All Forum Posts by: Hau N.

That question cannot be accurately answered by me.  I am not you and I have a different investment criteria and return target than you do.  It would depend on what risks you're willing to take, what your time is worth (if you're mowing lawns, make sure you factor the loss of hours/$ you could be spending at your day job), what risks you're willing to take and what return you'd like to generate in exchange for the risks you're taking.

My personal target returns are 12% Cash on Cash and 20% IRRS or higher and I'm fairly conservative as investors go, so I take very little risk with my money.

To go back to your question, in order to generate my target return with that property, my offer would be very low and it's doubtful that it'll be accepted...so I wouldn't waste my time with it.  I only make offers on deals that are listed within 10% of what I know I can close them for (usually I negotiate the price further down after inspection, however it's unlikely you can  negotiate down more than 10% unless the deal has significant problems).

@Hau N.

I love when I get an opportunity to analyze a deal because there are some "basic foundational rules" almost everybody follows, but also many perspectives with regards to figuring out "basic expenses, CAP EX", etc.

Based on your rent/value ratio you are at .07, which is not uncommon in CA. Which is also why most CA properties today don't work at the current inflated market prices. It's rare to hit the 1% rule here or the HOLLY TRINITY rule of 2%..

One thing I'd want to know about this property is: Is this an value add property? Is there the possibility for forced appreciation through rehab? Are rents under performing for the area? Is there room for cutting expenses? Etc.

Also, they NEVER manage their own properties. Most new investors jump over dollars to save a penny by managing themselves, thinking they are cutting costs, but in the end they spend more of their valuable time managing tenants when they should be managing the asset and the management companies. What's your hourly time worth is the question I'd be asking because I don't want the 10pm phone call that the garbage disposal is not working.

With that said, based on the information you provided, and after running your information through our software analyzer, this doesn't even come CLOSE to hitting our numbers. Again, this is solely based on YOUR INFORMATION and without doing more due diligence.

Would there be loan points for this loan? I factored in 1% to be safe, which puts your total initial investment at $61,642.00, not the amount you mentioned.

We factor 10% vacancy (as did you) and an additional 30% of the Gross Scheduled Income for expenses (Taxes, Insurance, R&M, Property Management, etc.).

All said and done this comes out to a CAP Rate of 5%; COC of 1.8% and not that it matters for financial underwriting with a residential loan, but the DCR (Debt Coverage Ratio) is only 1.08. If this were looked at in the commercial world, lenders want a minimum of 1.2, we shoot for 1.65 to be safe.

All said and done, you are planning on managing yourself and cutting your own yard, which means you are working for your investment instead of your investment working for you AND you only have a $35/month cash flow to boot??? 

No thank you!!

Offer a LOI of $168,000 and see if you have a motivated seller. Otherwise, PASS!

Just eyeballing it -- I do deals in a similar market. 

You can probably do better. 

Unless you think you can really boost that rent and the market would pay-- I would hold off. (If you are comparing to California, it probably sounds really sexy; I know how tempting this appears!!) You can find one a bit cheaper I believe. 

You _could_ cash flow if you do it right but the work and rehab on particulars of a 1980's property can eat up the cash flow.

Here are some other questions to consider (maybe you already factored in with these w/ the 10% cap ex / other deductions)

* Roof state? (10 - 20k expense)

* New appliances? (That hit me hard when I closed)

* How's the water situation there? (Will you be paying? This eats into cash flow if you will)

* How's the rehabbed apt competition? (Can be heavy competition if you try to raise rates later on)

Good luck!! 

Just eyeballing it -- I do deals in a similar market. 

You can probably do better. 

Unless you think you can really boost that rent and the market would pay-- I would hold off. (If you are comparing to California, it probably sounds really sexy; I know how tempting this appears!!) You can find one a bit cheaper I believe. 

You _could_ cash flow if you do it right but the work and rehab on particulars of a 1980's property can eat up the cash flow.

Here are some other questions to consider (maybe you already factored in with these w/ the 10% cap ex / other deductions)

* Roof state? (10 - 20k expense)

* New appliances? (That hit me hard when I closed)

* How's the water situation there? (Will you be paying? This eats into cash flow if you will)

* How's the rehabbed apt competition? (Can be heavy competition if you try to raise rates later on)

Good luck!! 

From what I hear its not all roses and sunshine in Texas either... high property taxes, shifting foundations.  Every market has its strengths and weaknesses.  People in cash flow markets look down there noses at appreciation markets.  And people in appreciation markets end up not investing because they listen to the advise of people that do not have experience in that kind of investing.  Not trying to dog on people I just believe that some of the responses on this thread are from people with strong opinions about markets they have never invested in. 

@Hau N.

You should find a local successful investor to bounce idea's and possible deals off of.  

Probably need to manage everything or leaving lawn mower on site for self service. For Fresno the roi of 5% looks low. If it was me I would get 6-8% return from REIT mutual funds that you can unload instantly until you find a dream property.

That's a 0.7% cash on cash return.  No way would I invest $60k in that deal to generate a measly $420 a year.  It's also built in 1985, and I'm not sure how much of a rehab budget included in your estimate, because I don't see one?  What are the current rental rates of comps on the area? Of the properties with the highest rental rates, what improvements must you add to the subject property to achieve those renrs?  At a minimum, is include a budget for floor replacement and interior paint because, more often than not, it'll need it...that's $3-5k right there.... dropping your cash on cash return to 0.6%. At that return, you'll likely do much better with a index fund investment and take a lot less risk.

@Hau N. - $50 per month for gardening? That seems high, and I usually include something like that in my monthly maintenance percentage. What's your reasoning for setting aside $50 per month just for gardening?

Is your monthly income based on the comparable rent rates in the area? Is there any ability to appreciate the property and pull some money out through a refinance?

Great job on splitting up your expenses - it looks like you did your research ;)

I'm going to agree with @Joe Scaparra in that the cap rate and ROI is really up to the market area.

I'm also going to agree with @Connor Heim in that I would try to get the property cheaper. I personally wouldn't go for a rental with that low of a monthly cash flow, but I also don't live in your area and don't know what the comparisons are in your area.

If you don't need $50 for gardening, that'll certainly bring your income up a little bit - but again, I don't know your reasoning and you might be spot-on for your cash flow evaluation.

Ok - I have to edit after Tim's comment came in right before mine. The 420 might explain $50 per month gardening haha!

Am I reading correctly that you are willing to invest 60k in order to cash flow $420 a year? Please tell me that I am readin this incorrectly. A bank CD has a better return with FDIC insurance. Maybe the 420 explains it.