All Forum Posts by: Joe P.

@Jason D. thanks for your response! Are you looking for better COCR like 10-12%? Just curious to know what other investors are doing. If I don't account for 10% property management (I'm managing the property myself) OR I am able to raise rent to market rates, I can hit COCR of 10% or better.

I was quoted $910 per year for insurance (~$80 per month). I have also been quoted a 30 year mortgage @ 25% with 4.5, although the rate is not locked, may go up or down slightly. I have excellent credit and reserves, so those are pretty close to correct/accurate.

There isn't a cut and dry rule, but I like to work conservatively and work my way backwards. You should probably use the BP calculator (free for 5 uses) when evaluating a deal. It's a guideline, its not perfect, but it'll give you a good baseline of current and future modeling.

I'm concerned that you are asking about percentages, but not really thinking through all the actual categories of expenses, or their impact.

Your P&L evaluation appeared to be devoid of CAPEX, property management fees, taxes, and insurance. So if you aren't thinking through those items your evaluation of properties is off to begin with. You might have accounted for them (e.g. your mortgage payment was actually PITI) but I didn't see it.

There may be items I am even forgetting, and I think I'm comprehensive and conservative when I evaluate deals. Other investors can chime in accordingly.

I use 10% Prop Management, 10% CAPEX (most properties in my area were built in the early 1900s), 8% vacancy, 8% maintenance, all of rent. But again -- guidelines, not absolutes.

Hi @Casity Kao, nice to hear from you again! I think you've commented on some of my other threads.

You are correct, this is an inclusive lease. The current owner is paying for water/sewer, common electric, heating (shared furnace at a locked temp for 2 units). I believe I could transfer some of these costs to the tenants in the form of a rent increase when their leases are up. Since the expenses are shared/common, its difficult to pass those along to tenants, but I do think an increase is in order given the area, comparable rents, and quality of the units.

You are also correct in that I am trying for extremely conservative numbers (I think we all should - that way good deals are going to be present and we still account for the bad stuff), but I should make something very clear -- I don't see much appreciation on this property looking at the history of the town. It is in NJ, not Philly, PA proper, even though its technically only 10 minutes away from Philly. Looking at the history of the town I don't see many wild swings, but if it does appreciate, that's just an added benefit.

My CAPEX is set to 10% because both the roof and furnace are 12 years old. I imagine in the next 8 years, I expect some failure on one or both of the units based on typical longevity. Lets assume in 5 years, one fails -- I have accumulated $13,500 for that expense based on current rent values. I think that's about right, albeit slightly conservative.

You make a great point regarding COCR - what is a better number? Closer to 10%? 12%? Raising the rent to 2260 per month as expected with the 3 bedroom brings my COCR to 10%, with as you said, conservative numbers...

Hi all, found a property I'm close to ready to moving on. Seller and I are about 4k apart in purchase price but I'm using their selling price for number eval:

Neighborhood: C+/B-, I would live here if I needed to. Its a quaint older town near public transportation and very close to a bridge into Philadelphia. Buying for cash flow, I don't expect much appreciation in the area.

Property: Basic property, seems to be in very good shape. Won't need anything for a bit but I will check with the inspector. CAPEX is set to 10% just in case.

Purchase Price: @125,000, Cash down is 25% (31,250), assuming 5% in closing costs ($4,687.50), 30 year fixed mortgage @ 4.5%.

Income: Rents 2 units (a 3 bedroom and 2 bedroom) for $1060 per month, each. I think this is low for the area; the 3 bedroom should be 1200 per month. But lets assume we don't change this - $2120 per month in income.

Monthly Expenses:

• Mortgage:  479
• Insurance:  80
• Taxes:  349.67
• CAPEX (10% of rent): 212
• Vacancy (8% of rent):  169
• Maintenance (8% of rent):  169
• Heating:  89
• Electric:  59
• Water:  89
• Property Management (10% of rent):  212 (I am managing it for the foreseeable future)

Income - Expenses = Cash Flow

2120 - 1908.87 = 211.13 per month, 105.57 per door. If I keep the property management for reinvesting, cash flow is actually $423.13 per month.

COCR: 7.05%

Cap Rate: 20.35%

Am I missing anything? Seems like a solid deal for cash flow and if I can improve rent to 1200 for the  3 bedroom, 2260, its even better.

I'm missing something...

Vacancy + Landscaping + Reserve/repair + Water + Utilities = Total Expenses (it doesn't, but ok)

268 + 80 + 200 + 250 + 200 = does not equal 730. It is $998.

Does your mortgage include taxes and insurance?

Do your expenses include CAPEX and Property Management? There is a difference between CAPEX and "Reserve/repair" -- they should be separate. You should allocate 10% of rent to property management.

Looks like a terrible deal for cash flow once your numbers are correct and you account for other expenses you haven't considered.

Hi John - I find this to be an insanely difficult question to answer. It sounds like you want to be an investor and your goal is to bounce from flip to flip making a profit on each. So you'll need to have the numbers down pat (business/finance) but are you doing the rehab work yourself? What is your construction experience?

If you're going to college to major in construction, which I'm not even sure is a real thing, why not save your money and just work for a general construction company, learning different jobs and what it takes to get it done from a resource, timing, effort, and cost perspective? That's something I don't think you'll ever get from 4 years of books and hundreds of thousands of dollars in debt.

From when I was a kid I wanted to be "in business". I went to college and majored in business because I wanted to be "in business". I found myself about 4 years into a decent career asking myself, what the hell does "in business" mean, Joe?

I would never discourage anyone from a college degree, but to me a college degree needs to advance your skills and make you a more attractive job prospect. If you plan on buying homes and flipping them, why not save the money and learn construction? Or if you want a business degree to eventually start working on the business side of flipping homes, go do that. But job experience to me is going to mean a whole heck of a lot more than a college degree in your line of work, I would think.

Alex - Jay Helms above gave you the best advice.

You are flush with cash from proceeds of a sale but you're asking a message board of investors what you should do with that cash. This would be fine if it was posed within a plan of attack and seeking ideas for execution. I don't mean to be pessimistic, but $60,000 at your investment whim with no plan, no goal, and no exit strategy might be a recipe for disaster.

I would figure out what your ultimate goal is - rehab and flipping, BRRRR, stock market, etc. - and then come up with a plan and exit strategy. Then work your way down; if the goal is BRRRR, you have X available funds and you're looking to make X purchases, in Y area, with Z criteria. I promise you -- your life will be far easier if you take this approach and map things out. I did this and suddenly my goal, path, and plan became far more clear.

@Lance Peterson I don't know your market or comfort level of having strangers in your home, but I think you would be counting on many things going right to meet your need.

1. You need to have consistent rentals in order to make it worth your while (and are you hampered by a mortgage payment/HOA fees if you cannot?)

2. Where would you go if you rent it out? Back to your parents place? What is your time and effort in packing, traveling to and from if you have STR?

3. What happens if someone trashes your place? Unlikely with a short term rental but always a possibility.

Personally the volatility of the STR market to me seems like an inconsistent revenue stream. Could you get a 2-bedroom condo and house hack it with a roommate? Your long-term risk is greater, but you are also present 100% of the time, you can screen a roommate for a long term fit, and you have a better chance of collecting an active revenue stream. All of your other needs (e.g. proximity to work, moving out) are met with this option as well.

That must be a recent change -- for some reason I thought you could have regular fire prevention in place up to and including 3-family buildings. Once you hit the 4-or-more threshold, that requires the "fire system" mentioned.

@Maël Fortin is this a long term renter? I've seen some tough stories where the landlord/tenant accepted rent for an entire year and things soured quite a bit. A year is a long time -- things can happen to people that can change their situation and affect the property.

If you have a good relationship with this renter, they've always paid on time, they take care of the property, etc -- then I think its a fine idea to pursue. I would put the money away somewhere and only withdraw when the rent is actually due. As far as discount, that's entirely up to you. If your numbers aren't favorable at current rates, I wouldn't give a discount. Cash (flow) is king and you shouldn't compromise on hitting your numbers.

I'd also watch this property like a hawk. People prepay for a year expecting a landlord to back off and let people do whatever they want -- illegal activity, illegal tenants, illegal pets -- I'd be especially cautious with this type of arrangement.