All Forum Posts by: Nancy L.

@Account Closed I get what you said about #3. Cap rate = NOI/cost, and CapEx are not OpEx so aren't included in NOI. @Christos Philippou, I would adjust what I said above by leaving in the 5% for repairs but leaving out the 5% for CapEx. However I understand from the RE accounting ppl I've talked to lately is that the line b/w capex and opex may be blurry and may be two different things for your own purposes vs. tax definitions.

#1 - As an example of my comps problem, I own a property that has a 2-bed/1 bath semi-detached house with a fully detached 2-bed/1 bath remodeled carriage house, joined by a courtyard, with driveway, in a nicer but not the nicest section of the Germantown neighborhood of Philly. There just isn't anything else like it. However I can compare to cap rates on other duplexes with 2 bed units.

#2 - 8% projected vacancy loss is a standard used by investors I've consulted in my area (big and small) . It equates to losing one month's rent per unit per year (1/12 = about 8%). We hope tenants will stay longer and never cause eviction expenses, and that vacancies turn over fast, but pro formas should be conservative.

#4 - Given what I said above with #1, if comparing my weirdo property with other 2-2 bed duplexes, I'd look at the cap rate I computed for each and see what's better. 

My question is for computing cap rate, what goes into the costs? I've been using purchase price + construction costs to compare my prospects, but since construction costs are capex, maybe that's not right for cap rate?

@Christos Philippou I use cap rates to help compare 2-4 unit properties. The comparable sales approach can be tough b/c sometimes I can't find comps, especially in Philly where each property and each block is its own unique and special flower. :-p Ultimately I look at ROI/cash-on-cash returns, but that depends on how the financing is structured, whereas cap rate lets me compare just the factors of the properties themselves.

As far as your computation, to compare apples to apples it should be consistent with what other investors standardly do, so needs:

8% vacancy loss rate, computed from your gross income

6-8% management fee, computed from gross (since like me you self manage, consider this a salary you pay to yourself for your time managing it and separate it from the property #s)

Rental license fees (if Wilmington requires this, ours are $50/unit/yr)

Trash removal (again if Wilmington charges)

Snow removal

Landscaping (cutting grass or bushes if you have any)

Insurance: Are you really only paying $750? I'm paying more on a basic duplex but maybe Wilmington is different. I'd check what values they used to come up with your premium to make sure they have correct square footage, number of units, materials etc, and that you agree with their total replacement cost. 

Repairs & CapEx: I've been told to use 5% of gross income for repairs and 5% for CapEx (replacing appliances, roof, etc) and that's pretty consistent with my actual experience so far. Combined that's right around the $3K you estimated for repairs

RE tax and utls you got

@Chris Masons I personally like the retro look but all that pink is overwhelming. I wouldn't want renters to be put off by it. I like the ideas of tiling over it or covering with another material as other posters have suggested, if demo isn't an option. I like the sink, but adding some storage with a vanity would help a lot! Or replacing the faucet and adding some shelving would be nice. 

@Steve Vaughan agreed now with @J Scott 's explanation! I did not know that. We are looking for a purchase for our LLC, but it doesn't own anything yet. What I own now is in my own name (another discussion I know, but yes is extra insured). So still time to correct that mistake before it happens! That's the best kind of mistake. :)

@J Scott THANK YOU!!!! Glad I asked!!! I didn't know that. I really appreciate your explaining. I just googled it and google says the same... I will consult with my lawyer now. 

@David Dachtera LOL! See my post above... PA just requires some forms saying who is in the LLC, the purpose of it, and what we want to call it. Couldn't fathom how that could be so badly messed up until J Scott's mention of the operating agreement. Now I'm wondering how the operating agreement relates to asset protection.

@J Scott Thanks for clarifying! PA doesn't require us to submit an Operating Agreement. I thought that the OA was between the members to define responsibilities and rights. How does it relate to asset protection? My LLC has two members, and the other one is my mother. We never bothered with a formal agreement.

Sounds like a good plan! If you're looking at duplexes, I'd make sure it would be profitable if it were fully rented out. When you go to sell someday, you'll want the numbers to work for an investor since most people looking just for a home don't buy duplexes. Try computing cap rate. That will give you an idea of what it's worth as an investment property. 

I deal with tenant inquiries by email only because it's easiest for me personally. I also find tracking individual appointments, phone numbers, confirmations, etc to be a headache. I send an email back to all inquiries (from a script I copy/paste) with basic property info, requirements, and details for open house times (typically one evening and one weekend, and hour in length). I put in BIG BOLD LETTERS to please RSVP for an open house date. I also urge the prospects to bring application materials.

I copy/paste all email addresses into the BCC field of an email draft as I reply to the inquiries. I email all the prospects a reminder the day before the showing. I'm having pretty good luck with that approach, but have noticed some rentals have flakier prospects than others. Hope this helps!

Jeff, In what ways might an online source mess up LLC set up? That's how mine is set up. Thanks!