All Forum Posts by: Jacob Sampson

@Chris Adams

LOL. I was literally going to look that up to see if it was. I have toyed with renaming my LLC to Immobiliare. My business partner doesn't know about these plans but... he may now.

I personally think $80K is too high.  Here is what I would be looking for.

rent of $1450 - HOA of $225 = $1225 * 60 = $73,500. That is the max I would be willing to pay for the condo. If I know I can get to that purchase price then I would begin to dig into the numbers even deeper.

Right off the bat, IMO, your maintenance #'s are low, if this is a long term buy and hold.  I use 30% for vacancy and maintenance.  I am willing to drop down to 20% for condos.

Thoughts? 

I didn't read any of the other posts so if I'm restating the same advice, I apologize.

First off, what you should do depends a lot on what your goals are.

That being said here is my quick and dirty analysis.

Based on the info you have given, long term you will cash flow about $100 to $150 a month. It's nice that there is actual cash flow there but your margins are pretty slim. Any increase in HOA or other special assessments could destroy that.

Keep in mind, cash flow is NOT rent - mortgage - HOA. Cash flow is rent - mortgage - HOA - vacancy & maintenance. I use 30% as my v&m number but on a condo where the exterior is taken care of you might be ok to be at 20%.

So in my estimation, you are ok now but with those slim margins there is a lot of uncertainty, long term.  And not a ton of upside growth to off-set that long term uncertainty.

It's probably a sell for me.

I, and several others, hijacked another post and went down a rabbit hole regarding cap rate calculation. I don't understand why cap rate is considered a real estate equation. In fact, IMO, one of the strengths of equations like cap rate, ROI, ROE is there ability to evaluate and compare any class of investment.

For example, If I purchase $10,000 in bonds and it pays me $100/year in dividends, I am getting a .01% cap rate. If I put the same $10,000 down on a $50k house and I get an NOI of $5,000 then I have a cap rate of 10%. With those 2 numbers I can now decide whether the risks for the higher cap rate are worth it to me or if I just want to plunk my cash down in bonds.

What am I missing?

@Taylor Chiu

When starting out, I did not have a pile of cash. What I chose to do (may not be a possibility in all areas) was to make my first purchase a small one. I figured if I was making a mistake I'd make it a small one. I purchased a 2 bedroom home in C-ish area for 28k. Put 2k into getting it rentable and got started. My PITI payment was $180/month, so if something horrible happened where I couldn't rent and I couldn't repair, I could sit on it indefinitely. I would recommend keeping your mistakes small ones, especially early on.

Shawn,

You have received solid advice all around.  The fact that you are broke makes this tough but asside from that, based on rents, you need to get it for 80-85k to make it cash flow.  Clearly that is a rough estimate since I am missing a lot of info.

@Derick Davis @Lance Smith

At a minimum, I think this conversation illustrates why it is so easy to lose money in real estate.  You need to be ridiculous (realistic) with you calculations in order to protect yourself.  

@Derick Davis

The $250 is not your cash flow.  That doesn't allow for any vacancy and maintenance.  If you subtract out 10% or 20% of rent for v&m you don't have much of anything left.

Going back to the fact that my area is different than mine, here is how I calculate things.

1.  I max out at 60X's monthly rent, so if that is bringing in $1250 then $75k is the most I would pay.

2. I want 12% CoC ROI with a 15 year note. To further complicate things, I use 30% as my vacancy and maintenance number.

In your case I would take rent - 20% (I use 30 but most people laugh at me.) then subtract out principle, interest, taxes, and insurance.  Whatever is left is what I would count as long term cash flow.  If that number is less than $100 then your margins are super thin.  Meaning there is plenty of room to be losing money.

WOW! There are many things about CA real estate that is better than my KS real estate, I assume.  But in KS I can have Sheriff at the door in under 35 days for unpaid rent.

sorry to here about your trouble.

I agree with @Mike R..

Tenants crack me up.  Every bit of dust is black mold, every tree is seconds from collapsing on the home, and there particular type of uncleanliness is not the source of the roaches.