All Forum Posts by: Christy Barton

Just to show I am paying attention, the mortgage is not included in the cap rate because NOI is "net OPERATING income." Duh. Silly to include the annual mortgage into the calc when the mortgage is the investment amount represented in the PP. Even if Nathan learned nothing, I learned something. Bob learned he should be more gracious with his time and well Ben... he learned nothing. Haha!

Thank you @Ben Leybovich...  makes sense.  I'm fine with reading between the lines but correcting someone on a calc and then not providing any useful guidance makes me want to pluck my eyelashes out one by one, and I like having eyelashes.  Lol.  For the record, I admitted not to having any of this down to a science.  At least I'm a good speller!

I really like that picture of myself, too.  :)

Cap Rate = (NOI/Sales Price) * 100

but who really cares because according to some people, there is no cap rate for duplexes.  However, according to this site, there is a cap rate for duplexes:

Calculating the Cap Rate for a Duplex

Maybe @Ben Leybovich can add some "helpful" information for this newbie who needs some guidance since I can't and others choose not to.

@Account Closed - please add something more than just a correction on my calculations.  

Hi Nathan...  I will try to help you.

A few questions first:  you said it's a 2-unit but you mentioned renting out rooms instead of renting out the other side.  Can you explain?  A purchase price and tax information isn't quite enough detail to know whether or not this is a good deal.  What are the comps for the area for similar 2 unit properties in the same condition?  What are the rent rates?  Does the property need to have some repairs made and if so, what do those total?  Who will pay utilities?  

At the end of the day, you want to know your cash flow and cap rate.  Cash flow is really just the amount you can expect to pocket after all expenses are considered.  To get your cash flow you will need to calculate the following:

Rent Rate (RR)

Less Mortgage Pymt

Less Property Taxes

Less Property Insurance

Less 15% of RR for Vacancy/Maintenance

Less 10% of RR for Property Mgmt (good to include since you may not live there forever)

= Cash Flow (aka Net Income)

To get your cap rate, take your Annual Net Income (Cash Flow * 12 mos) and divide that by your total purchase price (note we aren't including interest here so until the home is paid for free and clear, your ROI will be lower).

Lower class neighborhoods typically yield a higher cap rate and since I don't know your area, I can't conclude what type of neighborhood a 118k home buy.  In Indy, 118k for a duplex would be a B neighborhood and a good deal would result in cap rates of about 10-12%.  

I'm not a landlord so definitely listen to the wisdom of those who own rentals.  I use these types of numbers for our wholesale/seller financing deals and admittedly, I don't have this down to a science (yet).  The percentages are just averages to use, obviously if the water heater, furnace, roof, etc is old and will need to be replaced in the next 2-3 years, a 15% calc. for vacancy/maintenance isn't realistic.  

If you were to ask Ben Leybovich, he'd talk to you all day about calculating the Internal Rate of Return, but I don't have his brain capacity and this is about all I can handle.  haha

Hopefully this is helpful information.

This is very broad question.  Can you be more specific?  What kind of real estate investing do you want to get started in?  Do you want to start a brokerage, a turnkey company, a flipping business, a wholesaling business?  What kind of experience do you have?  Do you have a good amount of cash to cover your living expenses during the start-up phase of the real estate business?  

Starting a business is easy and can be done online in a matter of a few clicks for a few hundred dollars.  Running a business is a whole other ball game.

@Brandt Fanion It sounds like you are off to a great start!  You are definitely further along than we were when we first started.  Keep up the great pace you have going!

We used Listsource to build our list.  We got quotes from a few other companies and found either they were a bit more pricey than ListSource or their website was clunky and not very user-friendly.  Others may have some suggestions but ListSource has been good to us so far.

We gave bandit signs a try but because they are illegal in our city, we found using them was time-consuming and really just not worth the effort.  We would go out Friday nights and post the signs and then make the rounds Sunday nights to remove them.  Quite the hassle.  On top of that, you need to consider that you aren't really targeting motivated sellers.  The general public will end up calling just to see what you'll pay for their house and most of the time they are looking to sell for retail.  I don't know about you but we are pretty busy, and I really don't want to fill up my day by evaluating the value of people's properties.   They can hire an agent to do that work, especially given that they are most likely looking for retail buyers anyway.  Keep in mind this is just my two cents.  I try to be careful with providing do's and dont's on here because again, depending on who you ask, you may get a different opinion.

We have started using park benches, though.  They are legal and while they go against my philosophy of not targeting motivated sellers, I see it as a way to get our brand known around the city.  We have yet to get any calls on it, though - and we have had our bench ad active for a week now.

Hope this helps.  Keep us posted on your progress!

So based on the fact that you mentioned contracts, I'm assuming you are looking to wholesale?

Finding the right contracts was one of the biggest challenges for my husband and I too.  Initially, in order to buy yourselves some time, you could always use a simple letter of intent to list out the purchase price and terms.  Then, once the seller agrees to the price you are offering, you could do a formal purchase agreement.  Most likely you haven't found purchase agreements on BP because every state is different in terms of what goes into a PA.  Do you know any other wholesalers in the area that could help you find a one page PA?  We found ours through a mentor we met on BP.

I know the contract itself sounds like a scary ordeal but honestly, the biggest challenge you will face is finding a good deal.  You should focus on finding deals first.  

What are you planning to do in terms of marketing?  Try not to let fear immobilize you.  The worst thing that will happen is someone might tell you to F&^% off.  No big deal.  haha  

Figure out your target area, send out some letters, and get used to talking to people on the phone.  You might really stink at first but practice makes perfect.  The chances of you finding a deal in those first ten calls is slim so use those first few as a learning opportunity.  (By the way, my husband was so nervous the first time our phone rang that he made me answer it!  lol  Neither of us knew what to do and it took at least three rings before I finally had the nerve to actually answer).

Get your lead sheet together, figure out what you're going to say, and practice with your significant other or friend.  Have them pretend to be a grumpy person who just received a letter and go from there.  

In the meantime, while you're waiting on those first few calls to come through, I definitely would set up a business entity, that way you will treat this as a business.  This will also help you keep all the accounting nice and clean.  

Maybe you could also order some business cards, too.  However, I'd advise not ordering more than a hundred or so.  If you're like us, you will change your number, your website, your company name, etc.  We have thousands of cards we no longer use.  Having some business cards will be good for when you are networking at REIAs or visiting properties or just talking to others.

Whatever you do, just don't give up!

That was supposed to read "whatever you DO, just don't give up."  lol  C'mon BP, allow users to make changes to their posts anytime (not just within 30 minutes of posting).