All Forum Posts by: Jeff Bethke

@Michael Seeker

Thanks Michael, understood.

Here's another one. I just spoke to my lender regarding this as well, since they will need to verify property value in order to underwrite the loan. He said they will not use a market cap rate for anything under a 4-plex. They will use comps just like a SFH.

So, any thoughts on how to do my analysis then? Do market cap rates for 10-unit or 20-unit apply to a duplex or 4-plex? Or do I need my agent to run multi-family comps which I assume requires more time than for a SFH.

I've started looking at multifamily properties in Phoenix Metro on the MLS, and noticed a strange thing. All of the books and podcasts I've consumed talk about cap rates being tied to the market itself, and the cap rate is used along with the NOI to generate a market value of the property.

On the MLS, I believe the Cap Rate that is shown is calculated by the NOI and the listing price.

My thought is that the overall market cap rate should be used to generate an offer price based on operations.

What do you think?

Does anyone have experience with the costs associated with turning a carport into a garage?

@Charles Soper Charles, what numbers are you using when you say some properties approach the 2% rule? I haven't seen anything past 1%. We just looked at an auction property in San Tan where the starting bid was $95k, and market value in the area was around $125k. Max rent would have been $950-1000. This was a 3BD.

Thanks!

@Robert Szewczyk Thanks for your input Robert. So I entered your info into my spreadsheet here, and the numbers do look great. But based on what I read and hear on the podcasts and in forums, etc. we seem to be ignoring vacancy, property management, repairs, maintenance.....the expenses you laid out are only 10% of the gross income of the property. I think 50% is a very conservative number, but 10% seems light to me. Thoughts?

@Doug Underwood I reran the numbers as you suggested with $1200 yearly maintenance and I come up with a better cash ROI, around 10%. This would be under perfect conditions it seems. Any experience with investors buying, rehabbing and renting instead?

@Doug Underwood I'm using the 50% loss of gross income to overhead/expenses "rule of thumb." I'm sure it could cash flow better, but initially am analyzing things by being more conservative. And maybe the types of returns I'm looking for aren't available in AZ based on prices....all part of the learning and research process. With regards to management, we would manage on our own at first, but the ultimate goal is to not manage, so we need to price this in up front.

@Doug Underwood So if I can run some quick numbers. Let's say 20% down and 4.5% interest on 30-year mortgage on $179k purchase price, no closing costs, with rental income at $1295, no renovation costs, assuming 50% of gross income to vacancy/expenses yields:

Total cash outlay - $39k

Gross Income - $15,540

Total Expenses - $7,770

NOI - $7,770

Debt Service - $8,512

Total Cash Flow - ($743)

Cash ROI - (1.9%)

perhaps my expenses are too high? I'm new to analysis so please let know if you think something looks off here.

Thanks,

@Bob E. Thanks for the offer, we've started working with an investor/agent to look at some areas. Initially looking at Gilbert, Mesa, Chandler, Scottsdale and Tempe in the $175k-$225k range, but initial analysis aren't yielding very good ROI's upon initial analysis.

@Doug Underwood Can you comment on the rental rates out there on a property like that? How many bedrooms, etc.

Thanks!

@Doug Underwood

Can you comment on the idea of, "why would people rent a $200k home when they could buy one for around $1,100/month at 4.75%?"

I'm assuming to cash flow in surprise at those prices, rents would need to be in the $1500 range?

I'm researching the area as well and would be interested in your feedback on this question I have.

Thanks!