All Forum Posts by: Craig Osterloh

I know how you feel Michael. They take half now, and another half when you die. Sometimes makes you wonder why we work so hard!

I have seen a few ask for data. So here is some of mine. Evaluating 6 properties over a 10 year period, I have experienced an expense of 35%. That does not include depreciation (non cash) or mortgage (principle and interest).

It also does not include capital expenditures. This is really what I was missing. New capital expenditures come through with depreciation, but are not reflected in the 35% above. I will do a quick review of the capital expenditures over the same period to see if it totals 15%. It may not reach the 15% number, but I'm sure it will be over 5%.

So, I guess I should say that you have converted me to the 50% rule. I would tend to agree that a rule of thumb expense rate of 45 - 50%, which would include any over time capital expenditures, is probably accurate.

Of course, for the purpose of investment evaluation we also need to consider gain from appreciation (???) and cash flow after tax. Appreciation is probably irrelevant to me since I tend to buy and hold (It is relevant, however to my kids).

But I think the tax effect is relevant to all. If you don't have to pay them to the state or feds, its real dollars. I think that anyone earning over $50,000 with their day job will benefit to some degree. Someone with even break even cash flow using the 50% expense rule will most likely come out with a positive cash flow after tax.

So, the follow on question would be what simple metrics would you use to evaluate a property after tax (let's say using a 25%, 35%, or 45% state and fed marginal rate)?

Also, your CD analogy doesn't consider appreciation and tax treatment. A real estate investment returning 5% vrs a CD returning 5% are quite different. CD is ordinary income, real estate cap gains (until Mr. Obama). The real estate can appreciate quite nicely. Of course it can also depreciate.

Another variable, of course, is leverage. I have not been able to figure out a way to leverage my CDs.

This question is for fellow investors. I am regularly looking for new investment opportunities in single and multi family, but I am getting tired!

Have you had any luck with bird dogs or wholesalers?

I hate mortgage insurance, so usually it is atleast 20%.

Up to now, I have financed with cash and conventional financing. With the new 4 mortgage limit, I'll be consolidating 4 into 1 to give me another 3.

My strategy is to buy well and let time take care of the rest. I try to put enough down to take care of any potential downstream threats. Buy and hold. And hold and hold and hold. I hope my kids enjoy it! :lol:

I have a property manager that takes care of most of the headaches. Everyone I know who gets out does it because they hate the headaches, to which I say "What headaches?"

BTW, thanks for the site. Very nice. I look forward to participating.

OK, to extend the question:

I wonder if the market segment of the rental impacts the GRM. I have been focusing on properties in more preferred neighborhoods. I believe this will minimize tenant problems.

Do you see a correlation between higher GRM and property type?

Well, I knew things were not well priced here, but your input verifies my opinion. Thanks for the input.

Are you calculating GRM the same way I am? I don't think I have ever seen a 5 - 7 in Utah. Certainly not in the current market. I will admit, however, that our market has not been as dismal as many others.

How has GSM been historically in your area?

Cash flow wise, I have been able to cash flow 8-10 GRM homes.

I guess my question is how accurate do you find the 50% expense rule?

If you gross rents are $2500, a margin of error of 10% on your expenses would result in a $125 difference in cash flow. This might result accepting poor deals or rejecting good ones.

So in the end, the accuracy of the 50% number is critical, isn't it?