All Forum Posts by: Mike M.

Andy
Funny you should say so. I am a PA investor with THREE small kids and a J-O-B :) I'd encourage you to look to build relationships with people who can help you and build your TEAM. Trying to do it all yourself is unwise and unprofitable. Remember good investors don't just leverage money; we also leverage TIME (of which you and I have little) using other people's time and talents.

Andy, the 50% expense concept suggests your OPERATIONAL
expenses (i.e. all expenses except debt service) will avg around half your monthly rent over a long period of time. That's higher than what you've estimated because it includes estimates for repairs, maintenance, replacements of major items, and vacancies. These are items that are less predictable, but they are real and must be considered when evaluating profitability.

I read a business plan for multi-family properties and I had a question on use of LLCs. It recommends you have one LLC for the PM and then a separate LLC for each property.

If so, I'm wondering to you handle that practically. Sounds like a lot of cost associated with such an arrangement.

I have 5 properties (4 duplexes and a single). I own everything individually now. I have an LLC but it doesn't own the RE. I was thinking about biting the bullet and paying the transfer tax but I'm trying to think through the structure as well as the cost/benefit analysis.

Looking for advice on how to deal with my handyman/contractor. He is good at bringing me inside info on deals in my market. He is doing this in hopes that I will have him do the rehabs. Problem has been the quality of the work has been below par and he doesn't seem to want to be bound by any timeframes on completion of work, especially smaller jobs. He's always prioritizing his other workload. What is an effective way to straighten out this relationship without blowing it up?

Do you guys adjust the 50% downward to say 45% when you have rents that are much higher than $500/month. I'm thinking about a single family house that will rent for $775 and will be newly rehabbed.

Yes, I understand that the 2% rule is a quick and dirty acid test, not a proforma, but I'm curious how ya'll use it practically in different scenarios.

Question- If we're capped on the number of financed properties we can get conforming loans on, wouldn't it make sense to acquire the max units possible under this limit, all other factors being equal? Given that you can only get a conforming loan on a property that has 3 units or less, then you'd maximize the opportunity if you financed six, 3-unit properties for a total of 18 units. Correct?

Another question I have is in today's world does buying based on prices derived from the 50% calculations allow one to buy at valuations which will allow for refinancing in the short-run?

For instance, if I buy the 9 unit for $215k using commercial loan for 75% of price and short-term private loan for other 25%, and I want to refi my downstroke to a permanent loan after I get the rents up to par in 12-18mos, assuming bank will only do 75% LTV on a refi I'm going to need the place to appraise for $300k in order to get my cash out or rate and term my downstroke and other costs. This leaves me at the mercy of a bank's appraiser who is probably going to lowball the appraisal from what I've been seeing. Then I'm stuck with unfavorable financing (even though I bought at a good price). I feel like a lot of newer investors (of which I'm one) get jammed up here and can't keep their capital in motion.

I am looking at a 9unit and the taxes are only 5% of gross rents, which are $4,650/mo. I verified this with assessment office.

I understand that the 50% rule of thumb is based on surveys in which individual expenses for rentals add up to 45-50% in the aggregate of which taxes are around 10% of gross rents.

Depending on whether you use 50% or 45% as your guide swings the calculation for your max loan amount by about 15%.

My question is if I know that one of these expenses, in this case property taxes, is outside the range, is it reasonable to come down from 50% in estimating long-term expenses, as in 5-10 years?

Don't know if ya'll are still around. hope so cuz i'm sure you're the ones to ask.

Does the 45-50% include a sinking fund that is funded regularly out of rents to pay for future capital expenditures? And is there a general % for this portion of the 50%? How do you allocate rents systematically for future replacement of roofs, water heaters, furnaces. I guess just try to estimate expected date of death for each one of these and work the math, huh? Can a good home inspector help here?

Thanks that's a great idea on the leases. I was looking for feedback on what y'll might do as far putting contingencies in the purchase contract that would give me some additional protection.