All Forum Posts by: Jay Patel

@Tim B. This is the way I look at what kind of Cap-ex I should be putting away every month. I will focus on the roof, but a similar process can be followed for other big ticket replacements:

You should know exactly how old the property is. Make it an input in your analysis tool as its an important piece of information.

Say the duplex is 10 years old, then you likely have another 5 years or so (assuming asphalt shingles and its the original roof) till you will have to re-roof. Say it will cost you $10,000 to get this done, then you need to reserve $167 a month, or 12.8% of monthly rents for the roof alone.

This percentage and monthly reserve will go down in the future, since you will have the advantage of a longer life span once you replace the roof. 

Its not a good idea, in my opinion, to throw a standard percentage to cap-ex as it can be misleading.

The moral of the story is, keep good cash reserves to do cap-ex work if they arise before your reserves are sufficient, accelerate your initial cap-ex reserve rate if you know that life-spans are coming to an end, and try to get the property at a discount to counter differed cap-ex.

@Llewelyn A.

@Matt R.

I hear what you are saying. I believe the reason cashflow is such a focus on these forums and even the podcast is simply because the majority of the audience here is very new at real estate investing. I believe the gentlemen that run the podcast do intend well because speculation and appreciation can be a long term game. Even in hot markets, it takes time to realize the gains from appreciation from the day you purchase.

The intent of "I don't get investing for appreciation", I believe is to tell the audience to buy not ONLY for appreciation. The goal to realize appreciation is to be able to actually hold on to the asset long enough for that to even happen and not loose the asset because you have too many of them cashflowing negative every month.

Lets be real, how many people can afford to keep a negatively cash flowing property in their name for 5+ years. Let alone, 5-10 of these types of properties. If you have that ability, then that is great, by all means, you should be taking that risk. There is a reason why "no and low money down" is such a popular topic on this forum/site. 

Cashflow NOW is a hedge against falling rental rates, increased taxes, falling occupancy, etc. that will keep people from loosing their ability to hold on to their assets to realize appreciation in the long run.

Talk to a smaller local bank. They are way easier to work with in my opinion and as you grow, they will be more willing to be creative with your future deals if you keep a good track record. 

Attend your local REI meeting, or find their page on FB and figure out what banks other investors in your area are using.

I found this thread pretty entertaining. 

First of all, let me say that even though I am a Patel, I haven't directly owned or operated a hotel/motel but I am very familiar with others that do/have.

In my opinion, the Patel difference comes in play with the management of these lower level "C" type properties. They all start in these smaller motels (like the one OP is referencing) and self manage the hell out of them. They are a one man show for the most part. They work the front desks (all shifts), do rooms, laundry & general maintenance. They run it efficiently making decisions on the fly with variable rates etc. to get the rooms filled. They "milk" everything they can out of these things, sometimes neglecting cap ex, repairs borderline code enforcement issues etc. They live on site in a couple of rooms that have been converted into an apartment of sorts.

Many started this way and used their cash cows to scale into larger Hotel brands which can support being professionally run. Many of them now own multiple properties with the managers OP mentioned but it all started with that first one run the way I described above. Many of them were able to achieve this success in one generation and had this drive because many of them were first generation immigrants to the US. 

The issue with trying to professionally manage this kind of "C" property is that this is what you will be competing with. If you are willing to manage it the way I mentioned above, you can, your last name doesn't have to be Patel. But the minute you try to put a bunch of employees and managers into such a place, you wont be able to compete. One way some of these Patel's have managed to escape this self management trap to scale the way they did was to replace them selves with a "manager" (often another Patel lol) who was willing to run it the same way for a share.

@Patti Robertson I think the OP was talking about property taxes jumping 4K not the assessed value of the home. 

Another reason you could see a jump like this is if the home was under homestead exemption in one year, and then the following year that was removed. We see that here in FL, not sure how that plays out in your state. 

@Matthew Gilbert I think you need to start by looking at a few properties in the Orlando/Gainesville area and running the numbers. Analyzing income and expenses will give you an idea of what kind of free cash flows you can expect based on your invested dollars.

Globally speaking, ROI's can range all over the place depending on so many factors (purchase price, terms of debt, occupancy, rehab efforts etc.). For me, I look for an ROI of at least 10-15% annually on my tied up funds before even considering a deal.

The way I approached it was to figure out what kind of returns would be acceptable to me, and then looking for a deal that would give me that. Once you analyze enough properties, you will quickly figure out whats realistic and acceptable to you.

Having said that, the calculators here on BP would be a really good place to start. Experiment with them and see where you land. Feel free to post if you have any questions on specific line items within the calculators. Getting a feel for some of the expenses (occupancy, Cap-ex, monthly maintenance) will be tricky at first, but feel free to reach out or post for some guidance on if what you are assuming is correct.

Found a $500 Scotty Cameron putter :) 

@Dan H. So true. I hate to say this, but there are a lot of people on here and other platforms for that matter that give advice when they have completed a whole of zero deals. Take everything with a grain of salt, and use your own judgement.

@Matthew Ware I suggest contacting some local investors (facebook, REI Groups, Bigger Pockets (local section) etc.) in the area that your rental is located in and see which small banks/credit unions they recommend.

Honestly the way i approached "shopping around" for my first cash out refi was to pick a small local bank that I wanted to develop a long term relationship with instead of looking for the best rates/terms.

The bank I chose has a great standing in the community, they work with many of the local investors in my area, they have been around my area for ages, their communication was great & they have awesome employees. Sure I may have paid a 1/2 point more than the going rate at first, but I think my relationship and continued business with them will pay off in the long run. I also have my rental accounts setup with them so that they are able to see how I run my rentals financially.