All Forum Posts by: Michael Rossi

The VAST MAJORITY of newbies in this business fail and one of the major reasons they fail is that they don't understand the REAL WORLD EXPENSES. In this thread, we've seen the mentality that cause newbies to fail and precisely how that mentality leads to their destruction.

I find it particularly interesting that the 50% Rule covers ALL expenses, and yet we continually hear ridiculous arguments about water heaters and carpet. At most, only about 10% of the 50% expense total are maintenance expenses. So, even if a newbie claims that ALL of the normal maintenance costs somehow magically don't apply to them, then they still have expenses at 40% (really 35% to 40% since the 50% Rule states that expenses will be 45% to 50%).

What we have seen in this thread is that newbies somehow think that the industry-wide normals don't apply to them. When in reality, if anything, their expenses will be HIGHER because they don't yet understand the business and therefore make mistakes.

I know that we can't save all the newbies from failing, but it would be nice if at least a few could learn without having to crash and burn. Ugh!

I can't believe that we have to rehash this simple concept every few months.

Mike M - we already proved in another thread that your expenses are in line with the 50% Rule across your portfolio! Do I really need to go back and dig up those old posts? Furthermore, we've already rehashed that the 50% Rule is meaningless when it comes to a very small number of rentals and it means nothing when it comes to ONE rental.

As to this idea that the water heater in a low income rental costs the same as the water heater in a $500,000 house. Please excuse me for saying so, but that it ABSOLUTELY an idiotic argument and shows a clear lack of understanding of expenses. That $500,000 rental in California also has a MUCH higher eviction expense; higher property taxes; all kinds of socialist government registration fees and costs that the Ohio rental doesn't have, etc, etc, etc.

Taz, who was skeptical of the 50% Rule, did a study of over 30,000 rental units in different areas and of different rental rates. IN EVERY CATEGORY, the expenses (as defined by the 50% Rule) came out in the range of 45% to 50%.

Furthermore, as Jon said, EVERY SINGLE TIME that someone has claimed that their expenses were lower than the 50% Rule and when they could post the numbers, they were proven wrong. EVERY SINGLE TIME!

In case you haven't noticed, house prices have been going DOWN, not up. There are currently MILLIONS of houses of excess inventory with a significant percentage being held off the market. Real estate will be going LOWER and may not recover for a generation.

California and many of the "progressive" states are broke. We have deficits and unfunded entitlements in this country that can NEVER be paid. The demographics of this country would have resulted in a depression starting in about 2012 all by itself. ANYONE THAT IS COUNTING ON FUTURE APPRECIATION is taking a HUGE GAMBLE!

The 50% Rule does apply in every area and every price range. It is well documented that over a large number of rentals and/or a long period of time, the expenses will be 45% to 50% of the gross rents. You'll note that the 50% Rule doesn't say ANYTHING about a $500,000 rental being a good rental in any market. Believe it or not, we have $500,000 houses here in hillybilly town, Ohio, but just as in your area THEY ARE NOT RENTALS (or at least not good rentals!

First, it was EXTREMELY POOR JUDGMENT to move into a place owned by your wife's relative! Second, all real estate contracts must be in writing.

The bottom line is that you exercised HORRIBLE JUDGMENT and have no lease. I'd say that you have no grounds for anything. I'd move on.

Here's a little experiment to try. Spend one full month pasting pictures of successful people all over your apartment. Chant "I am successful" until you're hoarse. Visualize yourself driving a brand new Mercedes convertible with a supermodel in the passenger seat and bikini clad supermodels lining the roadway applauding as you pass by. Visualize large piles of cash all over your apartment and the universe constantly bringing you more money! Then, at the end of the month - count the money you've actually accumulated from all the chanting, visualizing, and talking to the universe! I'm betting it will be zero.

Then, the next month, get out of bed every morning at 6 am; get out of the house by 6:30; and find some silly little house that you can buy for 1/2 of the current retail value. Go to your local REIA and sell that deal to another successful investor for $10K more than the price you negotiated on the property. With HARD WORK, you could probably do two of these that first month. At the end of the month, count your money. I'm betting that you will have infinitely more money using this method than with the chant/visualize/talk to the universe method!

AMEN! No disrespect intended, but Brian's posts make my head hurt. I had to take some aspirin before I could even answer this post!

You don't need to calculate the annual loan constant, IRR, ROE, cap rate, or any of that other nonsense to determine if a deal is good or not. The rental business (especially the residential rental business - houses, apartment buildings, etc) just isn't that complicated.

Subtract ALL the expenses (as defined by the 50% Rule) and the debt payment from the gross rents to get the cash flow. If the cash flow meets your target ($100 per door per month in my case), then buy it! This ain't brain surgery.

The idea is to buy a $60K house for $30K (including rehab) and rent it for $600 per month or buy a $120K house for $60K and rent it for $1,200 per month. You can't control the market rent but you CAN control the purchase price!!! Yes, you CAN do this, but like everything else in life - IT DOES REQUIRE WORK!

If you can't find deals at 50% of the market value in this market, my suggestion is to give up real estate and apply for a "greeter" position at WalMart!

Finally, the reason that the OP has seen different numbers from the gurus (1% of rents, etc) is that the gurus are interested in selling you their expensive seminars, courses, coaching, and mentoring. If they make it sound difficult to find good deals, they'd lose most of the lemmings. In my experience, most of the gurus clearly don't know anything about rentals (or worse, they are lying about the facts). I'd throw all the guru crap away and join your local REIA (and of course read all the posts on BP). You'll learn more by doing this for FREE than you could evern learn reading every crap-filled guru nonsense course and attending every guru seminar on the planet!

Here in Ohio, I always set them out. In fact, I ENJOY throwing their stuff out after they've ripped me off! Therapeutic! Unfortunately, I'm no professional mover and stuff often gets (accidentally) broken when I carry/drag/throw it out. What are the scum going to do -- sue me? They already owe me money - sue away!!!

I agree with Marc, familial status is NOT marital status and it is not illegal to deny tenants because they're shacking up. Lucia is also right, this is a group with a higher percentage of broken leases than married couples. Having said that, if you have normal (lower income/lower middle income) rentals, this group is filled with people shacking up. Shacking up is just one of the bad decisions these people make and is exactly why they are tenants. Many in this group are quite simply heathens and they change partners like I change socks. In my area, if I didn't take people who shack up, I would literally be out of business. Sooo, I do take them, even though I wouldn't if it was possible to find better tenants.

Bill,

No one is attacking you or making accusations. You are NOT a victim, even though it seems everyone in the United States wants to be a victim. However, you are on an INTERNET forum. When you say something on an internet forum that seems suspect, that information will be challenged every single time. That is true for you, me, Tim, and everyone else that posts.

For example, your advice to get a camera INSTEAD of a gun doesn't pass the sniff test. I questioned your experience in these situations and you admitted that all of your personal rentals are in more upscale neighborhoods. That explains why your advice doesn't jive with what goes on in the hood. In fact, the reason that I questioned your advice was PRECISELY because your advice didn't fit the situation.

I also questioned your assertion that anyone that carries a gun is a coward and pointed out that the police and military carry guns.

My suggestion is to comment on things you know about and use the forum to learn about things you don't. There is no shame in not having experience in the low-income rental business.

Finally, you need to grow a thicker skin. All successful landlords have skin certified to be at least an inch thick!

That explains a lot.