All Forum Posts by: Jonathan Wilson

Hey @Derek H. and @Nathan Gesner,

Thanks! That's roughly what I was getting at. If the math is approximately correct, then I just don't see the properties at the prices that would work. That doesn't really surprise anyone. Boise went through stupid appreciation in the last few years.

Please note that I just gave a sample of the approach (to be fair, mostly copied from a book :P), and perhaps I should have thrown in numbers from Twin Falls or Pocatello. The numbers look similarly bleak though.

From there, it seems like there's a few paths forward:

1) Assume that someone is able to achieve good returns still, by finding deals I'm not seeing

2) Assume that people who are investing in the region are not expecting to have positive cash flows properties. Even dropping expected cashflow to 0 puts you a ways away from what things are listed at.

3) Assume that I need to find a new region

My only complaint with #3 is that it seems like writing off the entire state of Idaho is a bit dramatic. It sounds like the concerns are not as much with the approach as with the idea that such an opportunity would exist in that location, and I agree. 

Good things to think about, thanks! I have to remember return comes from four sources: cash flow, appreciation, depreciation, and amortization. Just only one of those really moves the needle in how quickly I can pile up cash month over month, haha. 

Hey @Charles Carillo,

Thank you for your reply! I think that's one thing I learned when buying our first house. We traded getting into the market (with reasonable rents) for higher cap expenses than I perhaps anticipated, haha.

Besides looking at the age of major components of the house, is there a better way to estimate cap expenses? 

Best,

Jonathan

Hey,

I want to buy and hold rental properties. My primary motivation is to own cashflow. My stocks are broad index funds, and they do not return much in the form of dividends (I know, it's more tax efficient). We rent our basement as a medium term rental (for about $20 less than the mortgage), and while I can talk myself into believing its my best (or worst) investment, I do love getting the rent check. 

My litmus test is that I must believe the investment will out perform a 7% real return or 10% nominal return. I would like to earn a 10% cash on cash return, and feel that provides a margin of safety. Otherwise, I do love stocks. It costs me almost nothing, and I loose no sleep. :)

I really enjoyed "Rental Property Investing", by Brandon Turner. I'm trying to figure out how much I can pay for a property in various cities throughout Idaho. I've included sample calcs below. To be honest, it doesn't look very promising. That's fine, nothing in this world is free. If others are doing similar, then I'll resolve to find a deal that works. So that's my question: am I penciling this out reasonably, am I being too greedy, or am I doing something wrong? Thank you for your time!

I start by guestimating the average rent for a house I would be willing to own or rent. For example, in Boise ID a 3bd, 1.5bath+ 

Rent:                                              $2300/mo

Then I back into what expenses might be:

Property Management @10%:  $230 

Maintenance                  @5%:    $115

Capital Expenses           @5%:    $115

Vacancy                          @5%:     $115

Property Tax                          :      $180

Insurance                               :      $85 

P&I                                          :      $1104

Target Cashflow                    :      $356

This would mean that the I could buy a house for up to $216K.  I would borrow 80% (173K) on a 30yr fixed at 6.6%. I would need about $43K in down payment.

What's kind of crazy, is that by the time your looking at houses for that little, they need some love. That 216K is the max I think I would be able to put into the deal and get my goal rate of return (if we take the $2300 as a given). Meaning I might have to try and find something for even less and after including repairs have 216K tied up in it.