All Forum Posts by: John Leavelle

@Rosston Smith

RUBS stands for Ratio Utility Billing System.  It is used when sub metering is not possible or impractical.  It is a method of calculating residents utility bill based on a combination of factors such as occupancy, apartment square footage, and number of beds.  You use it to bill tenants for their share of utility costs.  It can include water, sewage, gas, electric, and garbage.

It requires no capital investment, allows you to recoup a large portion of overall utility expense, and can immediately improve Cash Flow.

It can help encourage energy conservation and be a temporary stop gap until you get sub metering.  It would be best to implemented in a new lease agreement.   Hope that helps.  :) 

@Kenneth McKeown

The property you referenced is not for sale!?  Therefore, only a limited amount of data can be pulled from it for analysis.

You should use an actual property that is for sale to analyze.  Are you looking for Single family only or also Multi-Family properties? 

Why don't you list all the data that you imputed in the calculator so we can give you better information.

@Kenneth McKeown

Welcome to BP. First, if you haven't yet, go to the Menu and click on the Education Tab. There is lots of good information for you to use (ALL FREE). Guides, Podcasts, REI course, etc.

Second, your Buy and Hold example link did not work.  I would recommend you do your analysis for now the old fashion way.  With pencil and paper.  Until you completely understand all the metrics and calculations needed to complete a good analysis.  

Third, I will look at the property you referenced and give you an example of   what your analysis might look like.  :)

@Rosston Smith

I didn't see Property Management or Vacancy in your expense list.   Might want to include them, whereas, they will definitely eat up a chunk of your Cash Flow.

Also, if they are not sub-metered will you try to get that done? Might want to include it in your Rehab or CapEx calculations. Other option of course is using RUBS.

Definitely nice looking place.  Good luck.  :)

Howdy @Freddy Guillemi

What type of property are you analyzing?  2-Plex, 3-Plex, 4-Plex?

What are rent rates?  When was it built?

You have all the normal operating expense categories and 55% is a good conservative expense ratio to use in your analysis.  But, here are some adjustments you might consider:

Repair and CapEx amounts should be reversed, 10% CapEx / 5% Repairs (These of course depend on age and condition of property).

Property Management will be closer to 10%

You show Electricity, but, what about water, gas, sewer, garbage?  Owner or tenant responsibility?

Obviously, to reach the 15% COC ROIand 10% Cap Rate the purchase price would need to be lower. And Cash Flow would be better.

Hope this helps.  :)

Howdy @Harry Gamble

I assume you are talking about multi family rental properties (specifically apartments). You are correct. Depreciation has no bearing on ROI, ROE, or Cap Rate. Only applies to Tax Return.

In regards to your question on property value based on Cap Rate. The basic formula is Net Operating Income (NOI) divided by Cap Rate equals property value.

Example:

6 unit apartment yields $30,000 NOI

Area Cap Rate = 10%

$30,000 / .10 = $300,000 property value 

Of course you must know what the correct Cap Rate is and accurate NOI data.

Hope this helps.  :)

@Account Closed

Good plan. Just keep on top of it. As far as the extra $9,000 from cash-out refi you have 2 options. Leave it in the property equity to keep cost of mortgage down. Or use it in cash available for next purchase (96K vs 75K). The more cash available the more units you can purchase. You are in acquisition phase right now. So available cash is a priority. Also, building cash reserves is important for future unforeseen expenses and when you eventually get into Commercial loans (3 - 6 months PITI).

And like others have said stay aware of any tax consequences from refi.  New purchase will help offset taxes.

Cash out refi loans can be 70 - 80% LTV. Just shop around to find best deal.

Your cash flow goals are reasonable and depend on your market area.

Good luck.

@Ryan Ohri you bring up some good points that he needs to be aware of.  However, I have a correction on the cash back amount.  They will own the property clear and free of any mortgage to be paid off.  Therefore, whatever the amount of loan the bank will give them that is their cash back.  In your example $96,000 or mine $84,000.  Of course they do not have to pull that much out.

Now if his mentor is providing a loan for the purchase and rehab, then, your explanation is correct.

Howdy @Account Closed

I have some questions  for you.  What does your mentor expect to get out of this?  Is he providing the cash free of charge?  Or does he expect a decent return on his investment?  Who will own the properties? You, him, or both?  Or are you forming a partnership?

All questions that need to be answered.

Now to answer your questions. When you go to the bank you will ask for a Cash-Out Re-Fi Loan. They will normally provide 70% of the appraised value. Hopefully, the new bank appraisal and your projected ARV will be close to the same amount.

In your example:

Cash in  = $75,000

ARV = $120,000

Refi loan = $84,000

Theoretically you should be able to pull out up to $84,000. You would then have a mortgage for $84,000 (plus refinance fees).

Do not forget to do a complete analysis of the property to make sure it cash flows after the Refi.

Hope this helps.  :)

@William Huston estimating repairs depends on a wide verity of things.  Some people will use a square foot method, like $35 per square foot, to estimate a basic cosmetic Rehab job.  I will use something along this line early in my analysis for properties I have not seen.  The best way is to get a contractor to give an estimate on a SOW.

I strongly recommend you get J Scott's book on Estimating Repairs.  Good luck.