All Forum Posts by: Richie Thomas

@Wilson Lin what's the source of these numbers?  If they're from the seller, I hope you're not giving them much credence.  $2,500 deferred maintenance on a $350,000 property seems awfully low to me.  And closing costs of $4,200 work out to 1.2%, which seems low for attorney's fees, appraisal, inspection fees, pre-paid homeowner's insurance, origination fees, pest inspection, pre-paid property tax, recording fees, survey fees, title fees, transfer taxes, etc.

Not sure how old the property is, but CapEx + Maintenance of 14% feels optimistic to me. These line items are meant to be reserves you stash away for a rainy day, so there's no harm in over-estimating them. If you over-estimate, it goes in your pocket anyway, but if you under-estimate, you've might have just tanked your cash-flow.

Lastly, your property tax estimate of $4,200 might be low.  Ohio's state-wide average is $5,500, and Franklin County (where Columbus is) might be as high as $7,000 depending on the exact zip code.

Hi @Aram Zoraian, why is your rehab time 150 months? What kind of property is this (single-family, multi-family, etc.)? I see a budget for HOA, can I assume it's a condo? How old is it? What kind of neighborhood is this (zip-code, A/B/C/D-class)?

You've budgeted 3.75% for the refinance fee- does that mean this is an FHA loan? I haven't seen investor loans with an interest rate this low. If this is an FHA loan, does that mean you'll be living in part of the property? If not, have you considered the stipulations of an FHA loan?

If you'll be occupying part of the property and renting the rest, that also implies it's a multi-family property, which implies there will be common areas that you'll be responsible for maintaining.  Have you considered the expenses for these common areas, such as utilities and maintenance?  I don't see those expenses reflected in your budget.

Even if this property is brand-new, you'd be better off budgeting a higher percentage for vacancy, repairs, and capex.  These are reserves that you set aside every month, so that when something eventually needs replacement (i.e. roofs, foundation, HVAC, electrical, plumbing, etc.), you have the reserves set aside to pay for it without killing your cash flow for the year.  It's that whole cliche of "if you fail to plan, you plan to fail".  Tired, but true.

Lastly, I don't see a budget for property management.  You should include a 10% budget for a property manager, even if you plan to manage the property yourself.  If everything works out great and you love managing the property, this money will go into your pocket anyway.  But if you're not lucky enough to experience that best-case scenario, you'll have a budget set aside, and you can hire someone else to take over this job.

Hi @Kimberly Fisher, I see the interest rate is 3.790%, that's pretty close to an FHA, owner-occupant rate. Are you planning to occupy part of all of the rental? If so, have you taken that into account when calculating your monthly income estimates? Most investor / non-owner-occupant loan rates I've seen have been at least 5.8%.

Also, it's probably safer to assume that *something* will need to be repaired when you assume ownership of the property.  Even if it's just replacing outlets, fixtures, or repainting.  That would probably only be a few thousand dollars.  If the property is quite old or in a state of disrepair, needs a new roof / foundation / water heater / HVAC / etc., you can expect quite a bit more than that.

I see you have 12% combined for monthly capex + repair reserves.  Again depending on the property's age, a safer reserve would be anywhere from 15-20% combined.  A $15,000 roof with a 20-year lifespan would require $62.50/month in reserves just by itself.  Think about foundation, HVAC, electrical, plumbing, water heater, and all the other components that make up a house system, each of which has its own useful lifespan.  Better to have those reserves and not need them, than need them and not have them.

@Steve O. you're missing a few expenses.  Try re-calculating with 10% each for vacancy, capex, repairs, and management.  Also consider whether this property will have utility expenses.  If it's a multi-family and the units aren't metered for utilities separately, you'll likely have to cover some or all of those expenses.  What's your source for the $100/month insurance expense?  How are you getting a $160,000 loan with a $0 down payment?  How are you getting a $160,000 loan with $1,000 in closing costs?

How much out-of-pocket will depend on your unique financial situation and the lender you partner with. Every lender sets their own terms on the loans they make. My point is just that, if you can find one lender willing to put up the cash for both purchase and rehab costs, you can likely find others as well. Some resources to investigate are local savings & loans, credit unions, and even your local REI meetup (for private money lenders).

Hey Shawn, some hard money lenders will lend for both the purchase price and rehab costs. I'm planning on using LendingHome for my first purchase (unless I find a better deal elsewhere), and according to their website, they'll fund *up to* 85% of purchase costs and *up to* 100% of rehab costs. I can't vouch for them at all since I haven't used them yet, but if one lender will offer loans on these terms, I have to guess that there are others who will too. I'd be interested to hear of other lenders who do both, so I can compare different options.

The description says that the basement has areas which need mortar repairs, a leak in the chimney, and signs of moisture in the first floor bedroom, but you've allocated $0 for an initial repair investment.  I'm not a contractor but I've read that foundation repairs can be a huge expense, and tearing out drywall to fix water-logged wooden studs could be as well.

Out of curiosity, where do your monthly income and ARV estimates come from?

I don't see a budget for a property manager.  Even if you're planning to manage this property yourself, you should include a budget (10% is what I use) so you can a) pay yourself for your valuable time, and b) extract yourself from those duties if you want / need to.

I see you're putting down a 17% down payment on the refinance loan. Is it an option for you to put down the remaining 3%, so you can remove the PMI from your monthly expenses? The $15 is not a huge expense, but that seems like a low estimate to me and I'd guess it'll actually be much higher. What would paying 20% with no PMI do to your projections?

Which lender quoted you 4.8% interest in a non-owner-occupant loan?  I'd love to get their contact info.

Hi @Shawn Dulan, what type of neighborhood is this in?  I see you've budgeted 10% for a property manager.  If this is a tough neighborhood, consider looking for a property manager first, and then asking them to advise you whether they would manage the properties you look at.  If the neighborhood is rough enough, it may be quite hard to find someone to manage it at any price.

Also, I see the rehab budget is $10,000 but the rehab time estimate is 6 months?  That's $1,666 per month.  I'd expect a 6-month reno to cost way more than $10,000.

Also, your rehab time is 6 months but the time to refinance is 12 months? Your cash-on-cash ROI is higher after your refi, so consider finding a lender with a lower seasoning period. I'm not an expert but I'd think 6 months shouldn't be impossible to find.

Lastly, consider bumping up your vacancy % to 10%.  You've got room for it in your expenses, and it's a safer assumption.  If you've over-estimated, the money will go into your pocket anyways.  But if your 6% proves to be too low, it'll be tough to make your projections.

No worries @Dakota Evans.  One thing I'll add is that, while managing your own properties can be an educational experience, consider whether it's actually the best use of your time.  The metaphor I like to use is investing in a Subway sandwich franchise.  It's hard to go scouting for new restaurant locations if you're stuck behind the counter making sandwiches.

Hey @Dakota Evans, I thought this property looked familiar haha.  I spoke to my realtor about this one a few days ago (she's also a contractor and property manager), and she said Villa Dr / Myrtlewood Dr is one of two areas in town that she'd hesitate to manage in (Bell Fork Homes being the other area).  She says Jacksonville is kind of unique in that there are pockets of sketchiness located right next to nice areas.  Like Villa Dr, which is right next door to the local country club lol.  But yeah, this property definitely piqued my interest.  If you can find a quality property manager who is willing to take it on, it looks like it would be a good deal!