All Forum Posts by: Dan N

I have to give credit to the RDPD books as a source of inspiration / motivation to look at my situation and make changes. Looking back now, the books seem sort of silly.. in a rah-rah sort of way. The difference is that now that I have the drive to learn, RDPD's books do not really offer any hard information.. just a way of thinking.

As for more practical material, I have read:
Richest man in babylon (read this several times per year)
Millionaire next door
Smart Couples Finish Rich (for getting the basics down)
Think and Grow Rich

Been a longtime lurker / reader here, and decided to get more involved and join the forums. Its a trove of useful information and I hope I can help contribute.

I am from Minnesota, and for me I plan on RE being an integral part of my overall financial plan. I have no intentions of going full-time, quitting my day job.. rather, I want to build long term wealth by purchasing good properties and letting my tenants pay for them over time. I may occasionally purchase a fixer-upper or quick sale if it supports this goal (ie, raise capital to purchase another long-term rental), but that is not my primary aim.

My RE specific goals are:
-Do 3 deals by the time I am 30. (1 down, pursuing #2).
-Be generating $500-600/mo cashflow by 30.
-Own/Control 30 units by 40yrs - generate $3000-4000/mo cashflow and go half-time at work. To me, thats semi-retired!!!

Starting small... these are what I feel to be acheivable steps. I refuse to buy just to buy.. I have the mentality that I would rather have a few great properties than a ton of average ones.

About biggerpockets and why I am here... I have been a member of several other RE communities before which lacked several key things that biggerpockets has. For example, one forum focuses pretty much entirely on creative RE investing, wholesaling, rehab, short sales, etc. Thats tangential to my goals. Another consisted almost entirely of newbies with very little advice / mentorship from experienced members. Anyway, glad to be here and thanks for reading :)

Wow.. where to start. I am looking at some rental property for long-term buy and hold that is not in my hometown. Reason? Around here, its the 0.8% rule, not the 1% to 1.5% that makes the numbers work so much better.

I am having a hard time with the concept of cash-flow versus growth investing. *If* appreciation on properties in my area were > 5% per year, I would be content to break even after all expenses - this way I could invest close home, where a $150k house rents for $1250/mo. However, I hate the thought of putting my neck on the line for what is essentially gambling, without getting that nice monthly inflow that makes it all worth it.

So, I am thinking of investing in a town about 2 hours away. Its got solid demographics, low crime, average appreciation potential (nothing exciting), and a fairly solid rental market. Plus, property values aren't out of line relative to rents. I have spoken to several realtors in the area and found two important things: Renters have sufficient income to purchase a house if so inclined.. so multifamily housing is preferred for investing. Also, the cap rate on such housing is 9 to 10. SFH that cost ~$100-120K rent for $1000/mo, whereas 1-2 bed apartment units go from $400-700/mo rental.. roughly.

In my area, I wouldn't think of buying a multifamily because of several investors I know buying them in 'seedy' areas and having all kinds of tenant/drug/crime issues. Thing is, this other town is very different.. its a big small town, and there arent any 'scary' areas at all. Low income pretty much means students and families starting out.

So I have been searching, and found what I believe to be a really nice fourplex, with good fundamentals. Here are the stats.

Asking Price $169,000.00

Down Payment $0.00 0
Loan #1 $135,200.00 80 6.75% 30yr No ($876.00)
Loan #2 $33,800.00 20 8% 20yr No ($282.00)
*I would be using HELOC funds for loan #2.. 10 year draw, 20 year repayment. I am not sure how to factor in the interest deductability and if that should count towards/against the property.

Rental income total: 2045/mo (24,540/yr) - actual
Taxes: 1764/yr - current (need to check assessed value)
Gas: 2832/yr - actual
Electric(Common area only): 528/yr - actual
Water: 480/yr - actual
vacancy allowance: 5% - hypothetical
Insurance: 1000/yr - hypothetical
Maint: 400/yr - hypothetical
Trash: 480/yr - hypothetical

Plugging all this into the analysis tool, I get:

NOI: 16233
CapRate: 10%
Yield: 14%
BTCF: 2320 ($193/month)

So, a couple questions on this analysis.

1) I only put in for the 'major' expenses. What are some of the minor ones I should be looking for? Lawn mowing / snow removal comes to mind. Maybe the tenants can lift a shovel...

2) Is my mortgage rate of 6.75% for 30 year fixed on a 4-plex reasonable? I have stellar credit (>800) and make about 2.5x the average income in my area.

3) Should I or should I not use the HELOC to fund 20%? Should I pursue a traditional 2nd instead, and if so, what rate can I expect?

4) I didnt put anything in for property management. Area fees are typically 6-7%. I am hoping to save this expense. Am I being reasonable.. Can you manage a 4 plex from 2 hours away?

5) Maintenance.. I estimated at $100/unit/yr. This seems low, but the building's internals are updated. No idea if this is realistic.

So many variables.. there always are though, right? Whats the math telling me.. is this a deal, or do I need some concessions / terms / price reduction to make it work. Would you do it? Why or why not?

Part of me wants to jump all over this.. I think the best I can do near my house (<30 min) would be to buy a SFH fixer for ~120k in a semi-marginal area, put 10K into it, and get $1200-1400/mo in rent. Unless I go interest-only and put down 10% cash, I would be pretty much breakeven (using the analysis tool and assumptions). That doesn't really seem worth the effort to save a few hundred bucks on taxes.. argh. Nobody said it was easy :)

Thanks (in advance!) for the help.. some really astute minds here.