All Forum Posts by: Justin Clemmer

@Nagy Wassef

Someone correct me if I'm wrong but I believe conventional lenders will start to consider rental income after two years. So after two years of cash flow you can quit your job and use the rental income to qualify for new loans -- provided that income is high enough to qualify of course.

@Michael Masterson

Was this property in Lakewood?

Surely you don't plan to take a random forum member's opinion as legal advice, even if they say what you want to hear. So you're going to ask an attorney and CPA regardless. Why haven't you done so already?

So your total cash invested was $35k, with $30k going to rehab. And you bought it with conventional financing. How did you finance $122k with only $5k to use for down payment + closing costs?

Every succesful investor on this forum will tell you that upper and middle class tenants tend to be better than the lower class, and yet somehow none of them have to resort to namecalling to secure them.

 Good points, thank you. What are the implications regarding the "legally a triplex" part? Must the city legally recognize it as a triplex before I'm allowed to rent it out as such? If it's not legally a triplex, what is the process to make it so? Thanks.

 Good to know re: closing costs. Thanks.

Totally understand your second point, but that's kind of why this deal seemed exceptional to me. In the sense that, if it already cash flows >$200/door and with a 15% return even at the asking price and conservative estimates, it must be a great deal for an investor who can get it for less. Right? I dunno. I've run the numbers on probably 100 properties so far in various markets and this is the first one that didn't require liberal estimates or make-pretend fudging of the purchase price/ARV to get more than $100 cash flow or 7-8% returns, so that's why I brought it up here. Thanks for the feedback!

I have only just begun researching real estate investment so I've been analyzing random properties for practice, and I came across one that seems really good to me but I'm wondering what I might be missing. I've tried to be conservative on all my numbers. Here's the property https://www.redfin.com/TN/Knox... 

Location: Outskirts of Knoxville, TN 37920. I think the area would be considered B class or maybe B-. Here's the Bestplaces page.

Purchase price: $205k

For simplicity and to be conservative I will assume this is the fair market value.

Down payment: $51,250 (25%)

Closing costs: $2500 I got this number by googling "average Tennessee closing costs", seeing $2366 and rounding up.

Rehab: $0. The property appears to be in turnkey condition. 

Total cash invested: $53,750

Rent: $2400. The property is 3 units: 2/1, 2/1, and 1/1. Nearby rentals on Craigslist are $895 for a 2/1, and $700 for a 1/1. That would suggest a total of $2490 but we'll round down. It should be noted that this property is much nicer and more recently renovated than these comps.

Vacancy: $192 (8%)

Property tax: $106. City website says $2.4638 per $100 of assessed value, where the assessed value is 25% of the market value which I'm using the purchase price for. ((205,000 * 0.25) / 100) * 2.4638 = $1262 per year or ~$106/month

Insurance: $100. I googled "average tennessee homeowners insurance" and got answers from $900-1100 per year. I will use $1200/year.

Maintenance: $120 (5%)

CapEx: $240 (10%)

Utilities: $100. Tenant pays electric (which runs the heat), and this thread suggests around $40 each for water and garbage. Round up to $100.

Total expense: $858 or 35% of rent.

Mortgage: $862.98. $153,750 @ 5.5% (conservative as I have poor credit) over 30 years

Cash flow: $669

Cash on cash return: 14.94%

So what do you think?