All Forum Posts by: Mark Edler

 Appreciate it! It's in Strawberry Mansion.

Good points from @Ashish Acharya  as far as the accuracy of the K1, the business income should reflect the actual net profit of your company, and the distribution amount should reflect the amount of those earnings (or capital funds) that were withdrawn from the business (to your personal accounts).

It would make sense that a lender would want to see the funds actually flowing out of the business to make sure the cash is there to service the debt. If you have excess funds in your business account, the solution may be to just distribute the cash to yourself.

Hello friends.

I did this deal in a tough philly neighborhood with my brothers, thinking the numbers were too good to be true. I found out quickly why they were not, but we held on and got the rehab done, tenant occupied, and refinanced as of last week!

Bought a SFR for about 40K in cash. We figured the house needed 10 - 15K of cosmetic updates, which it did not. After discovering some severe plumbing issues, replacing a roof, and more, we racked up around 35K in rehab costs (a good mix of using bad contractors and inexperience in evaluating the condition in our preliminary walk through).

Final clean up was a couple more thousand and landed us right around 80K in cost. We got the place appraised, valued at 90, and pulled about 63K out of it.

Main lessons learned:

Do not go into a fixer upper deal under-capitalized. We tried to boot strap the rehab costs instead of using hard money and ended up taking way too long to get it done (a pandemic and a civil rights riot did not help the timeline but no excuses!).

Know where your value is added! Our appraisal came back as a C4 instead of a C3 and probably ended up losing us over 20-30K in leverage on the way out. *Hint: re-do the kitchen and bathroom, and do it right. Just do it.*

Now that we are occupied and refinanced, here is our numbers:

Monthly Rent: $1,200

Principal & Interest: $337

Monthly Operating Expenses: $150

Cap Rate: 14%

Cash on Cash: 37%

These numbers look awesome but keep in mind this neighborhood is full of crime and other risk factors. Looking forward to the next!

What's going on BP friends.

Bought this house back in 2019 but posting it here now as my first deal as I just recently converted it to a full time rental.

House hacked a single family home in Philly for $250K, went 3% down and had 2 tenants in there with me each paying 550 / month.

Starting figures:

Annual rents: $13,200

Annual operating expenses: $7,000

Annual interest + principal: $14,000

Aware that this was not going to cash flow til I moved out of it. I converted the basement to a room and moved out and have since refinanced to get 1.7% off my rate. Now:

Annual Rents: $20,400

Annual Operating Expenses: $7,000

Annual Interest + Principal: $11,952

Looking at a cap rate of 5.3% and cash on cash of about 7.3%. Not what I aspire to hit but looking forward to doing some deals where I can add value thru rehabs / raising rents!

@Miguel Rodriguez congrats on the first rental!

Good points by @Erik W. Two common metrics to evaluate long term rentals are the cap rate formula (capitalization rate) and cash on cash returns.

Stated in math terms:

Cap Rate = Net Operating Income / Total Property Cost

Cash on Cash return = Net Cash Flow / Cash Invested

Based on Eriks numbers and your cost mentioned, you're looking at a 5.5% cap rate and a cash on cash return of 11.2% per year.

Keep in mind that Cash on Cash figures are risky to rely on because of the potential for changes in the cost of leverage later in the life of the investment.

My favorite way to think of annual rates of return in real estate is to take the cap rate + appreciation rate (stay conservative here) - cost of leverage.

For example, a property with a cap rate of 10% with 5% annual appreciation and a mortgage with 3% will essentially yield 12% over the long term.

*Net Operating Income = Rents less standard operating expenses. This includes taxes and insurance but excludes interest and principal payments!*

My tax-biased opinion would say to COR to whatever % leaves you with a monthly cash flow high enough to cover your reserve requirements (vacancy, repairs, etc. as mentioned before). If 50% gets your equity back out and opens up another deal, a COR with a low interest rate could put you in a better spot than a 1031, which can be tough to pull off.

@Joel Trout itemized deductions are only for personal deductions that go onto Schedule A. If your properties are strictly for rental purposes and not used for any personal activity, all expenses for those properties should be reported on Schedule E regardless of your decision to itemize your schedule A deductions.

@Shiloh Lundahl 10,000 a month is 120k / year. If that’s net of taxes, etc. then your net required rate of return on 1 million to produce the same income without touching the principal is 12% a year. If you don’t have a risk free way of generating 12% forever on your money, 10k a month is the way!

Thank you for the recommendation @Joseph ODonovan ! Would be happy to help @Mathew Watkins. 

Hi Bigger Pockets members,

I am looking for an experienced cost-segregation engineer who does work in the area around Philadelphia. I am a CPA and would love to have a go-to professional for anyone who would benefit from Cost-Seg studies.

Best,

Mark Edler