All Forum Posts by: Kristina Heimstaedt

Ya without the link working, we need numbers. I might be curious as to why this particular property is newer. Was it torn down and rebuilt? Are there any soil concerns? This is probably overkill, but still curious

@Anthony Bertolino We've done this a few times so we have some practice. We know how much the flooring we use costs. We know what our typical labor costs are. Figure 5k/bathroom and 10k/kitchen as rough estimates helps. Paint is a solid guestimation. That's typically enough for us to get by for the purpose of running numbers. We also don't save/re-use much of anything other than layouts so it's all new. Sometimes going with all new works best. 

If you fix up the property right away, your repairs shouldn't be a major expense. We gut properties so our expenses are minimal as well as vacancy because most people like new. 10% is quite high for vacancy even from a commercial lender perspective. They're more likely to run 5-6%. I wouldn't use rents from Zillow. If you're looking at California where you can have severe fluctuations from crossing the street, it's not going to be accurate. I would call a local property management company instead. That is your best bet. Overall, the calculations I do are as follows:

(rent - mortgage - property management- property taxes) / (down payment + capital expenditures)

Using this formula, all of my properties run a 10-15% rate of return. We do have some on going maintenance, but it is typically from a tenant phone call as opposed to ongoing maintenance. 

Looks like you're hedging your bets though which is better than not doing that. Keep going!!!

@Juan Rango and @JD Martin I'm going to take back my original sales pitch on real estate. I have a client who would run circles around this argument. 

Bottom line is, if you need to argue and think this much about real estate at all, you will miss every deal to people like us. People like us know exactly what we want and how to identify where we are going to park our money. Juan, you will miss out on every great deal because someone like me is going to have wrapped it up and negotiated a better deal because I wasn't wasting a month trying to have my accountant sell me on this single property. Juan, you're the guy who sits on the sideline and watches everyone else do well. Then that day comes where you finally decide that you can't not get in. You buy a property and it isn't so bad at first. Then the tenant is a problem. Then the market stops appreciating at a 5% year over year gain like it has been. Then China blows up. This affects the US economy because we can't get cheap goods anymore. We have a correction and you're caught holding a property you can't sell for a 10% discount of what you paid for it especially with this tenant who skipped out on 2 months of rent. Be that guy. After you poorly price your property for sale and chase the market all the way to the bottom because you have too much pride, I'll be there with an all cash offer at 65% of what you paid for it 10 years ago. Not to mention that I'll find a few things during inspection, have issues with the rents and a number of other things and I'll decrease the price by another 2% in escrow. You'll kick and scream for a couple days because it's insane that you will have lost money on this deal. But after those couple days, you'll decide that you just don't want to deal with even thinking about this place anymore and I'll pick up the property for a steal. I'll also show up and manage the property better than you could have ever dreamed of and get a good tenant paying 10% above what your tenant "agreed" to pay. 

Go ahead be that guy. You can call this playing devil's advocate, but you'll never better yourself if you aren't humble, eager to learn and watching successful people. I can try to sell you on this, but I don't think that's what you're looking for. Remember, the guy who thinks he's the smartest guy in the room has no one but idiots to learn from. If that's the way you want to function, thanks for the extra deals and I look forward to working with you. 

Bill McBride's Blog is the best. He oftentimes has price to rent ratio graphs. He's also a great resource for general market information and had the data to predict the housing bubble accurately. Numbers don't lie and Bill has lots of numbers.

In my area of California, properties that have been rezoned to fewer units are like gold mines. Let me clarify, we have multiple properties that are zoned for 2 units or less, but ours are 3 or 4 units. Now I'll list the bonuses:

1. Extra doors, means extra money. We definitely earn 2x to 1.5x what we would be earning with the extra units.

2. Tenants don't care as long as it's nice. They will pay market for the unit, not the zoning issues.

3. DO NOT TELL THE CITY OR TRY TO RE ZONE. My city in particular is not about to allow rezoning. As far as the city is concerned, we have "legal non conforming properties". They are legal, but they cannot be recreated as they are today as they don't comply with zoning. If we were to tell them, the city would make us remove a unit or two.

4. Only bummer is that you can't recreate it in case something were to happen. Have a client who is always concerned about whether not you could recreate the property because he has had a property burn down. Ultimately, his bigger concern is making sure that he could generate the same kind of income. That's somewhat of a toss up sometimes, but they're still my favorite properties.

Consider it a slam dunk!!! Congratulations!!!

I never take a property off the market until someone has signed, given me funds and moved in. You are not occupied until you have checked off all three boxes. Renew your ad, follow up with past showings and give them their money back. No sense in taking @Terry Miller's girl to the dance if she's going to be a terrible date because she would rather be with Terry. Don't push it.

That's not investing. That's going out and getting a brand new car with the expectation that you could sell a depreciating asset for more than what you paid for it. It's just not how successful people operate. The other way to think about this is would you want 10, 20, 100 of these if it had negative cash flow?  NEVER!!! Dump the thing and either hang on to the cash while you find a performing asset or 1031 into something that does perform. It's questions like these that make me glad that this site/forum exists. Absorb information and you'll quickly learn why I've said what I've said.

More than Satisfactory information in my post here