All Forum Posts by: Lance Smith

@Bill S. Thank you for the response. I will get started on comparing historic appreciation rates and see how the Denver and Tennessee markets compare. I see you have been in the industry since 2001. When comparing the appreciation rates would you use the last ten years? I only ask because the last ten years have been atypical of the normal market, or so I’m led to believe.Would it be beneficial to expand that time frame to 15-20 years to get a better picture of appreciation?

I understand the concepts you present with supply and demand. What worries me about holding out for appreciation is the appreciation is not guaranteed. For instance, I bought my current home in the Denver area 2 years ago, with $0 down, and have about $100k in equity as of now.  Also, the home we are building has about $40K in equity with $0 down and we haven’t even closed yet.  Appreciation has been great for me in this market but how long will the market continue to appreciate in the Denver area? Eventually, and I fear we are getting close to this point, the market will flatten out and possibly decline because the supply/demand will shift. At a certain price point the demand will decrease and so will home prices, assuming supply stays static. I think a major question that needs to be answered is, “Should I cash out now or ride the market a little longer?” I’ve seen a lot of posts on here that are against investing for appreciation and instead state investments should focus on cash flow. What is your take on that perspective?

Also, I think a major issue with calculating for cash flow based on percentages of gross rent is just that. If the same house in two different markets has a rent differentiation of $1000 the Maintenance/CapEx will be similar but the percentage taken from gross rent to determine cash flow is highly differentiated. I am trying to determine a conservative but realistic solution for this.

Thank you again for your response. I appreciate experienced investors helping out those new to the industry.

Hello,

We are moving into a new home and will be selling or renting out our old one. We had a private lender loan us the money to get out of our VA loan in order to pay 0 down on the new home. We have to refinance to pay the lender back and there is more than enough equity in the home to do this. However, we are looking at all of our options, one of them being sell the home and purchase a different rental (or 2) in another market. We are trying to analyze the monthly costs (property management, CapEx, Vacancies, etc) and are having a difficult time. It seems the calculations are based on the gross rent. How would you calculate these costs if some of the houses are almost identical but in different markets? For instance, our current home is in Denver and the rents are much higher than the homes we are looking at in Tennessee. However, the homes are almost identical.

The main reason I ask is because our current home shows a negative cash flow but I believe, possibly falsely, it is due to the large demand in rent.  Any thoughts or input on this would be appreciated.

Thanks,

Lance

Sara,

I'm sorry about the delay in my response. I ended up denying the application for additional reasons but would like clarification. I will send the information to the email address shortly. Thank you for the help.

Lance

Hello,

I just received the results back from some applicants on SmartMove.  They are a couple and one applicant had a credit score of 511 with a bankruptcy and a short sale. The other has a credit score of 804 with monthly payments of 500 on two accounts. They each make 70k a year (has not been verified yet). Neither had criminal or eviction records. SmartMove reccomended declining them both but for the application as a whole it reccomended accepting.  What are your thoughts on this?

Hello BiggerPockets!

I've acquired my first rental which I believe will cash flow well due to interest only financing. It is actually my primary residence as of now but we are moving in November to a new build. We have begun the process of advertising the property despite it not being available until November.  With that said I have some questions:

1. I was reading on the forums to collect the security deposit in order to hold the property until a lease is signed.  Is that still a good method giving the extended time?  If not are there other methods that would work?

2. Because we are moving to a new build we are not able to commit to a set day for a tenant to move into the rental.  The build completion date is tentatively set for Oct 27 but we all know how that goes.  I can almost guarantee us being in the new home by mid-November at the latest.  How do we word this in the contract or do we wait until we know the date to actually complete the lease?  If we did wait should that be noted when taking the security deposit from the previous question?  If so should we commit to providing a certain time period they would take possession when we take deposit? 

3. Credit History - We do have a couple that are applying as of now.  I've been told the female's credit is excellent (750+), but the male has a a short sale within the past 7 years and a bankruptcy 10 years ago.  They have stated the only item on his credit report now is a car payment and they make 70K each for a total of 150K a year.  The property is being advertised at $2200 a month so they are well over the income requirements.  I am still waiting for the report to come in from SmartMove and I will confirm income. I will also speak with past landlords.  If their statements are true what are the community's thoughts them becoming tenants?

Thank you all for taking the time to read this and for any additional time spent in response. I really appreciate it.

Lance

That's actually an excellent idea. It will give me a valid reason other than just not wanting to pay asking. The more I look at the numbers the more I realize the property wouldn't be viable unless I'm purchasing in the 180k range. Of course that is a huge jump from 225K. I'll keep an eye on it and if it's still on the market a couple months down the road I might make an offer. Thanks for the input everyone. Hopefully one day I'll be contributing information instead of just asking for it!

Thanks for the input . I do plan on managing myself and I know a minimum standard is $100 per unit but it does seem like the price point is to high. What would you consider good cash flow for a 4plex like this?

After talking to the listing agent it appears all 4 are rented. Anyone? Thoughts? Is it that bad of a deal?

I have come across a possible first investment of a 4-plex located within 10-20 minutes of three military bases in Colorado. Please let me know what you think and if you have any advice.

The asking price is 225K but it's been on the market for 90 days so I wouldn't offer that. However, for calculations sake we will use it. The owner is in the military and is located outside of Colorado. I have talked to his agent and he indicated the owner had problems with the PM company he hired. They neglected maintenance and it seems increased his turnover rate. Currently 3 out of the 4 units are rented at a $550 a month each. All units are 2/1 with 769 sq ft so I can only assume the fourth unit can be rented at the same price. It sits on .2 acres and has 8 parking spaces. The rental terms state tenants pay for gas/electric and the owner pays for water/sewer/trash. Current annual taxes, according to MLS, are $885. I will note the current owner has performed a lot of repairs. Carpet/stoves in 2009. 4th unit got new w/d in 2010. 2 units got new flooring in kitchen in 2010. Pavement in parking area was sealed and painted in 2010. Something does interest me though, and I am little concerned. In 2013, in which Colorado had a 100-year flood, the owner installed flood prevention measures for $5,500 in the common area and performed flood repair/water mitigation in the fourth unit for $6,500. Part of the mitigation was cleaned carpet, new bath, drywall, mold prevention, and paint. It states the work in the common area and unit were FEMA supported. I can only assume this is why the fourth unit is vacant right now. Also, at this time I do not know the condition of the roof, hvac, or any other major components. I have only seen the MLS listing but the property does look well maintained in the listing. So with that said……..

Price (225,000)

Closing 5% (11,250)

However, I will be asking for seller to pay some or all of closing costs.

Gross Rents 26400

550 x 4 x 12

Vacancy 10% 2640

Leaves 23,760 in rental income

Maintenance 10% 2640

Leaves 21,120

Taxes 885

Leaves 20,235

Insurance 1300

Leaves 18,935

Utilities 3262

Leaves 15,673

NOI - $15,673

Cap Rate – 6.965

15,673/225,000

Cash flow

Mortgage terms 225K purchase with 20% down is $180,000 at 5% is 966 a month.

15,673/12 = $1306

1306-966

Cash flow $340 a month

$4080 a year

CoC – 9.6%

4080/ 45000

Would anyone consider this a viable option? If given the opportunity to invest in this property what would you consider an ideal purchase price? We will assume free is not an option. I'm currently trying to find comps in the area, which is hard to do because I don't have MLS access and it is a 4-plex. Also, I am in the process of analyzing the rental prices in the area to see if a rent increase would be possible. I guess another important thing to note is I am a Colorado agent on inactive status. I have been reading the forums on the pros and cons of being an agent. Reactivating my license could "save" 4-5k but I don't know if the RE fees would be worth it for one property. Of course…..more access could lead to more investing.

Hello,

So I have an interesting opportunity when it comes to a possible investor and I would like some information on how to get a commitment. My father-in-law is on the verge of retiring and is interested pursuing a business after retirement. He has stated he is very interested in real estate and understands it is an excellent avenue for wealth. However he has had a rental property in the past and states he hates dealing with the headaches. After reading many forums posts and blogs that touch on this subject I feel we can mitigate a majority of the difficulties in terms of tenants. This will obviously be a part of my presentation/proposal. As far as outcomes go, he has about 200k for investments purposes to which I can add 30k. This is more than enough to get started and despite him bringing up the idea I am finding it difficult to formulate a good presentation to get him to commit. I believe flipping would be the best course of action and then we could transition into rentals. Anyone have experience partnering with family? What was your course of action and how were the results? Please feel free to provide any advice or ask any questions. Thanks!