.8%
Cashflow / Principal Reduction: 29.7%
Property Tax: 11.2%
Mgmt Fees: 8%
Maint/Repairs 7.2%

30% profit seems better than I would have expected, how does this compare to what others are seeing?  Background: I own mostly single family homes in the greater Las Vegas area, I bought mostly in the 2008-2011 time frame...

I primarily focused on absolute cash flow/numbers, ROI, first time I looked at things on more of a profit/rent angle...

It sounds like in general most owners are paying water&sewer for their multi units in Las Vegas, which ends up being quite a large cash flow drain.

From reading older threads, it sounds like even if I were to submeter, if most of the other competing units are not charging for water, I would potentially have higher vacancy issues as tenants would simply go elsewhere.

I'm sure this is a common issue that other owners have thought about, does anyone have any guidance/suggestions?

Joel Owens, Adam Stelmaszynski and Stephen Masek Thanks for the reminder to be particularly careful with lead/asbestos. All my other property in Vegas was newer so I haven't had to deal with that yet. I would have a very thorough inspection for this and any other hidden upfront repairs. Water does appear to be something that I would have to pay, only power and gas are separately metered. I did read something about some kind of 3rd party ratio shared utility system, not sure that is something I could do without affecting my vacancy rate, but I will definition look for ways to avoid paying for water.

Troy Fisher$750/mo with a mortgage does not sound bad at all. But I imagine 4 plexes are hard to pickup these days for $112k. I have not been seeing anything around that price. It looks like that was a reasonable price target back a few years ago.

Hi, I made my first offer on a 4x plex recently in las vegas. Its an older home built in the early 1970's with 4x3bd. I want to be fairly conservative with my analysis since I want a fairly big margin of safety.

Rents: $600x4 = $2400/mo = $28800/year (Rents look closer to $650/mo, but I"ll use $600 to be safe)

Expenses: Power/Gas are separately metered, but I just used 60% instead of the 50% rule for total expenses, and I will also be using property mgmt that will take around 8% off the top.

NOI: $28800 x . 4 = $11520

So if I were to target 8% cap rate using these numbers, I get a valuation of $144,000.

Does that sound like a reasonable analysis? Is 60% expenses conservative enough?

This might be slightly off topic, but it seems pretty hard to find any properties that sell for $150k and rent for $1900 which Jake posted as a quick rule of thumb.

So while I think the 50% rule is a good quick and dirty approximation. I think in practice its pretty bad for some single family homes. I'm similar to the OP here in that I'm looking for relatively easy to rent, newer properties and I'm out of state so I won't be managing them myself.

I'm up to 11 rentals, but only started since 2008. Mine are all roughly in the same price range as OP from 100-175k, but consistently the expense ratio (excluding financing) is usually more like 30-35% of rent, with the only estimated components being repairs (I budget a fixed $600/year per property, and I use a vacancy rate of 4%) But including taxes, hoa, property mgmt, vacancy, repairs, insurance, advertising costs for turnover all the properties are in this narrow range.

I know my NOI targets tend to be less agressive than full time RE investors, but I'm pretty happy with properties that hit close to 7% cap rate. Usually that gives me roughly a true 10% cash flow return on actual upfront costs (repairs, downpayment, closing costs) since mortgage rates are so cheap and less than the cap rate.

My view on this is I'd rather pay a premium and take lesser cash flow up front, for properties that are easy to rent, newer and require less repairs(less work/headaches), and if there ever is appreciation, these should do better than the lower end properties...

Especially given that OP has a stable job, and limited time, I don't think its realistic for her to expect to get primo deals as well. I would recommend factoring in repairs and all the other true costs of ownership to figure out what the true estimated cash flow would be, altho discounting rent heavily might offset some of that.