All Forum Posts by: Jeff Petsche

@Sal San BP has some great calculators and if you have the PRO membership you can use as often as you want. Unlimited reports.

I use both the BP calculators and also another analyzer I have access to through an investment group I belong to. (not related to BP).

@Sal San I'm sorry to say, but this is not a TRUE $1,000 a month positive cash flow. You have not factored in vacancy (5-10% of gross rent), repairs/maintenance (5-6% of gross rent), CAPEX (6-8% of gross rent), property management (8-10% of gross rent). The rent to value ratio is .07, so although it's not terrible, it's not hitting the 1% rule either.

Even IF you know the property is 100% rented and the person plans on managing it themselves, you still factor in these expenses when analyzing a deal because some day they may not want to manage the property themselves AND there is no guarantee it will always be 100% vacant, so you must factor in these numbers. As for repairs/maintenance and CAPEX, this house will need these things over time, and thus the deal should be analyzed as such.

Most people looking to buy a rental only look at Mortgage (PITI)-RENT=Cash Flow, and that is SO NOT THE CASE, which is why they lose money or buy a bad deal.

Based on the numbers you provided and running the deal through my software analyzer, the NOI comes to $14,400 (50/50 rule) and the debt service comes to $15,322.16, so you have a LOSS of $922.26 each year. Cash on Cash shows a -1.4%.

Total investment to get into the deal is approx. $69,300 (20% down payment, 2% in closing costs).

If this deal came across my desk, I'd pass and move on.

@Matt R. Isn't it interesting that the LA metro area has the fourth-highest share of renters in the nation. Using 2015 Census data, the study found that just under 54 percent of LA homes, condos, and apartments are renter, rather than owner, occupied. However, in another study about the 5 Best and Worst Cities for Affordable Rents, Los Angeles was #4 as the WORST U.S. city for affordable rent (Average Rent: $1,940 and rent as a share of income was 37%).

Being a born and raised Southern California guy, it's always amazed me that people are willing to over extend themselves to live in California where we have the highest state income tax of any other state, home prices are some of the highest in the country and obviously it's not cheap to rent here either, but peeps want the sunshine, etc. lol

Based on an article in Forbes surrounding the 5 Best and Worst Cities for Affordable Rents, here were the findings: (Not sure if this information matters much OR will help other RE investors make informed decisions on where they choose to invest for BUY/HOLD properties, but I'm a believer that we all need to be educated and informed, and share with one another, so here you go)  

The 5 worst U.S. cities for affordable rent

#5 Orange County, California (Average Rent: $1,900; Rent as a share of income: 28%)

#4 Los Angeles, California (Average Rent: $1,940; Rent as a share of income: 37%)

#3 Manhattan, New York (Average Rent: $3,500; Rent as a share of income: 54%)

#2 San Diego, California (Average Rent: $1,750; Rent as a share of income: 30%)

#1 Miami, Florida (Average Rent: $1,390; Rent as a share of income: 36%)

The 5 best U.S. cities for affordable rent

#5 Columbus, OH (Average Rent: $850; Rent as a share of income: 17%)

#4 San Antonio, TX (Average Rent: $910; Rent as a share of income: 20%)

#3 Kansas City, MO (Average Rent: $870; Rent as a share of income 16%)

#2 St. Louis, MO (Average Rent: $830; Rent as a share of income 17%)

#1 Indianapolis, IN (Average Rent: $800; Rent as a share of income 17%) 

Original Article If Interested

@Ivan Barratt We are open to SFR properties, but ideally duplexes and up.

I'm personally partial to 5+ units for many reasons, but primarily for ADD VALUE play as opposed to 1-4 units having their values determined by "comparable sales". 

IMHO I believe you should invest in what you know and have experience/knowledge in.

I don't believe there is just one way to invest or just a "one size fits all" strategy. Everybody has a different level of risk tolerance, so you need to find yours and master it.

I have several friends who only park their money in 401(K) accounts, max out every, take advantage of company matching and are okay with volitality. They don't have the time to manage their assets, so this works for them.

I have others who are strictly private money investors who are presented with real estate opportunities and either own percentages of the acquisitions or receive a fixed return on their money, and are 100% hands off because of their minority ownership. One such friend currently receives about $90K a year passively while still working as an attorney and is an owner in several commercial real state deals. He says his downside is having no control over the asset or any decisions made regarding the exit strategy, so he has to go along with the majority owners decisions.

As someone who has been in real estate since 2003, RE is my choice of an investment vehicle because it's what I know. I for one don't  invest in stocks because I just haven't educated myself enough on it and I feel I have more control over a RE acquisition than I ever would in the stock market. 

As for TK properties, I'm not interested. I'm looking at acquiring property where there is an "add value" play, not RETAIL pricing.

Good look with whatever investment vehicle you take. 

@Matt R. I don't disagree with the appreciation piece you mentioned when looking at a big picture investment and exit strategy. 

I'm just saying for our group at this time, the entry to play in the CA sandbox is just too expensive for the majority of areas we'd consider, and although some say to suck it up and buy ONE property, hold it for 2-3 years and watch the appreciation go through the roof, that's just not our play at this time. 

Not to say CA won't be an option we consider in 2-4 years when it's expected to be a little better buyer's market and then rise up the next up cycle.

As for the numbers I provided, you are correct that it's not for EVERY pocket of CA. It's primarily Bay Area and parts of Southern CA. 

@Laura C. This is just my honest opinion and as a real estate Broker in SOCAL, I can tell you that the majority of properties you come across right now in our area will NOT pencil for CASH FLOW, IF analyzed correctly. However, if you are one of those investors who wants to bank or speculate on appreciation over the next 10-20 years, historically you'll probably make money.

If you choose to buy in CA NOW, just know you are buying in a seller's market and specifically a Seller Cycle II market (top of market and reaching peak). Since 1980, market gains in CA to new peak values have typically lasted 5 to 7 years (we are currently entering year 6 of an up cycle). Except for the Dot.com bubble/9-11 adjustment, market declines/recessions have typically lasted 3-4 years. (Disclaimer: This does not mean that present and future cycles will be the same. Historically, BOOMS can last longer than expected and adjustments-declines can come suddenly and unexpectedly.

I've been tracking CA market cycles going back to 1984 to present and the cycles have looked like this:

1984-1990 (+100%)

1991-1994 (-11%)

1995-2001 (+100%)

2001 (-10%)

2002-2007 (+59%)

2008-2011 (-27%)

2012-2017 (+72%)

For me, the entry price to play in SOCAL is not in my wheel house at the moment, so much like what @Ali Boone said in her post, I'm investing out of state at this time. Yes appreciation won't have the BIG swings you have here in CA, but I'm going for CASH FLOW and if a property appreciates, then it's "icing on the cake". I estimate a 3-5% appreciation per year in Southwest markets, but because the entry price point is more reasonable, cash flow is almost a sure thing.  

BOTTOME LINE: I WILL NOT buy a property if it does not CASH FLOW...PERIOD!

Just my 2 cents!!

@Michael J. Beasley sounds good. I'll put your number in my phone and please do the same.

Hello BP Community

I am a real estate Broker in CA, but just getting started in the REI game.

With that said, and after about 30-45 days of self-education (reading, podcasts, networking, phone conversations, etc.), I'm now ready to visit a few of the markets my group is interested in, and Indianapolis is one of those markets.

I believe visiting the markets we are interested is very important and to set up meetings with boots on the ground as I look to build our OOS team.

I'll be in Indianapolis from 9/8 until 9/12 and I'm looking to meet with those who can help me connect with the following:

1. Wholesalers

2. Local Bankers for REFI and possible conventional options

3. Property Management Companies

4. RE agents/Brokers who are investor friendly and has experience working with OOS investors

I'll have a rental car and plan on driving a lot to identify areas of interest based on the community, surroundings, development going on, etc. As a real estate Broker and retired police officer, I believe I can identify the A, B, C and D neighborhoods by driving the area.

Who's up for meeting for coffee/tea or even a cold local beer on tap?

Pick up the phone and call me and lets do some business! OR if you prefer typing behind the computer, shoot me an email. I'm also TEXT friendly!

Looking forward to put the right team together in Indianapolis.

My group and I are looking at investing OOS because the price point to enter the REI game in Southern California is just too high right now.

With that said, I've been doing research for about 30-45 days on OOS markets and we have decided to focus on two markets at this time (Columbus, OH and Indianapolis, IN).

One thing I've learned through this process is not many take you serious when you're trying to invest from a long distance, until you actually visit the market first hand. With that said, I don't believe it's smart to go into an OOS market without first visiting the area and meeting the people you plan on going into business with. Not only will this give you peace of mind about an area you are now a little more familiar with, but the people you add to your team (boots on the ground)  look at you as a serious investor, and not just a "puppet master" from a distance.

I have NO DOUBT there have been successful investors who invest OOS and have never set foot in the state, but IMHO, I don't believe it's the smartest of business decisions.  

I have booked my trip to visit the two markets I've mentioned and will be spending 4 days in Columbus, OH and another 4 days in Indianapolis, IN from Sept. 5th-12th. I'm looking forward to seeing these markets up close, meet some people I've already talked to by phone and have set meetings up with and feel good about our decision to pick up some properties in these markets, and build a team in each market, so we can move forward.

Lucky for me real estate is my full-time career (I'm a real estate Broker in CA), so I have the flexibility and financial ability to take these types of trips if/when necessary. I know not everybody can do that, but in my opinion REI should be treated like a business in itself, so traveling is just part of running your business effectively. Think of it as you are the CEO of your company and travel is part of running a successful company/business.

I don't believe I'll have to constantly go visit the markets I'll be investing in, but for a first look, I think it's necessary and important for our group and our business practice.

Good luck to all!