All Forum Posts by: Kevin S.

@Nader C. Vacancy, CapX, and Repairs are all too low. I use 8% for vacancy as this gives you about a full month saved up each year (1/12 = 8.33%), CapX you probably want around 10% as these are big ticket items, and repairs around 5%. All together that's a 12% increase in expenses which would result in negative cash flow per month on this property, all else staying the same.

@Eli Altman stick to your screening standards, if your normal standards say you wouldn't rent to someone with past evections (or evictions within X number of years) then pass on it. Inform your current tenant that she did not pass your screening and move on. Be sure to keep an eye out for him moving her in anyways. If he leaves, he leaves, but it's better (and cheaper) than getting stuck with an eviction.

@Radu Botnari You might reach out to Sharon Wilkinson, she's a RE agent based out of Owasso (Coldwell Banker). Not sure if she knows how to structure an owner financing deal or not, but I've worked with her before and she's great.

@Travis Biziorek I know this is slightly off topic for the forum, but just curious why you decided to amend your plan to allow for loans? Back when I used to audit 401k plans, the trend/advice was for plans to go away from this as it typically resulted in employees who terminated with loan balances, didn't have the money to pay back the loans once terminated, and therefore had to pay taxes AND penalties on the early withdrawal that it became.

@Doug Phillips I'm not a financial advisor, the following is just advice based off my own opinions. First off, contribute the maximum that you're employer will match, even if they are only matching 50 cents on the dollar, otherwise you are basically throwing away free money.

Second, make sure that you diversify your investments within the Plan, please don't just throw all the money into one investment (I used to audit 401k plans and a ton of people do this, and then lose a lot when a particular investment tanks). If you don't feel confident in picking your investments, most TPA's (third-party administrators, such as Fidelity or Charles Schwab) offer a pre-set list of investments based off the amount of risk you want (i.e. if you want low risk they will invest your money in a bunch of very low-risk/low-reward investments) so you don't have to worry about picking individual investments.

Last, do a bit of research on the investments if you hold anything beyond common stock or mutual funds. For example, annuities can have restrictions on when you can withdraw the money, so be careful with those. Also look at the fees, some companies try to push their own investments because they charge higher fees on them and therefore make more money off of you.

Good luck with your 401k!

@Christian Wilson don't forget that besides your downpayment you'll also have closing costs of anywhere between 1%-3% (estimate) of the purchase price, so you'll probably need closer to $10k saved up to cover downpayment/closing costs/etc. Depending on the age/size of the property you'll want to have some money stashed away for repairs/updates/CapX but it's hard to estimate this without having a property you're considering, I would just keep this in mind as you save.

Additionally, I would recommend you consider looking for a duplex/triplex instead of a SFH, it's not always easy to find people willing to rent a room versus a full unit and you may find you miss the privacy of your own space. I would talk to a local realtor and keep an eye on current listings, try to see if you can't find some multifamily properties in your price range and run the numbers to see if it works for you. Good luck!

@Victoria King does your lease say anything about having the right to show the property or display "for sale" signs? If so then you don't really need them to be open to showings (though it's always great to have a tenant willing to work with you). I would just be frank with them and state that you're planning on selling, wanted to see if they were interested first, and if they aren't give them notice that you will be listing the property and will need it available for showings with notice. Good luck with the sale!

@Jeff Lucas This is not legal advice, and I'm just going off the little of the lease you quoted us, but based on what you said from the lease there is nothing there requiring you to renew with this tenant, it merely states that if you do renew with him then the rent will not increase. I would just serve him 30 days notice (or whatever your state/local laws require) that you aren't renewing the lease and be done with him.

@Snehann Kapnadak you said that one unit is vacant currently, does it need much work to get it ready to rent? Also, are you basing your CoC, etc. on all units being occupied? Cause based on my calculations, unless the 4th unit is occupied you're negatively cash flowing by ($3)/month:

By month (w/ 3 units rented):

Income     $2,288

Expenses:

Debt servicing of $150k @ 5.5% over 30 yrs $852

Electricity  $135

Water/sewer $280

Garbage $75

Insurance $120

Taxes $140

Other (lawn/legal) $117

R&M $114

CapX $229

Management $229

Profit(loss) ($3)

However if fully occupied @ $3,050/month of income and including more normal vacancy of 8.33% it looks like you cashflow about $316/month.

One thing I noticed is that you're taxes look low to me, I'm going to guess that those are based on a much lower property value than $200k, so be prepared for those to jump up in year 2 of ownership. You might check out the local county assessors site and see if it shows how taxes are calculated for the property, maybe project what they will be in Yr 2.

My biggest issue with the property is that, if you use all the same assumptions except a downpayment of $0 and recalculate, the property negatively cash flows (even if fully occupied), so you're basically just using $50k to buy a couple hundred dollars in cash flow per month.

Good luck with your search for a property!

@Jonathan G. I'm with @Lynn McGeein regarding the security deposit, I'd check with a local RE attorney regarding the legality of keeping the full security deposit as a pentalty for breaking the lease, everything I've ever seen points to the fact that the security deposit can only be used for damages above normal wear/tear or rent due (depending on the state). You may want to re-write your lease going forward to specify a early lease termination fee or something, rather than trying to take the security deposit.