All Forum Posts by: Howard Klahr

Have you considered installing the electrical service and exterior motion sensor lights as well as the other items noted in this thread.

Oh and by the way, you should also be changing the lock box code regularly anyway to prevent just this issue.

Cap Ex are basically intended to address the larger periodic costs associated with owning property.  The major components that fall into this category would typically include things like roof replacement, major system components like hvac, water heater, paving, exterior painting and siding, appliances as a package, etc.  The way to address the reserve amount is to determine what it costs to replace these items in current dollars.  In addition, evaluate how old and in what condition are these components for each property.

Each of these components has a typical life expectancy that will vary by market area.  For example, shingle roof in southern market area may have a shorter life expectancy than in a more northern climate.  However, deduct the current age of the component from the life expectancy of the item.  That will equate to the remaining term before you might expect to replace that component.  Divide the remaining term into the cost to replace the component and that will be your estimated cap ex amount.

There are other influences that will come into play such as inflation of costs between current costs and when you'll need to replace the item but if you invest the allowance amount in a conservative fund that should generally offset inflation effects.  If you can achieve higher than average returns on the reserve investment you can even reduce the annual amount invested a bit as the return will partially offset the annual amount needed.

If you have multiple properties and are still funding up the reserve account amounts, you an borrow a bit from one property to cover costs for another but this approach comes with risks as well.

Other ways to off set these costs are to establish lines of credit in advance of needing the money to fund the replacements or borrow against the property(ies) to fund the cap ex, but there is the additional interest expense to consider.

Hope this helps.

now you know the value of a tenant estopple letter as part of the due diligence and closing process.  Lesson learned?

Have you explored a Fannie Mae Homestyle Rehab loan.  Investors are allowed in this program.

Inquire on why they wish to extend.  Depending on their answer you can base your decision of yes or no.  Have they begun the other items that have started counting down (i.e. applied for a loan, etc)?  If not, then that would be a signal as well.

Keep in mind that you can agree to the extension an ask for a fee, increase the deposit amount, identify a/the specific issue to extend the period only for that item.  There are many ways to approach this.  I would allow the attorney to control the deal and make efforts to solve the real issue, if possible. 

Ask to see the appraisal.  There are likely issues that have not been addressed in the analysis performed by the appraiser

What you are trying to accomplish is a market analysis for housing.  As you are already aware, the information necessary to perform calculations on small discrete geographic areas is limited at best.  The way to achieve what you are looking for is to use information based on the larger geographic areas such as the county or MSA level and then apportion that information  based on characteristics of your desired submarket area.

One of the other challenges is that the information available is historical and somewhat dated in that a running inventory is not calculated month to month or even year to year.  Consequently there is a bit of judgment associated with performing these type of analyses.

Here is a link to one data source that might get you started General Housing Data - All Housing Units (SELECTED METROPOLITAN AREAS)

Here are a few links to several books on the subject in case you want to look into this in detail:

Market Analysis for Real Estate, second edition

Real Estate Market Analysis Methods and Case Studies, Second Edition

Real Estate Market Analysis 1st Edition

Handbook for Real Estate Market Analysis

How to conduct and analyze real estate market and feasibility studies

Real Estate Market Analysis: A Case Study Approach

Just my $0.02

You overstated your depreciation since you did not allocate any allowance of the property cost toward land cost.

You did not account any expense for:

• utilities - there will be some expense especially during lease-up
• legal and accounting - who is doing the taxes associated with the property and are you going to have an attorney look over your lease(s)?  what about costs associated with screening tenants?
• advertising - you don't expect to spend any money marketing the property for lease at all?
• vacancy and collect is assumed to be 5% - based on what?  if you have a vacant unit, how long will it take to lease and tenant to move-in?  one month of vacancy with a 12 month lease represents 7.7% vacancy (1 month / 13 months) without any allowance for collection loss. 

Using your numbers

Purchase price - $230k to $300k say $265 for demonstration purposes

20% down pmt = $53, 000

Loan amt $212,000 at say an 8% interest rate = pmt of approx. $600/mo or $7200/yr

Monthly Rent = $2,500 less 50% expenses = Forecast NOI $1,250/mo or $15,000/yr less debt service = annual net cash flow $7,800

Resulting ROI = 14.7% ($7,800 / $53,000)

Again this is based on your numbers