All Forum Posts by: Richie Thomas

I'm an out-of-state investor considering a rental property in this area, and I'm wondering if any locals in this forum have strong positive or negative opinions on its potential as a farm area.  Is it a war zone?  Is it an up-and-coming diamond in the rough?  I've seen info from NeighborhoodScout suggesting it's a solid C-class neighborhood (a score of 43 is way better than many areas I've seen).  I'm cautiously optimistic (especially given the average rent of $1,400 I've seen on Rentometer) but I don't want optimism to lead me into making a bad investment.  Should I stay away from this area and focus on other parts of town instead?

Thanks in advance.

A few more questions, David

-How does vacancy work during the summer, non-school months?  Do most students continue to rent during those months and stay in the area?  Or do they move out for a few months when they go back home?  That could affect how difficult it is to fill the unit during that time of the year, and in turn your vacancy assumptions.

-I see you're making a down payment of larger than 20% (i.e. $42.5k / $170k = 25%). Why the extra down payment? I'd be curious to see how paying the minimum 20% down payment would affect your cash-on-cash ROI %.

-Also, I still don't see that you've budgeted for a property manager here.  Especially if you're planning on renting to students, you'll want to include 10% for this in your budget.  If you plan to manage the property yourself, then you're not buying an investment- you're buying a job.  Make sense?

Best,

Richie

@David Giraldo no worries, but I'm getting an error when I try to open the updated report:

Reloading doesn't do the trick, unfortunately.  One thing I find to be helpful is downloading the BiggerPockets PDFs from their link (which expires after 7 days) and uploading them to a public Google Drive folder (which never expires).

Hey Michael, welcome to the forum.  Here's some thoughts I had on your report about the property:

-I see from the report title that this is a duplex.  And based on the projected income, I'm guessing you're planning to rent out both units (as opposed to house-hack in one and rent out the other).  Is that correct?

I plugged the property address into Rentometer.com, looks like your income estimate might even be a bit low!  Check it out:

It might make sense to bump up your income projections to take this into account, since $2,100 for two 2-bedroom units seems artificially low for this area.  On the other hand, the asking price for this property is currently $215,000, so you may also need to bump up your purchase price.

-Are one or both units in the duplex already rented?  Or will you have to find tenants?  If you'll have to find tenants, will you manage that yourself or delegate it to the property manager you've budgeted for?  if the tenants are already in place and paying the rent you mentioned in your income projections, you may want to consider a cash-for-keys deal so you can raise the rent to market rate.

-If this is a non-owner-occupant property, how are you getting an interest rate of 4.5%?  Is that through a local community bank or similar?

-It might make sense to budget more than $2,000 for repair costs, even if the property looks pristine both inside and out.  If you budget more and you end up spending less, you can always be pleasantly surprised.

-I like your budget for closing costs.  That seems like a conservative estimate, from what I've read and heard.

-I don't see a budget for utilities, garbage, etc.  Are these separately-metered and you're planning to bill these all to the tenant(s)?

-Homeowners' insurance is a very hyper-local line item on a budget like this (i.e. highly dependent on one's local situation), so I did a quick Google search on average rates in the Boynton Beach area.  I found this site, which I can't vouch for, but it says insurance in that area ranges from $85-$111/month.  So your budget of $200/month might be overly conservative.

-I see the property was built in 1967. When were the last repairs done to the roof, foundation, internals (electrical, plumbing, HVAC, etc.)? If it's an old property (i.e. more than 20-25 years) and/or if you don't have the information on that 2nd question, it may be prudent to budget more than 12% for combined CapEx/Repairs.

-Looks like vacancy in Palm Beach County has been going up lately, thanks to a boom in rental construction.  The vacancy rates that I've seen range from 7.8% to 10%, depending on the source.  Since a single unexpected month of vacancy can severely impact your profitability, you may want to budget higher than 6% in this case.

Best of luck, keep us posted on how this project goes. :-)

Oh, one more thing is the interest rate of 4.5%.  I've got pretty good credit but as an investor I've only been able to secure an interest rate of 5.8% for an investment (aka non-owner-occupied) property.  Who are you getting your financing from?

Hey Colin, I haven't used Google Earth in the way you've described.  I've used a paid app called DealMachine, which is a driving-for-dollars app which lets you place pinpoints on a map and look up the address + owner records, send direct mail postcards to any addresses associated with those owners, etc.  It also lets you track the route you've driven during any given D4D session.

The app was not cheap- $50/month for the subscription, plus $1 per postcard and I believe $20 per 20 owner lookups (give-or-take).  Your system seems much more financially sustainable, if you're willing to put in the legwork.  Way to use your prior experience to your advantage.

Also, I'm curious- where did your realtor get the listings that they gave to you on that list? Were they off the MLS or were they pocket listings?

Cheers,

Hey David, nice find.  The interior looks brand-new, which is a great sign.  Make sure the deal-breaker components (roof, foundation, electrical, plumbing, HVAC) are in good shape as well.

I ran a check on Rentometer, looks like your rent estimate compares well against 25 other 4-bedroom places within a 1.5-mile radius within the last 12 months.  The neighborhood itself isn't the greatest (12/100 on NeighborhoodScout.com), but it's a college town so hopefully that will keep the rental demand high and the tenant quality not-too-shabby.

I don't see a property manager in your list of variable expenses.  FYI the recommended percentage I've seen for rental properties is 10%.  Also, the vacancy/capex estimate seems a bit low.  It's now at a combined 10% total, but from what I've read in this forum, 15% combined is safer (and 20% if you want to be real safe).

I notice the estimated repair cost is $0.00.  I know the interior photos look nice (new flooring, nice kitchen backsplash, updated cabinets and appliances, etc.), but from what I've read, there's *always* something to fix in an investment property.  For instance, I don't see downspouts protruding 6 feet away from the foundation.  And there are multiple trees within 6 feet of the house itself, which has implications for the integrity of both the roof and foundation.  See here for more info.

All this is assuming there are no liens, encumbrances, or other hidden landmines that the seller doesn't want you to know about.  All that said, I like the potential for this property, since it's quite close to a school with a 5-figure student body population.  Seems to be commuting distance to Philly, which is great.  One thing is that it appears to be across the street from a warehouse of some sort, at least according to a Google Maps Street View image from 2013.  That may or may not matter for you so much, depending on your investment criteria, but just calling it out.

Best of luck, hope this property makes for a good investment.

Agreed about the 12% hard-money interest rate.  Depending on your credit, you should be able to do better than that.

Also, it looks like you're making a 10% down-payment ($5,990 / $59,000), but I don't see anything budgeted for PMI on your refinanced loan. Are you planning to have 20%+ of the principal paid off by the time you refinance?

Also, I see a vacancy budget of 5%.  According to these two sources[1, 2], about 13.8% of housing units in Jeffersonville, IN are vacant.  It may be prudent to bump up that estimate a bit.

Your property management estimate of 10% is in line with what I've seen other investors use.  Nice.

The CapEx and Repairs expenses are at 5% now. What year was this property built? Since you (presumably) haven't had much first-hand experience with this property yet, it may be wise to initially budget these higher and save up some cash reserves in case the roof leaks, the water heater breaks, or any number of other things happen.

Hey Bryan!  A few questions about the report:

-Your cash-on-cash return of 240% should give you pause. A typical attractive COC% would be around 12%. A great % would be around 14-15%. This implies something is up with the estimates you've provided.

-How are you calculating the $1,000 closing costs off a purchase price of $168,000?  That seems low, and I'm wondering if that was quoted to you from someone of if it's an estimate.

-Where does your income estimate of $1,625 come from?  It's hard for us outsiders to gauge whether that's accurate without more property info (type of property, number of units, number of rooms per unit, zip code, house hacking vs renting on Craigslist vs renting to corporate travelers, etc.).

-Speaking of the purchase price, is this the listed price of the property, or is this the target price you're aiming to pay?  That will go a long way toward determining how realistic this report is, since there isn't much property information included (address, location, etc.).

-Estimated repair costs are $0.00.  Even with a "move-in ready" property, there are usually a few minor things to update (even if it's just light switches and new paint for the accent walls).  I do see in the property description that it has been "renovated top-to-bottom", and that does sound promising, but relying on seller stipulations can be a bit risky.  Consider adding some padding here just to be safe.

-I'm curious to hear how you arranged no down payment for this loan at a 3.6% interest rate, since these terms are shockingly generous.  Do you have a private lender who you've worked with before?  I don't see any private mortgage insurance included in your expense calculations, and most conventional lenders would require this with a down payment of less than 20%.  Just want to make sure you've thought of this.

-Speaking of expenses, I see a CapEx and Repairs budgets of 3%. This seems low as well. Again, I know that the property has been "renovated top-to-bottom", but unless you were the one performing the renovations, it might be prudent to assume the previous owners left out a few things. I'd be curious to hear when the property was built, when the roof was last replaced, what the current condition of the foundation is, and whether the electrical / HVAC / plumbing infrastructure is in good shape. If not, you may be looking at a deferred maintenance situation, which means you'll need to bump up those CapEx/Repairs budgets to something like 8-10%.

-You appear to be assuming an annual property value growth rate of 5%.  That's pretty ambitious.  Most estimates I've seen are in the neighborhood of 1-2%.  That reminds me- what kind of investment play is this?  Are you going to buy-and-hold and use this as an income property, or will you fix-and-flip?  Or something else?

Hope this helps.  Keep in mind I'm still looking for my first investment property, so take what I say with a grain of salt. :-)

Best of luck!

I wrote a small blog post on my analysis process.  Below are the 3 result reports I generated.

1. Pessimistic Analysis

2. Moderate Analysis

3. Optimistic Analysis

One open question I have is about the pricing of flood insurance, which I think is par for the course in Florida. Any opinions on that would be appreciated.