All Forum Posts by: Joe Hines

Hey Cathy,

I'll PM you with contact info for my accountant.  They're in Lake City, but very high integrity and responsive.  

Take care

Joe

@Jim C.

ARV = After Repair Value. It is what the property is worth on the market after repairs. Hopefully, that's always more than the purchase price + rehab costs. :-)

You would calculate the 1% rule using the purchase price + rehab costs + any other costs required to get the unit ready for rental and divide the gross rent by this sum. I want to emphasize the 1% rule is just a quick and dirty way to evaluate the economic feasibility of a perspective deal. It doesn't replace a full analysis of all costs and it isn't an ROI.

To look at the true ROI, you'd need to consider your real out-of-pocket costs since that's what you've invested. So, for example, if you purchase a unit for $100K, put down $20K and finance the remaining $80K, you've only paid $20K. You'd then add up taxes, insurance, estimated OpEx and CapEx set-aside, PM fees, etc to look at your regular costs, subtract that from your estimated rent and divide this number by the $20K. That would give you your real ROI.

One final note: the BP has a Rental Calculator that steps you through this process. It's pretty good and lets you factor in annual appreciation and rent increases to calculate a longer term ROI.

Hope this helps!

Hey Diana,

Here are the guidelines I use, though you'll need to make variations based on your market, age of properties, etc. This is specific to single family homes, so you could definitely lower these amounts, especially CapEx, for a condo where most of the major expenses will be covered by your HOA.

• Initial CapEx Funding at property closing: At closing, as part of my 'cash needed to close' calculation, I take 3% of the sales price and set it aside in a separate CapEx savings account.  I may adjust up or down depending on the initial repairs that it will take to get the property online and in production. Generally speaking however, for a property that is ready to go, I will contribute 3%. You'll notice the BP calculator allows you to include custom categories for closing costs and I just include the amount in one of these fields.
• Monthly contributions for CapEx: Right now, I'm contributing 10% of rent each month to the same CapEx account (again, a separate account for each LLC and not for each property). I've found that might be a little too much, but I'm not inclined to change it right now. 6% might be pretty much on target, but it does depend on the location (some areas simply have harsher conditions and also might be more expensive for repairs) and the age and condition of the property. Whatever number you choose, including it in your cash flow calculations is essential.
• Monthly budget for OpEx: Operational expenses, like fixing locks, doors, unstopping toilets, etc are funded through a budget of 3% of rent. I don't set this money aside like I do for Capex, but I do budget for it when I'm calculating the financials on a property.

Hope that helps!

Getting it into the MLS is the key. I was thinking about local publications. Also, I've offered bonuses to RE agents, especially those that seem to get a lot of relocations. That's been a great source of leads for me. In fact, I think I'm running about 30% of my 15 units rented by people who have relocated.

@Matthew John

As you can imagine, it is highly dependent, market, property and the rent you are demanding.  I invest in rural areas of North Florida and I'll have maybe 5 showings per week and have the property rented in two weeks.  Some places, people are waiting in line for a rental.  

I'd focus on getting feedback.  If the unit lingers on the market, you can think about possible improvements to market to the type of renter you are seeking.  You could also try target marketing, where you run ads in selected publications or locations to go for a specific market (like retired people, military, etc).  

Sounds like you aren't having trouble getting traffic, though.  Just a matter of hitting the tenant you want.  

Thanks for your service, @Rawn Wilson!

Short answer: Sell. It's not cash flowing. Even if you raise the rents to meet the market, you're still not looking at a great ROI. That's the primary issue. 1031 the money into a new property that can get better rents.

Hi Victor,

From my perspective, the tenant is not getting all they paid for, so I typically give a rent deduction, especially if they are a good tenant and I want to keep them.  Usually, they are happy to get the reduction and the upgraded property.  

Good luck!

Hey Jessica!  One of the fastest ways to turn the financials on a property like this is separate metering.  That may not work for you, as you pointed out, but I would go for it.  

Solar is a good idea, but I think the payoff might not work on your time horizon.

Take care and good luck!

Hey Reuben,

The answer is way too involved to provide in a forum post.  You path is going to be unique to your area, your interests and your own finances.  There is a ton of information on this site; literally centuries of accumulated experience and there's no hope of even trying to summarize that here.  Instead, we can point you toward how to learn and you can see what works best for you.  Here's how I'd recommend you start:

• Listen to the podcasts: There are a lot of experienced RE investors explaining their own experiences and business strategies in the podcasts. Listen to them and you'll begin to see that there are many different ways to invest in RE. Flipping, buy and hold SFH, multi-family, wholesaling, etc. Most everyone starts somewhere and then shifts as the business climate changes in their area or other opportunities present themselves. Sometimes people just find they like one area of the business more than others. That's all cool. Do what you like!
• Learn the terms: I think one of the best ways to learn the terms is to subscribe to one of the areas of these forums.  You'll get emails when people (like you) ask questions and you'll learn a lot when others answer them.  When you don't understand a term or concept, search for it.  You'll learn a lot!
• Find some properties and model them:  BP has a Rental tool that is really pretty good.  Look for some properties in your area, analyze the markets and know what sort of rents you can get and for which kinds of houses and in what areas.  Find out how much taxes and insurance will cost.  Develop estimates for Capital and Operational expenses. Find out what lawn maintenance will cost you.  You've just bought a house, so you know something of the financing charges, but you'll need to see what rates are for rental properties.  Talk to lenders and see what rates you can get  Plug all of this into the calculator and look at the output.  If you don't understand a term, look for it here.  You'll learn a lot through this exercise.  You'll also learn how to model properties and what kind of returns you can expect.
• Save your money: It's going to be tough to start with $5K.  Not impossible, but really, really difficult.  Expect to go for D and C class properties (those are terms you need to know) and to do a lot of work yourself.  My advice would be to save more before purchasing a rental.  This will likely emerge as you do some modeling and you'll see that $5K simply isn't enough.  Tip:  When you model your properties, remember to include percentages for capital and operational expenses.  I'd also put 3% aside when you purchase a property to fund those capital expenses when they pop up.  And they will.  Depending on your margins, a new AC may wipe out your profits for a year.  Setting aside some money up front and also each month will smooth these expenses out.  

Everybody started in this business with the same questions you had.  When many of us started, there wasn't a resource like BP and we had to learn the hard way.  Dive in and have fun!  

Good luck!