All Forum Posts by: Jonathan Streufert

@Isaac Chun

So according to your calculations, guests will pay on average $250/night, plus any cleaning expenses? I'm not at all familiar with the Las Vegas market, but I'm just trying to get a grasp of where your income/expenses are coming from.

I get that at least according to your numbers, it appears you will be making a killing in COC return. However, I just want to caution you against getting into the habit of hand-waving whenever someone brings up an expense you don't have in your calculations, saying "eh, don't worry about it; I have enough cash flow to cover it." That can become a slippery slope and once enough of those pop up, suddenly it's actually not that great of a deal anymore!

Regardless, I wish you luck in your work with this property and continued success in your future investments!

@Isaac Chun

That really is a crazy ROI! If you truly can get 100%+ COC return on something like this, it's a wonder anyone would do anything else!

How are you going to manage it? Yourself? Or with a PM? Even if it is yourself, your time is definitely worth something. Not only that, but with a constant rate of turnovers, it will certainly take up more of your week than a standard single family rental would.

What about housecleaning? Similar to a hotel, you're going to have to clean after someone leaves to get it ready for the next guest(s). If you're talking 12+ guests, yes that could be a lot of income, but wow could that be a lot of picking up! Do you have a housekeeper lined up? I don't see a regular cleaning expense on your analysis.

If you're planning on managing and cleaning yourself, this could very well be a full time job, literally!

@Jim Frye

I'd recommend getting on wholesalers' buyers lists. If you're in the area, you can go to a local real estate investor group (such as Michigan Real Estate Investors or Renegade Detroit Investors), and talk to wholesalers there. Both groups have opportunities for you to stand up and declare you want to be put on wholesalers' lists for certain areas, and more than likely you will get a number of wholesalers with no problem adding you to their email lists. 

You can also get mailing lists and send out letters or postcards to homeowners in distress, called direct mail (multiple ways to do this and types of lists you can get). You could also do what BP calls Driving for Dollars, meaning you drive around neighborhoods you want to buy in, write down addresses of houses that look distressed in some way, look up the owner's address in the public records, and send them mail.

There are multiple articles on BP that discuss these off market deal-finding strategies in grave detail, so read up if you want to pursue one!

@Jim Frye

Having those percentages for expenses aren't too far off what I use. I aim ever so slightly higher in the expenses category, estimating 11% for total property management costs (including leasing fees) and 15% for repairs/cap ex (though one could argue capital expenditures will be about the same regardless of the rent amount). It's definitely more accurate than the 50% rule; the 50% rule is intended to be more of a quick pass/fail calculation when you first see the deal than the rigorous income/expenses you should be using once you're seriously considering going through with it (which you have laid out).

I'm not even going to try to point you in the right direction when it comes to Detroit. I'm not originally from the area and do not currently invest in Detroit itself. There are many other people on this site much more qualified to answer that question than me.

Many neighborhoods in southern Oakland county are holding the eyes of investors. Royal Oak has been booming the last few years, and continues to explode in appreciation, along with some other cities nearby. I think Oak Park is one of those cities that hasn't *quite* seen the same rise in value, but has a half decent chance of feeling the "wave" of appreciation in the near future as well. Just be wary of neighborhoods that have already seen the high rise in value and don't overpay with the assumption it will continue to see the same appreciation for the next few years.

I'm more focused in western Wayne county myself, around Redford, Livonia, and Westland. It's a pretty good market for rent-to-price ratios (there's tons of properties that pass the 1% rule), and most areas fall under what people could consider their "bread and butter" zone, B and C class properties that offer good cash flow and a decent chance at appreciation. Lately, however, it has become very difficult to find good deals for investing, at least on the MLS, partly due to extremely low inventory. It wouldn't be a bad idea to shift your focus to off market deals if you can.

Hi @Jim Frye,

I really like your analysis spreadsheet! You seem to be very thorough in your expenses and accounting for the ones you should. It's often the downfall of new investors to conveniently "forget" about certain expenses like vacancy or cap ex. to justify their purchase, so I think you're taking the right approach in being conservative with your numbers.

I just have a few comments. First, as @Christopher M. alluded to, do not trust Zestimates when estimating rent, appreciation, or house value. It can be a slippery slope of assumptions that end up burning you if you can't prove they're right. I find that in general, Zestimates are usually within about +/- 30% of the actual numbers so it may be held as a general guideline for *about* how much a house may be worth or rent for, but take it with a grain of salt for sure.

Oak Park is in a good spot right now in terms of appreciation for the area, but I personally tend to be cautious about assuming any more than 3% annual appreciation. 3% has been the overall average appreciation across many decades, and any appreciation that ends up above and beyond what I assume is icing on the cake. Lowering the rate of appreciation from 4.4% to 3% decreases the value in 5 years by $10,000 from what you have in the spreadsheet, so just be aware.

Your cash flow would be less than $100/mo starting out. This seems a little tight for me. One major expense that comes up costing you $5k and there goes your cash flow for the next 4 years! And how do you know there will be absolutely nothing you need to do to the house to prep it for rent? Just a little too tight in the cash flow department for Oak Park in my opinion. Perhaps try aiming for a house that will get you more than 1% monthly rent-to-purchase price so the cash flow can improve to safer levels, to protect yourself against any surprises.

I hope this helps! Best of luck!

@Michele G. I've heard not-so-great things about the Norwayne district in Westland (the block south of Palmer between Wildwood and Merriman). I would say stay away from that, unless you want to get into low income housing.

Also, the better areas in Redford tend to be west of Beech Daly when north of I-96, and at least half a mile west of Telegraph when south of I-96. Houses on the east side of Redford are close to Detroit, which typically doesn't do wonders when it comes to house values.

@Taylor Johnson I was at the MREI meeting as well and had some of the same questions you listed here. Thanks for putting some of them into words! I understand that private money is completely negotiable, and depends on the private lender's goals and what they want as a return, but I had been under the impression that most private lenders (at least for newbie investors) would want something more like 8-12% as security against their lack of experience instead of 6-8%. Did you think that a 6-8% interest rate for an inexperienced investor was a bit low as well?

@George Despotopoulos Thank you for that explanation! I was not sure how that accruing interest owed worked, whether the interest rate applies to only the initial loan amount, or is reassessed each month or year as more and more is owed to the lender. Is there a minimum length of time you want to set the balloon payment for the private lender just so you have enough of a cushion in case it takes longer to to sell the house or refinance it, like a year? 

Hey @Michael Masters

The off market properties your agent is bringing you would result in less money lost to commissions for the seller, yes. When a house is sold through both a buyer's and seller's agent, commission goes to both of them. Some FSBOs will still agree to sell through a buyer's agent (and pay them commission) since the agent can take care of setting up the bulk of the paperwork so the seller doesn't have to.

One way or another, the reason off market properties exist is because the targeted buyer can provide something a random buyer with a buyer's agent can't. Maybe that something is a personal or professional relationship with the seller that would convince them to sell to that particular person. Perhaps the seller is in a dire situation and needs to sell NOW, and the buyer is offering to pay cash, pay all closing costs, and close quickly instead of waiting a month and a half for a mortgage to be approved. Or maybe the house isn't in the best condition and the seller doesn't want to go through the hassle of fixing/prettying it up, finding a seller's agent, waiting to find a buyer, waiting for the mortgage, etc (mentioned earlier in this thread).

Much of marketing involves contacting potential sellers and highlighting the benefits you can provide, and hoping you contact them at a point in which they are motivated to get rid of said property. You can't create motivation, but you can connect with a motivated seller and convince them through your message that you're the person they should sell to.

@Jay P. Why would you not rent out your current house if you were to refinance your loan and move out? Keeping it but leaving it vacant is just about the worst thing you can do. At that point you would just be throwing away money; I'm not sure what your current house could rent for, but you could easily be throwing away $15,000+ a year if you don't rent it out. If you would like to keep it, refinance it to a non-fha loan (you have enough equity to do that, right?), purchase and move into a small multifamily unit using an fha loan, and rent out your refinanced house.

House hacking a small multifamily in and of itself is a brilliant idea, and I encourage you to pursue that endeavor. However, try not to let your excitement to house hack cause you to leave money on the table.

Best of luck!

@Will Maddox

Welcome to the BP forums, and congrats on being in a great position to get started investing!

I will also voice my opinion on the sell vs. hold question. All of the information you're providing is pointing towards selling the property, even if it is in a great appreciating area. Having a potential rent of $2,500/mo on a $310k+ property is not the best use of your capital at all, and if you can take out that $100k in equity and put towards other, better cash flowing properties, all the more power to you.

It hasn't been stated in this thread yet but is worth stating now: don't forget to take into account other expenses such as taxes, insurance, repairs/maintenance, CapEx, vacancy, and possible property management. Just looking at numbers like 8% vacancy, 5% repairs, and 10% CapEx, reduce your cash flow number by $575, leaving you with just $225. Include property management (10%) and you're now in the red in cash flow. Vacancy and CapEx might be able to be reduced if it's in a desirable area and you get good tenants, but one of the most important rules in REI is never underestimate expenses!

Good luck, and keep us informed on what you decide to do!