All Forum Posts by: Harry M.

Congratulations, Ryan! That is awesome! You are way ahead of the game. Many people don't figure it out until much later (for reference, I got my first at 40!)

Great idea. I would definitely use it.

Hey Joe,
A few things jump out at me about the expenses.
- You need to account for vacancies. I usually pencil in 8.33%, or 1 month per year, which is a fairly common number to estimate with.
- Do the tenants pay all of the utilities, or is the owner responsible for some of them?
- An amount for repairs and maintenance.
- An amount for capital expenses, e.g. replacing roof every 20 years, AC, hot water heaters, and smaller items like dishwashers and such.
- Utilities during vacancies.
- 8-10% per month for property management is indeed standard, however that number doesn't include leasing fees. That is typically 1/2 a months rent. So if you average one turnover per unit per two years, you're looking at 10-12%, all told. So I'd say 10% is the very low end of what you'd really pay for PM. Better to say 12 or 13%, depending on what their base fee is for monthly management.

In general, repairs and capex tend to be higher on small multis as opposed to SFH, just because you have multiples of things, therefore more changes of stuff breaking.

If this is your first property, I have to agree with some of the above posts about 45-70K being a pretty big rehab for the first time around. Not saying that you can't do pull it off or anything, just that the impact of being say 15% off on your numbers (easy to do even when being very diligent) is going to be a chunk of change, as opposed to a smaller rehab. Also, the bigger the rehab the easier it is to be off on your numbers, just because there are more variables.

Best of luck,
-Harry

Hey Erik,
I have both of J Scott's books on flipping, and I highly recommend them. Both books are full of practical real world information, as opposed to the 10% substance, 90% rah-rah-rah-you-can-do-it formula that you get with a lot of books on real estate investing.
-Harry

Steven Hamilton II - Thanks! I filled in a significant gap in my knowledge today thanks to you and Jon.
-Harry

Thanks Jon, I've got it now. I'm not doing the labor, just some of the shopping for materials.
-Harry

Jon Holdman - thanks Jon, you rock! That makes sense. What about the labor component of the rehab? I know what to do with that after a property is in service as a rental, but what about before? Thanks again.

Keith Martin - Hi Keith, Welcome to BP! We're almost neighbors - I'm just up the road from you in Allen.

Steven Hamilton II - Hey Steven, I have a related question (hopefully this is helpful to OP, as I don't mean to threadjack!). Rehab to rental situation. From what I understand, I have to treat the rehab costs a bit differently since the property is not in service as a rental yet. I've heard that those costs are instead added to the basis. Is that accurate? If so, I think I understand how that works if I were to resell, but in the meantime does adding this cost to the basis mean that I can now depreciate based on the new higher basis? Any difference in how the labor and materials components of the rehab should be treated? And does it get depreciated over 27.5 years with the rest of the property? Also, in figuring out what part of the total basis can be depreciated, is it ok to do this: purchase price + rehab costs - land value per tax assessment = amount I can depreciate?

Sorry that this grew into a big multi-part question... Thanks in advance!
-Harry

Ben Leybovich - Thanks! That's a good way of looking at it, and I'll keep that in mind. It's not quite apples to apples for me this time since my last property was bought in 2010 when the market was a lot less competitive, but *knock on wood*, it's looking like deal-wise this one will be comparable to rental #1 (the duplex), and be better than #2. That said, we've still got the rest of the rehab to do and a tenant to find, but so far so good. I am learning a lot from the rehab so far, which was my other goal.

Darren Sager - Thanks man! For financing we just used a 30 yr conventional loan. The property needs a goodish amount of work to make it into an attractive rental, but structurally it was sound, so no probs with conventional. Well, maybe I'm using the phrase "no probs" a bit loosely here (getting to closing was an adventure), but we got there.

-Harry