All Forum Posts by: Harry M.

Hey Andrew, assuming you're not paying utilities, this looks like a good deal. In fact I have a duplex with a similar price/rent ratio (148K, 1900 rent) and it's been a nice money maker for us.

Regarding the financing - it sounds like you are looking at commercial based on the rate/term you mentioned. You should be able to just get a 30 yr conventional residential mortgage at around 5%, which may work better for you.

@Bily Elliott - sounds promising. Regarding numbers: You could call a couple of property managers in the area, tell them you're thinking of investing in the area, and ask them what the typical length of a tenancy is, and the typical days on market for vacancies are. That will help you nail down what percentage to put for vacancy cost. Come up with a cost for utilities while vacant also. Call around about insurance too. Definitely try a few companies as quotes vary quite a bit.

For repairs and capex, allocate a bit more than you would for a SFH. First - the age of the building. Second, since you're at a fairly low price point, normal repairs will be higher as a percentage of rent.

At $425/month or so, your tenants will likely be poor and living month to month. This doesn't make them bad people, but typically there will be less job stability, and more financial issues that come up for them. So definitely plan on some rent chasing.

To finance, yeah, the price is too low to get a conventional 30 year loan. Hard money is expensive, and the terms are usually only about 1 year. If you only needed, say 20K, maybe you could just get a personal loan from your bank. The other possibility to look into is if you could get a HELOC on your paid off property. They are harder to get on investment properties, and I'm not sure what the rules are in OK, but it may be worth investigating.

Good luck!

-Harry

Wow! Absolutely beautiful! This is pure inspiration...

@Aaron Helmholdt - congrats on the purchase! I agree with Jeff's thoughts about trading some cash flow for a more solid property. When you factor in less turnover and less repairs, it is often a wash with a shakier property that appears to cash flow more.

Regarding factoring in cost of money, there are a few ways you could look at it.

1) Calculate Cash on Cash (COC) return. That's just your yearly cash flow divided by your total cash outlay (including closing costs, etc) to acquire the property. That will give you a percentage return for your money.

2) Calculate your total return on investment (ROI). That's your yearly cash flow, plus amount of mortgage principle paid, divided by your total cash outlay. This is better for calculating your actual return (though locked up, the mortgage principle paid is still yours), but not as good in practical terms (mortgage principle paid can't pay for your groceries!)

3) You could calculate the spread between the cap rate of the property and the cost of the money. Cap rate is your net operating income (NOI): gross rent minus all non debt related expenses, divided by the cost of the property. For example, lets say you buy a 100K property with 25% down. Gross rent is 1200/month and expenses (not debt service) are 50%. You pay 5% interest. Your cap rate is 14400*0.5/100000 = 7.2%. So you make a 7.2% return on the 25K you put down. On the remaining 75K, you make 7.2%-5% = 2.2%. Not bad, since you are making that 2.2% on money you don't actually own. But as Jeff says, if interest rate were to increase to say 7%, you'd have trouble selling the property unless rents also went up.

Hope this helps!

-Harry

Edit: Most of this is covered in the posts above. We were all typing at the same time, but I was the slowest ;)

Oh God! This is just too funny!

Hey Elisha,

We've got one bank account that is dedicated to our rental business. Everything gets paid in and out of there. I also have a ledger in my checkbook, that I use to write what anything I pay for by check is for. At the end of each month, I download the last months activity as a CSV file and put it in a spreadsheet which I start over each year. If I'm not sure what something is for from the bank statement, I check the ledger in my check book. I also have some expressions in my spreadsheet, so I can type a category such as "Repairs" in the column next to an item, and the spreadsheet will total up everything for repairs for the year.

I have one section in my physical filing cabinet per property where I put all the paper bills. For receipts, I just have one large envelope per property that I toss the receipts into. I try to do that the same day I get them, so they don't fade or get lost.

So far, this has been working pretty well for 3 properties (4 units total). I may have to come up with something better when we get bigger, but we'll cross that bridge when we get to it. Ironically, the only property that I have a bit of trouble getting everything straight for come tax time is the one that we have a management company look after.

Hope this helps!

-Harry

Hey Lynne, I'd just give them a call and ask them what's up. It's possible there was a mistake. S8 are always adjusting their/our tenants portions of the rent, but so far it's always added up to the agreed upon rent. Hope you get this all sorted out in a satisfactory manner. Good luck!

Congrats, Chris. And way to go sticking to the price range that made sense to you.

Welcome to BP, Blake, and good luck with your goals. Providing for my family without having to sacrifice so much of our time together was what motivated me to get started with REI too.

Hey Shema,

That's exactly right. Sweet deal, by the way! Good luck!

-Harry