All Forum Posts by: Michael Wentzel

@Kenneth Goldman

There is a great excel sheet put out by Bigger Pockets. Here is the link...

http://www.biggerpockets.com/tools/REIPropertyAnalyzer.xls

Many investors like to use the 50% rule which says 50% of your rent will go to expenses and you will be left with the rest. If you carry a mortgage on the property, that would need to be taken out of the second 50% to give you your cash flow.

For example, if rents were $2000. $1000 would go to expenses. Then you would subtract your mortgage from the remaining $1000. Maybe $1000 - $350 to give you a cash flow of $650 per month.

That being said, I like to run it with actual monthly numbers... Rent - Mortgage - Taxes - Insurance - Property Management - Repairs (10%) - Vacancy (5%) = Monthly Cash Flow. You wouldn't have the mortgage and you could adjust repairs and vacancies up or down. You might need to included utilities as well if you're paying them as the owner.

I like to look at my Return on investment as well. So I would take the final monthly cash flow number, multiply by 12 and divide by the total amount of cash I put into the deal.

I hope that is helpful.

Mike

Hey Mike,

It is great if the seller will carry the note for you and you avoid closing costs. Good schools and a long list of renters also means low vacancy.

But that being said, it is under 1% in the rent to purchase price. Even conservative investors would be hesitant with that and more aggressive investors look for 2% or higher. The increased rent would make this number better. On the 50% rule you're only going to have $325 a month (50% of $650) to cover a mortgage of $310 (according to Mark). So that is a slim margin as well.

One other issue is with the current tenant. I just purchased my first rental property that already had tenants in it. My understanding is that I legally must honor the lease of the former owner. I'm not sure how soon you could change the lease or put new renters in there. Maybe more experienced investors can clear that up for us....

I hope it works out for you well or you find another deal in the area.

Mike

Sounds questionable. How long have you worked with the agent? Have you signed a contract? I would give the agent a chance to defend themselves, but move on quickly without a really good explanation. You need to work with a agent that is excellent at what they do, communicates well and is trustworthy.

Mike

They numbers look encouraging, but you would need to give more details. Are you financing the deal or paying cash? Will you be managing the property or hiring a property manager? Are you sure those the repair numbers are accurate? What is the neighborhood like?

On the surface, it clears the 2% rule of rent to purchase price and approaches the elusive 3%. That would make me interested.

Mike

I have only purchased three so far. The cheapest was $40,000 for a foreclosed two-bedroom, 1-bath townhome with no HOA. I thought it was brilliant at the time and it still cash flows $200 a month. However, I'm now looking in the $25,000 to $35,000 range for a single-family as my next purchase. Bigger Pockets pockets has really impacted my criteria for a "good" rental property.

Mike

@Victoria Vail Welcome to BP! Definitely the best place to come if you want to learn. I'm relatively new to this game and I'm constantly learning from the BP podcast and these forums.

I seem to remember someone mentioning a BP meet-up group that happens in Denver. If you could get tied into that, I'm sure there would be a ton of local knowledge to glean from.

I live in Colorado Springs, but I'm actually looking to invest down in southern Colorado. I closed on my first 4-plex this week and I'm hoping to get another single-family home by the end of this year or early next year.

MIke

@Laura Chonko Welcome to BP! Have you met with a few lenders to get a really good understanding of where you stand with financing. I would meet with a couple of the big national banks and a couple of local banks. The two perspectives are quite different, but you can learn from both.

If the deal is a "big" one and the issue is that your "capital" is too small, you might look for a smaller deal. Sometimes small deals are a good way to get started, make some mistakes, learn and make money.

Mike

@Peter Lohmann Thanks for the run-down. Your fees seem quite reasonable. I'll be sure to get in touch with you when I start looking at the Columbus market again. The next couple months are full of life, work and a couple of properties I'm working on out here in Colorado.

@Peter Lohmann I appreciate the in-depth insight from someone experience in the market. I especially appreciate the wisdom from a property manager. Having been overseas and investing out-of-town, we always use property managers.

Is your fee the standard 10% of gross rents, or do you charge more for the "harder" areas?

I assume you also manage some properties in medium- or high-end neighborhoods. Where would you point investors looking to pay a little more in purchase price to get a step up in neighborhood?

Mike

@John Horner and @Corey Liepelt Thanks for the input. I appreciate locals lending some of their insight. It is still a learning process for us. We have found a small market in Colorado which we really like. We're trying to start building a portfolio there. But in the next year or so we would like to select a second "large" market out-of-state to start purchasing in. Cleveland and Columbus are two markets we're looking into at the moment.

I think we're willing to be in some of the "rough" neighborhoods. We're not afraid to put some money in the properties either. But the numbers need to make sense for us.

Do either of you have buy-and-hold properties in the Columbus area? Where are they at and how are they performing? Do you know of people who are purchasing at these lower purchase price points in Columbus?

Mike