All Forum Posts by: Marcus Johnson

@Michael W. Thanks for your reply. What your saying makes perfect sense. My problem is that I've heard nightmares about tenants parking Motorcycles in the living room and changing their oil. I'm the type of lanlord that wants to be more hands on and check on the property by doing a drive by or stopping in to address concerns. I want to be more personal to the tenants and not be a long distance lanlord. To me that is what being a landlord is about. Yes I could probably make better returns elsewhere, I'll just try to find a property with the best cash flow possible in my area.

Thanks again.

Moderators, can you please delete the above reply, I was trying to figure out how qouting works on this forum.

The 2% rule doesn't work real well in the Richfield, Bloomington, Blaine areas. I ran the numbers on homes purchased for $95,000, $128,000 and $146,000 which are single family homes in both decent neighborhoods and lower income areas. I tried running the numbers with putting down 5%, 10%, 15% and 20% and the best cash on cash return I could calculate on rent of $1,400 (which is really good for the area) of no better then 1.1% and that's putting down 5% on a 100k home with rent of $1400 and all worst case scenario expenses included.

So as you can see, 2% is unrealistics in all markets. Most people would think I'm crazy charging $2,000 for a 100k home. I do think the 50% rule is good, but I still wonder after all of these responses on how to determine how much to pay on a rental. I'm thinking the 70% rule minus expenses would work just fine.

What rule of thumb do I use mathematically when buying a rental?

Thanks for all of your replies. I have a few changes to my figures based on actual figures that I was able to receive from Bell Mortgage. Based on putting my 15% down on a 110k home @ 5.25% the closing costs are being estimated at $5,000. In addition to this my rent figure was off just a bit, I went to the same type of home that in the same neighborhood, with the same square footage and asked the tenants what they were paying and they said $1,400 a month.

Also, to address some of your questions.

-Ali, yes a vacancy rate of 2% is quite low, so on my spreadsheet I've recalculated using 8%.

-As for 15% down, I am able to get this type of financing through my credit union and Bell Mortgage. In fact both banks came up with the same figures and is more then willing to back me.

-Joan, as for closing costs I've made the appropriate changes to my spreadsheet based on the banks estimate which is $5,000.

-As for the cash buyers, yes I will be competing with them for properties and will have to move fast.

-Alan, thanks for your reply. I am going to recalculate these figures, but other investors that I know in this area aren't making 2% cash on cash return.

-The initial repair costs of $2,000 are consistent with the problems associated with the property.

So I've recalculated my figures and here they are:

Offer: $110,000

DP $16,500

IR 5.25%

Monthly property Ins $52

Monthly PMI $100

Monthly property taxes $150

Vacancy rate 8%

Closing costs $5,000

Inspection $300

Initital repairs $2,000

Monthly maintenance fees $50

Cap rate 10.10%

Cash on cash 1.72%

Monthly NOI $409.82

So I'd personally be ok with netting $409 a month cash flow. What do you think of these updates?

Hello everyone,

I'm not really new to BP's forum, but I'm interested in getting some feedback about my situation. I am looking for a rental property in the Richfield or Bloomington, Minnesota for a single family 1,000 to 1,800 squarefoot home, at least a 3/1/1 home if not better. I've called around to some PM companies and gotten some information regarding the types of homes and vacancy rates of rentals in these cities. My price range is anywhere up to 120k, with 15% DP. I'm prequalified by two different banks that have quoted me an interest rate of 5.25%.

I have run the numbers of a $110,000 home on a spreadsheet and here are the numbers. I'm just doing an estimation on a story and a half that I found.

Offer price $110,000

DP $16,500

IR 5.25%

Monthly property Ins $52

Monthly PMI $100

Monthly property taxes $150

Vacancy rate 2%

Closing costs 1% to 2%

Inspection $300

Initital repairs $2,000

Montly maintenance fees $50

Cap rate 8.75%

Cash on cash 1.4%

Monthly NOI

So this how does this sound? Any suggestions on beating out cash buyers? What type of realtor to choose? How to close the deal quickly? Any other suggestions?

Don't you think the bank is going to look at your 100k in student loans, car note and 195k mortgage as a risky situation. Look at it from the banks perspective. I would think this is a big risk. I would pay off the student loans before you do anything else and sell your car and drive something cheap. I once drove a Toyota Camry with 240k miles on it that I got for free so that I could pay all of my debt off. Now I'm able to save alot disposable income for investment properties and not have any payments except my primary mortgage. It just feels cleaner to me and I'm much for calmer with no revolving debt.

Maybe what he meant was that since you don't have any money, you will have a more difficult time buying investment properties. There are many types of investors, some leverage themselves to the hilt and take lots of risk and do very well at it. Others work and save up lots of money and buy properties with their own money. Others work hard and network and use other people's money to buy properties.

I strongly believe in putting in the extra hours to save up capitol to buy investment properties. It's a slow process, but very exciting to anticipate the buying of properties, but also very rewarding because you feel like you did it on your own and you sacrificed so many things in life to get to this point. You need to guage what your own risk meter is and go from there. Good luck!

Maybe a good incentive for her to save it is to match her per every $100 she saves and it has to go into a savings account. I plan on starting a commission based incentive plan for my kids once they are 8 years old and can manage different types of chores. I plan on also teaching them to save some, donate some and spend some.