All Forum Posts by: Jenna Y.

Hello! New investor here. I'm considering acquiring a modest cabin for 50k as a vacation rental after a small rehab (15k).

I currently self-manage a family vacation property with similar numbers and have had strong returns. So I know what to expect regarding expenses, marketing, risks. It's also enjoyed some success for its design and decor, which has directly contributed to its extremely high occupancy rate (more than 90%). My husband has extensive carpentry background and does the major repairs and maintenance on a quarterly basis.

I have enough capital to 100% fund this new deal outright myself, however hopefully within this year I plan to purchase a primary residence as a first-time buyer - a duplex/triplex in the Bay Area California. I'll need a significant amount of my capital for the downpayment. I recognize that living/buying in California won't give me as desirable a cash-flow as elsewhere, but it is where I choose to live for other reasons.

Here's the deal:
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Property Price: $50,000
Improvements: $15,000
Closing Cost for Private Loan: ?
Total Cost: $65,000 + closing costs

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Monthly Total Rent (based on ten comps): $3,162

MONTHLY EXPENSES based on current rental
Vacancy Allowance 26% (conservatively based on ten comps): $822
Utilities (15 trash, 100 electricity, 50 gas, 65 water, 80 internet): $245
Supplies budget (dish soap, etc) $30
Groundskeeper/Repairs (5% gross income) $158
Capital expenses reserve (5% gross income) $158
Quarterly maintenance fund (5% gross income) $158
Insurance $67
1.2% Property tax $60

TOTAL MONTHLY EXPENSES: $1,698

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Monthly NOI $1,464
Annual NOI $17,563
Cap rate (NOI/ total cost): roughly 27.02% (closing costs TBD)

Two specific questions:

1) I would like to finance this deal via private money. Some family/friends stated interest in lending, as they've seen the monetary success of the first vacation rental. What might be a private loan structure that would make sense for all? For them, their expectations are for returns better than traditional investments. I'm guessing a five year term would be the longest that would be reasonable to ask for. For me, I'd like to keep as much of the cash-flow as I long as I can for investment purposes.

Structure #1: I kick in 15k, finance 50k. 5-year term at 5%. Monthly payment: $849. This would still cash-flow comfortably.

Structure #2: 6% interest amortized over 20 years with a 5 year balloon payment. Monthly payment: $300.

Thoughts? Other suggested structures?


2) Considering that I'm trying to save up for a downpayment on my primary residence, does it make sense to put my money/time/effort into a smaller deal like this?

Investing in CA requires so much upfront capital - this deal is attractive because I can get in the game, leveraging our talents/skills and generating a healthy cash flow at 1/7 of the price. But it will tie up some of my capital, which would otherwise go towards that monster downpayment of yet-to-be-materialized primary residence deal in the Bay Area, CA (where speculatively rewards gained in appreciation not cash flow).

Additional thoughts?

Thanks all, this is really helpful.

I am indeed aware that it takes ongoing work to build, grow and maintain a portfolio of assets. To be clearer, my objective is to direct more and more of my energy into building/maintaining my own wealth-producing systems, rather than being wholly dependent on my salary (which, incidentally, is earned by creating wealth-producing systems for others).

And got it - if I want the biggest bang for my buck in the cash-flow game, Los Angeles is DEFINITELY not the place to be. However, Los Angeles is where our careers/industries are, which we both are committed to, so these two priorities will just have to be at odds with one another for a while. I’d imagine this scenario is very similar to committed to careers tying them to NYC or SF.

I’ll definitely start looking at other regions to invest in. Two prospective spots off the top of head are Inland Empire and Portland Oregon. Inland Empire is within a reasonable drive to do my own scouting, rehab, and PM. However, I’m aware that a lot of inventory is disappearing quickly (for one, being acquired in bulk by large-scale Wall St investors), so one of many challenges would be finding a niche that’s not attractive to them.

Portland, my boyfriend already has property, in addition to a trusted team already in place. Need to research if this is enough to warrant passing up other geographies (if I’m looking outside of California anyhow).

Will look at fix and flip as possibility to boost investment capital, but again, I suspect the opportunities for me exist outside of California.

Hello BiggerPockets -

I’m new to real estate and am starting to model out numbers. I’m in brainstorming mode right and would appreciate any input.

:: GOALS ::
In five years time, replace my salaried income with RE income, where I am no longer trading my time for money and giving me freedom to pursue my own interests. If I can accelerate this, all the better.

:: BACKGROUND AND RESOURCES ::
I am based in Los Angeles and have around 50k earmarked for real estate investment. I have full time salaried job. Great credit score, other personal reserves. Private money via family is available down the line.

My boyfriend and I have just completed a major renovation of a triplex he owns out of state. Since we are based in Los Angeles will be remotely managing that and another MFH. He’s owned/managed these for many years, so we are fairly familiar with the numbers at this point.

:: VALUES AND PREFERENCES ::
We would prefer to invest in Los Angeles city, as the boyfriend and I could be doing the networking, scouting, rehab and initial PM ourselves (him more full-time). We both enjoy being on the ground, getting our hands dirty, and we have a knack for finding/building wonderful things on very tight budgets. As such, investing out of state/city is seems to be a less desirable option.

Pride of ownership is also important to us, and we are strong with aesthetics, so we would like to add value by creating charming aesthetically-pleasing properties.

We would owner occupy in the property most advantageous to achieving goals, fine with moving a few times.

:: POSSIBLE STRATEGY ::
A strategy I’m considering is buy-and-hold in Los Angeles, starting with residential. Would love to move into the commercial/mixed-use space as my experience grows. We could use same strategy as previous two - buy an under-priced fixer upper MFH in an up-and-coming neighborhood, add value, rent out, cash-flow, hopefully (not betting on it) have properties appreciate. Hopefully use existing equity to finance future investments.

Plugging my numbers into various spreadsheets however, I’m having a tough time having the numbers work well in my favor as a cash-flow operation for Los Angeles.

With 20% down, I can afford in the 200-240k range, with around 10-15k in rehab costs. The only MFH priced in that range are duplexes in C areas. I’m already eyeing a few up-and-coming pockets.

Market rents in C area 1 bedroom are around $1000, but with rent control, I’ve seen listings as low as $650 (would not consider those).

So that means:
- Average duplex purchase price + financed rehab: 200k + 10k
- Cash outlay: 42k down + 3.5k closing costs
- Assuming market rents: $1k per unit: $2,000 monthly gross
- Monthly expenses would be roughly 30% (doing own PM): Less $600
- Mortgage - 30 year fixed at 4.2%: Less $851
MONTHLY PROPERTY CASHFLOW: $549
# of similar doors to replace monthly income: 26

Obviously, should I go forward with this plan, it would have to be much more fleshed out and researched. Financing and rent control (all of Los Angeles city), are major considerations that would need to be grappled with.

Thoughts? Some questions:
1. Considering my goals, values, and resources, what other strategies should I consider to complement or replace this one?
2. Regarding the above strategy - what factors am I missing/ should I be considering?
3. Am I on target with these numbers? Are these kinds of numbers workable as a buy hold investment strategy?

Thanks for any insight you can offer.