All Forum Posts by: O'brian R.

Good points. I'm always amazed at how much great tax info I can learn from BP. You guys are awesome!

I like the suggestion of establishing some ground rules for questions/consulting in addition to the return fee. 

@Mike F. @Michael Boyer 

He charges hourly, though it seems to vary depending on how much time it takes. A couple times, he just answered my question in 1 or 2 line sentence. Other times, we chatted for 20 minutes and I received a bill in the mail.  When I send him emails, I state that if the question I'm asking warrants a phone call or meeting, then we can do that. He's the expert so I leave it to him to determine what's appropriate. 

Thanks for sharing your perspective and may have to bring up my concern. I definitely don't bother him during the holidays or in the evenings. I can count the emails I've sent him this year on one hand. 

Recently, I received a rather rude email from my tax professional in response to an email I sent that simply asked clarification regarding a 1099. In short, he said he did not want to continue emailing me if he was going to file the 1099 anyways and that telling me the rules is "burning time for nothing" (his words). 

By the way, I emailed him twice and his emails were literally 2 sentences in the first email and 4 sentences in the 2nd email where half was used to tell me that it was a waste of his time. Seriously? I see comments on BP articles that are more detailed and helpful.

I should mention, this guy has prepared me and my wife's tax returns for the past 2 years. Before then, we've always just filed them ourselves. While he's very knowledgeable, owns real estate himself, and has pretty fair fees, he can really improve on helping people better understand their taxes.  I like to be proactive, but if my own accountant discourages me from asking questions, is this enough of a reason to look elsewhere? 

This also got me wondering, what sort of working relationship do people have with their accountants? Do most of you communicate by email, phone, face to face? Or do most questions require scheduled meetings? Are they responsive to such questions or is it dependent on whether they are charging you or not? 

Curious to read what the norm, if any, is out there. Thanks.

If you decide to go forward with KC, I highly recommend getting in touch with William Robison. I have 2 SFR rentals that I picked up through William. He was my realtor, my project manager during the rehab stage, and handles my management on the backend. He's ethical, very knowledgeable, and has a lot of experience working with all kinds of investors. Whether you want to pick something up that needs a ton of work or if you want something more turnkey, he can work with you. Several BP'ers here have worked with him over the years and I haven't met anyone that wasn't happy with his work.

I would make the offer after having taken into account what I reasonably expect the repair cost to be (coming from a contractor, whether that person is my uncle or anyone else that I trust). The official inspection (if you choose to have the purchase offer contingent on one) is for the buyer and though I'm not positive, I don't think there's a limitation on whether the inspector can be related to you. That is an interesting point though. 

After factoring the repair costs along with all the rest of the conservatively estimated operating incomes, expenses, and vacancies, I'd figure out what my max offer can be that would generate my lowest acceptable return (e.g. X% CoC return or $Y/month cash flow). This sets a ceiling to my offer price to then compare where the current asking price and gives me an idea of how much that price may need to come down. Sometimes, listings are very competitive so going in with your highest and best from the start works, while other times if a property has been sitting for a while, you can choose to start low to allow room for negotiation.

Regarding taking over a property with existing tenants, hopefully others her can chime in on that topic. Both of my properties were vacant when I purchased. 

The numbers certainly warrant looking into further, but they're still only part of the story. There's a slew of other factors that can impact your rental such as the demographics, property type, size, age, etc. Does it fit your criteria for what you're looking for in terms of the location, crime, schools, etc? These factors will heavily influence the tenant class that your property will be attracting. If these are all in line with what your goals are for the property and you're happy with the estimated returns, then that'd be another green light for me to proceed. 

BY the way, how was the repair estimate derived?

Looks like you're including everything I can think of and holding some good conservative estimates as well. Though I'm curious as to how the rents compare with the current market in your area for similar size and condition. With a 1 year lock on tenants, not much you can do now if they're paying below market rent, especially true for that long term tenant. Inheriting existing tenants sounds nice in that you get instant cash flow, but the down side is that you didn't screen them so who knows who the owner placed in there to claim 100% occupancy. In any case, I'd request copies of the current leases to review. While you can't run a credit report without the tenants' permission, the current lease agreement should provide some good info. 

Maybe you already did this, but be sure to get at least 2 years of P&L statements from the owner to verify water bills, trash bills, repairs, vacancies, etc.

Regarding potential improvements you'd have to make to the property...absolutely, I'd factor that into my offer. It will add to your cash outlay and affect your CoC return so definitely factor that in.

Assuming you've already taken into account all of the expenses and losses that can happen (e.g. vacancy, repairs, capex) and that you've conservatively estimated them, I like to see over $200/month. Though rather than just focusing on the monthly cash flow, it's crucial to take into account your actual return on investment. You have to take the extra step to calculate your cash on cash (COC) return to get a more complete picture.

For example, consider 2 properties where one property returns a cash flow of $200/month, while the other returns $100/month. From strictly a cash flow perspective, it may seem you have a clear winner. Though what if property #1 required a total investment of $50,000 ($30k down + $20k rehab), which results in a COC return of just under 5% (200 * 12 / 50,000). Whereas if property 2 only needed an investment of 12k, then your COC return would be double the other investment generating a 10% return.

In a general sense, if I'm achieving $200/month and a 10% COC return, then it's meeting my criteria as a buy and hold property. Though as some of the other comments have alluded to, these aren't hard lines and sort of depends on what your goal is for that property. If I get a nicer property that is in a much better neighborhood and has better potential for appreciation, I may be okay to settle for less cash flow.

2 expenses that are missing are insurance and property management. Even if you're planning to manage them yourselves, it's a good idea to still account for PM. 

FYI, your 10% budget for capex is for building reserves and isn't an expense that hurts your NOI. So, assuming you budget something for insurance (e.g. $600/yr), PM (10%), and book capex (10%) against NOI and not as an operating expense, I get the following numbers.

NOI: $4751
CF: $133/mo
COC: 9.4%