All Forum Posts by: Josh Gaddy

Ok I think I might have one Finally! I used the cashflow worksheet from this board and came up Positive!!

Purchase Price: 32,900
Down Pay 6580
Loan Amt. 26,320

Yearly Cashflow Analysis

Gross Rent 7200
Vacancy (244)
Taxes (400)
Ins. (300)
Management (250) if i decide to use one
repairs (500)
Utils (150)
Advertise (100)
Lawn (200) I need lawnmower
Contingency (500)

Operating Inc $4512
Debt. Service (2100)
Pretax Cashflow 2412
Princ. Payments 259
Depreciation (1196)

TAXABLE INCOME $1,474 Does all of this look realistic?

50% Rule

7200/2 = 3600 - 2100(DS) = $1500 Is this right?

So I think that i did my math right. Does everyone agree with the numbers? Would you put in more expense since the house was built in 1930 and is a wood frame?

Also, I am still foggy on this depreciation thing. I havent grasped it conceptually quite yet. Am I subtracting it from profit so I can reduce my yearly income and write it off...it seems like in this case, I might really make 1500 or so dollars and only be taxed on 400 of it? I have read the depreciation threads and still havent gotten it, can anyone explain or guide me to a book or link that would lay it out for me?

Thanks in advance for any advice I can get. I appreciate your time and knowlede. I have learned so much (almost all) of what I know from this forum and have been working really hard to land a deal. I have been saved several times by you guys!!

Thanks John,

It seems the deal might have some large holes in it! Guess I need to buy much cheaper than it is listed at!

Thanks,

Josh

Ok Gurus,

I think I found one.

It is a student housing condo 2 bed and 2 bath with large living area and less than 1 mile from University. It needs carpet cleaning, paint, and stacked washer dryer. i can buy used. It was built in 2003 so Im not too worried about huge HOA hit.

It will rent for $700-750 w/o utilities and $800-850 with utilities per other renters in the complex.

If I can put $5K down and get a 6% interest rate, my monthly expenses will be as follows:

HOA $143
Debt Service 305
Insurance 15
Taxes 100

TOTAL $563

With $700 rental, I have $137 monthly left. I input it into the cashflow analyzer that was on this board and the depreciation turned the deal negative. Could someone explain the "add backprincipal" and depreciation on lines 28 and 29 of that document? Does this seem like a deal that would work?

I know it doesnt work with the 50% rule, but it seems to be a deal that would cashflow. I am a recent student and I would have lived there for the price I stated in rent. Also, I think I could get out with much less than $500 per year in maintenance.

Also, there are elderly people who live in the complex and i am on the first floor. A good senior rental possibly as well. Which I would obviously be much more interested in!

Thanks gurus. Pick it apart!

John,

Thanks for the help. Every time I have asked about investment loans, 10% has been the number given to me. It is my first rental investment, but how could I go about looking or finding better financing? Mortgage companies and brokers dont seem to be the way. I have good credit, good downpayment, and decent assets. How are people getting these 7% loans?

This is great! Could you explain the depreciation portion to me? I put in a rental property that I am considering and It looked to cashflow until depreciation put it into the negatives. Is this a good thing. What is the real life scenario that plays out here?

Hello all,

I have just recently changed my mentality about real estate investments and have decided to look for all brick rental units. I think I might have found a deal but I am not sure if I am working out the numbers correctly. This is my first rental evaluation.

This is an all brick duplex, recently renovated, for sale at $65,000.
I think I can get 10% financing on an investment with 5% or $3250 down. The property taxes and insurance will estimate at $1500/yr. That would put me at roughly $7675/yr. in expenses. Thats $640/mo. I believe the property to rent for $425/unit/month. So its $990 in gross rental income.

Using the 50% rule, do i need to keep my expenses at $395/month? That would be $990/2=495 - 100 for cashflow is $395? Is this the correct calculation?

And using the 2% rule, these rents are only at 1.5%.

Therefore, I have 2 questions:

1. Did I do my rule calculations correctly?
2. What should I offer?

Any help is appreciated.

Thanks gurus. You guys have saved me from many bad investments! Hopefully I can stumble across a good one soon!

Thanks guys, sounds like that was a really bad idea. On to the next one!

Guys,

Thanks for the help, I could really lose a lot in this deal. I have been playing around with numbers and have gotten offers of 6.625% on a 5/5 ARM. We would be able to get the loan in the name of an LLC, but they would make us sign personal garauntees (defeating the purpose of an LLC?) We will also be able to put down 150K now. So, with this it seems we would still be losing several hundred dollars a month until rents are raised if you use the 50% rule and pay asking price. In practice, if maybe we could buy the property in the $540s, raise the rent throughout Febuary and March for 3 of the tenants, increasing gross profit by $600, and myself move into the 4th unit with a roomate paying roughly $500. Considering it would be a home for me (i currently make other people rich by renting), my partners could potentially move in (renters as well), and the end deal would be to flip the apartments to condos when the market turns in 2-3 years, would the deal seem more feasible? Is there a way to structure this type of deal so that we can truly limit our liabiity. I am having trouble figuring out how to try and secure a legitimate corporate veil!

Thanks again guys.

Hello everyone, hope everyone is investing happily and profitably! I have found a circa 1921 quadreplex in one of the best areas of Raleigh, NC. Its in an area which is extremely desirable for renters and buyers. They are asking $570,000 for the building. All 4 units are currently leased until early next year between Feb and April. The rental income is $3270/month. Our general idea on this deal would be to buy the quad, rent it for a couple of years until the market turns, and then renovate the units and sell them as condos. We have been approved for a loan with 25% down and almost have the down payment together. We might be able to get 20% downpayment, but we need the deal to at least break even monthly for a couple of years, so we have to put a certian amount down. The taxes, insurance and utilities will be roughly $360/month.

The comparables are good: we can raise the rents about $200/unit/month or $800/month, maybe more. The ARVs for condos in the area are roughly $230k for extensively renovated condos (which we would evantually do.)

What draws me to the deal is its flexibility. For one, I am a current renter, and would gladly move in if we have trouble renting a unit. I most likely will anyway, because we might be able to get a better interest rate for owner occupied. I know that I would get lots of interest from friends wanting to live there. My partners will probably want to move in as well, as they are also renters. So, I am not worried about keeping the units occupied.

Since we wont be losing money on a monthly basis (hopefully), I am not too worried about how long it takes the market to rebound bc I will be happily living there and will have willing tenants. My cashflow standards are also significantly reduced due to the fact that it could be my personal residence, so as long as we arent losing money monthly, Im happy. Of course it would be better to be making a couple of hundred a month!

The floorplan is extremely good for a renovation, in that there is lots of options. It is in a historic district (scary) but the outside is already gorgeous, so that shouldnt be a problem. There is probably about $25K of work that could be done to the building but is not necessary by any means. The minor structural issues has been recently fixed. The kitchens and baths are recently renovated, appliances all work well. Plumbing is in good condition, electrical was good according to inspector. Roof is ok.

The questions I have revolve around how to structure the deal. How do we finance the deal creatively so that we can own it in an LLC? I found a way, but we would have to sign personal garauntees, which helps with the issues related to having 3 partners in a deal, but doesnt limit our liablity, which is my main objective. What would be the best structure to protect all of the partners (from Uncle Sam, our lender, and each other!!) and still get a reasonable interest rate and down payment?

We have about 100K of the downpayment, maybe all of it but not for sure yet. Any ideas on a way to get cash without bringing in a fourth investor?

Does anyone see pitfalls?

Any advice would be appreciated!

Thanks everyone who reads this and thanks in advance for any help I get.

I have been offered a deal by a friend of mine who is building 66 townhomes. He has offered to sell me the unit in the most desireable location for 140K, which is 10K less than the normal unit price of 150K. He said he would then sign a two year lease on the unit to use as the model and cover my mortgage. I would not cashflow, but also, I would'nt have to come out of pocket with anything every month. He also said, since its the model, that it would have all the extras, and I could choose what I wanted in there (granite, better fixtures and appliances, etc.) They have not started construction yet and are probably 4 months away. The market is emerging and the townhomes are near a new shopping mall, the interstate, and mass transit. This is an emerging market in a very strong metropolitan market (Charlotte, NC.)

This seems like a good way to build equity and potentially make a good profit or continue to rent our after 2 years. I am hoping for some help on what my financial picture could look like. Also, does anyone have any pitfalls to beware of? I have just never seen this type of transaction, any opinions would help!

Thanks again.