All Forum Posts by: Justin Pumpr

All great insight everyone, so thanks for the input! @Jon Reed You're right in that my rent doesn't include inflation, but my expenses do. They should be pretty aligned at about 3% in my markets. I plan to hold these properties for at least 15-20 years, so I do expect some big expenses to come up at some point. I'm mostly going for cashflow, but also want some appreciation in there too. It's about the balance for me with a skew towards cash flow. It's easy to buy properties that cash flow really well, but are in rough neighbourhoods and that's when repairs eat into any profits, so I'm trying to avoid them. 

@Joe Splitrock I'd love to get A and B class properties/neighbourhoods, but I don't know how people get these to cash flow with a mortgage. You're looking at $200k-300k properties that rent for $1,500/month. Once you include higher taxes on these nicer neighbourhoods, you're looking at almost no cash flow, if you're making a profit at all.  As an example, the numbers below show a $175,000 home getting $1,600/month. I guess I need to get better leads!

Hey all,

I'm trying to work out a good Cap Ex amount for my rental properties. I was previously using percentages of monthly income i.e. 10% Cap Ex, 5% repairs and 5% vacancy. However, after calculating the cost to replace these items I realised that my Cap Ex is about half of what is required. The image below shows the expenses for Cap Ex with almost everything being new. The average monthly amount for Cap Ex is $262. On my property which is brining in $975/month that is more than 25% of the gross rent. Add 10% management, 5% repairs, 5% vacancy, taxes, insurance and P&I onto that and it brings my cashflow down to ~$50. However at 10% for Cap Ex it cash flows at my target. 

This property is meeting the 1% rule (I'm all in for $89,000 and renting for $975), so all the numbers on paper make sense and it should be cash flowing well. However, as mentioned, if I use actual calculations for Cap Ex then it doesn't. The numbers I'm using are what I actually paid for most of the replacements, so I know they are accurate costs. 

I've been thinking of moving into other markets where the rents aren't as high, but using these numbers for Cap Ex I don't see how they could ever be profitable; if I'm only getting $700-800 per property in rent and I have to put aside ~$250/month for Cap Ex then it's a non-starter. 

Am I missing something here?

@Andrew Postell I actually managed to set it up, so that my contractor was cut multiple checks that my property manager then held onto, so that part of it worked out. It's getting those costs included in the refinance that has become the issue, as my lender can't find anybody to purchase the loan with the rehab costs included. The method you linked is likely what I'm going to have to do. As a CA resident this isn't ideal though, as I have to pay an $800 annual fee for the "privilege". I'm also not looking forward to the added paperwork!

Hey all. I wanted to give my input here as I've recently gone through this process both successfully and unsuccessfully/ I purchased two properties using this method i.e. including rehab costs on the closing statement and recouping them using delayed financing. This first property went through underwriting fine. The second one didn't and my lender is now saying that we can't use this method. He says that the first time it worked it must've been missed by the company purchasing the loan (Mr Cooper). It definitely seems like a bit of a grey area though and slightly open to interpretation. I've included a screenshot from the lenders to give a bit more info.

Hey all,

I'm wondering if anybody has ever invested in somebody else's primary residence? I'm not sure what the technical name for this is, but I'd describe it as a buyer doesn't have enough cash for a down-payment, so they find an investor who pays for the downpayment and gets an equity stake in the property,  but the property is paid for and owned by the person moving into the property. This would be similar to them buying a rental property,  except its much more passive. 

Is there a name for this and has anybody done it, or know any investors who would be interested in something like this?

Thanks to everyone for responding. I tried offering less, but they rejected has they had multiple offers that were higher and didn't want to negotiate. I'm trying to get them to include a home warranty instead, but will close either way.

One final question, does anybody know any lenders where I can put closing costs on the HUD statement as per this article?

Cheers

Thanks for the feedback everyone! Some replies below:

@Annchen Knodt I do think there is room for appreciation in general. The property is a small 2/1 though, so not that much room for rent growth in the short term. In terms of adding costs to the HUD statement, I haven't been able to find a lender who can provide this. Well, I found a lender, but he couldn't find a title company to allow it. If anybody know of somebody who can in the Columbus, or Ohio area then I would love to hear from you! That said, I would be at the 75% LTV limit like you mentioned, so it wouldn't help me on this deal, but would on others.

@Andrew Powers The analysis is relatively marginal, but they seem to be standard numbers; 10% management, 10% cap ex, 5% repairs, 5% vacancy. I do have reserves yeah.

@jon

@Jon Kelly I'm second guessing it, as I thought the repairs were going to be $10k-15k, so having them be $22k leaves me with almost no equity gain and leaves almost double the expected amount in the deal. On higher purchase price that wouldn't be too bad, but as it's almost 1/3 of the purchase price it puts my Cash on Cash at 9.4% and also means I have less cash available to purchase the next one. My goal is to retire in 4-5 years and to do that I need a minimum of 32 doors at $200/door, so having funds available is key. Honestly that's likely been my biggest hinderance, though. I've spent ages trying to find a property where I can get all my money back, so I can do buy the next one and the next one e.t.c and ended up not buying

Hey all,

I am in contract to buy my first rental property in Columbus, OH and I'm unsure if I should close, so would love some opinions from some seasoned investors. The property just about meets the 1% rule and will cash flow at about $150/month (which isn't my target of $200/door). The property is a single family. I'm paying cash and will do delayed financing, so all of my repairs cost will be in the deal. Even if I waited for the property to season, I'd still be leaving around $16,000 in the deal. 

Details are below:

Cash Purchase price:73,500

Repairs: $22,500

All in: $96,000

ARV: $95,000-100,000

Rental income:$900-950/month

My concern is mostly the amount of money I'm leaving in the deal and not gaining any equity when I refi. Are they worthy compromises for the first deal? I've been trying to buy my first property for almost a year now, as I've been trying to BRRRR multifamily and have struggled to find a property that I can get all my money back out on. I also had an awful flip which has made me very cautious about taking anything too risky on which has made it harder to find properties that will BRRRR. Part of my says this isn't a great deal, so don't do it, but part of me is saying to buy a property and get things moving.

What would you do?

ps. thank you as

Thanks @Steven Foster Wilson. I managed to get some prices from Discount Granite, although they are are more in the $500 range. Hopefully J&R comes in a bit cheaper! If you have any recommendations for good quality laminate counters I'd be open to those too.

Hey all,

Does anybody know if you can buy prefab Quartz slabs anywhere in Columbus, OH? In CA there's loads of stores where you can buy a 8-9'x26" prefab slab for $200-300. Does that exist in Columbus anywhere?

Cheers!