All Forum Posts by: Harry M.

Definitely call around for quotes. A couple of true stories for you:

The AC quits working at our main home. And this is TX, so not something you want to be without. So we call one of the big AC companies, and the guy comes out. He spends two minutes looking at the thermostat, doesn't even go up in the attic, and says "there's nothing I can do". I give him my best "yeah, and..." silence. So he asks me what year the house was built. I tell him 1986. He says, well this looks like it came with the house originally, and the circuit board is fried, and they don't make that part anymore. And then he tells me I'll have to replace the whole thing [air handler], and gives me a price of $2500. I tell him that my wife and I will need to discuss that and we'll call him if we are interested (translation: we're not doing business with you). And then he goes on to tell me that they're in the area doing deals, and if I wanted to get an entire new system while I'm at it,they could do that for only $6000, and if that's too much money for us, they have all these great financing options. Silly us, we thought we were calling an AC repairman, not an AC salesman! We told him we'd think about it and thanked him for his time.

So about the circuit board that is no longer made. Readily available online for around $130. We needed a new transformer (the reason the circuit board got fried) which cost us all of..drum roll...$40. So I guess we won't be using that company anymore.

Story #2 - we actually did replace the air handler at the rental we recently bought and rehabbed. The first quote was $3679. Then through a friend of a friend, we found "our guy". $1372 all in, parts and labor.

So yeah, definitely call around.

I share Jon's concerns about you maybe being a bit thin on reserves. Even if you're able to work this out, get a better quote, ask the tenant if they'll accept a window unit temporarily to buy you time, whatever, the thing is that these kinds of larger expenses do come up from time to time, and you have to be ready.

-Harry

My take on the whole experience thing:

I've only been investing in real estate for 3 years, but I've been in my day job field for over 21. Given that it's a relatively young industry (CG animation), that's considered really experienced. My observations are that it takes a certain critical mass of experience to be good, but beyond that personal qualities (motivation/attitude, capacity and hunger to learn, honesty w/ yourself, etc) are a far better indicator of whether a person will be successful than experience.

@BJ Brinkman - First of all, welcome to BP. That looks like a good deal, from the info you've given. Regarding management, the 50% rule accounts for it. If you do decide to self manage, you can reasonably guestimate around 40% expenses. That said, when looking for a potential property you should always make sure it can pay for management even if you do self manage. Also, don't forget to factor in your closing costs, when calculating your return.

Good luck with your investing!

-Harry

Wow, @Joshua Dorkin - handled with grace as always (more than was deserved in this instance). People who search for the most sophisticated sounding (and pretentious) way they can think of to describe something trip me out. That said, I'm not super crazy about the term "flipping" either, just because it has this connotation of buying something cheap and selling for more, when I think the focus should be on the value adding part more. But then a person could just say they renovate and resell homes if they wanted to without getting into this asset repositioning nonsense (a term I associate more with turning around a large apartment complex or underperforming mall or some such).

Congratulations, Bryan! 77.5K for a property that rents for 1200 with what sounds like minimal repair work is a sweet deal! Best of luck!

Way to go, Michael! Best of luck with the process!

Hey Jordan, welcome to BP! You've come to the right place. I have learned a lot here. I am in the Dallas area also. It's a good place to invest.

Best of luck with your journey!

-Harry

@Adrian Mata

There's a functioning toilet in the kitchen???!!! That is so weird.

Regarding nailing down repair costs, a lot of GCs will do a pre-purchase walk through, and give you a decent estimate for around 100.00, sometimes less.

One thing that is good practice is to first make an itemized list of everything you can see that needs work, and take a stab at estimating it. Then if you do the walk through with the GC, you'll learn more having given it a try first, and noting the things that he sees that you missed, and where you were off on the numbers.

Closing cost estimates - near the beginning of the process the bank will give you what they call a Good Faith Estimate for closing costs. This is just what it says it is - an estimate. It can be pretty close to a fair bit off, but it will at least give you an idea, as well as an itemization of the kinds of costs that go into closing. You get your real closing costs a few days before closing, when the title company sends you the provisional HUD1 (full settlement statement w/ everything on it for both the seller and buyers side).

Insurance - the one tip I have here is to keep calling around. This may be a good price for the area, or maybe not. On my first property (this was before we'd found our current insurance broker - it's easy now) we called well over a dozen companies. The prices vary wildly (literally by a factor of two or more in the extreme cases).

Good luck!

-Harry

@Adrian Mata - Hey Adrian, I had a look through your figures and have some feedback. You're close on a lot of it, except for a few areas.

Closing costs - 1988 looks really low. This varies by state, but 4000 on a similarly priced property is common here. One way to lower it is as part of the offer, ask the seller to contribute 2% to the closing costs (the max allowed for an investment property).

Downpayment/Loan amount - if you're going with a conventional 30 yr mortgage, then you have to put down 25% for 2-4 units. 20% is for SFH only.

Rate: They've gone up recently, but you could probably still do at least a bit better than 5.5% if you call around.

Repairs: Definately dig into this one deeper. $5000 doesn't go far if there are more significant repairs (or even a long list of little stuff).

Insurance: Varies a lot by area, but $480 sounds really low. We're paying $1496 for our duplex (given it is a bit pricier property - we paid 148 in 2010), and between 700 and 800 for our SFHs that are near the price range of the property you are looking at. Again, different area (I'm in DFW), so I could be wrong, be definitely look into this one more because your estimate could well be low.

Property mgmt - 10% for the ongoing rate is really common. You can do better than the full months rent for a leasing fee. Most charge 1/2, and the highest I've seen is 3/4.

LLC formation - for figuring the numbers you would put the cost of forming it in the top section under cash invested since it's a one time deal. You consider it as extra cash invested, not something you would subtract from your cash flow. That said, a lot of people (myself included), just load up on liability insurance (500K-1 million) rather than go the LLC route. You can't get a conventional mortgage as an LLC, and there all kinds of problems with getting the property into the LLC's name after the fact (possibly triggering the due on sale clause in the mortgage). Adding sufficient liability insurance is surprisingly cheap - 40/yr at the low end.

Everything else looks pretty good, but figure out what the average cost for water is for the area as that is a big enough factor to move the numbers. Also, to a lesser degree, accounting for the cost of all the utilities when you have a vacancy.

Hope this helps! Good luck!

-Harry

Thanks for sharing, Brian! This is inspiring. Congratulations!