All Forum Posts by: Riley Harris

I've decided to invest in Raleigh and its surrounding areas for several compelling reasons, particularly in today's real estate climate. Raleigh has continuously grown and evolved, making it an ideal place for real estate investment. I've chosen to focus on Raleigh because of the following reasons:

- The city has a steady population growth

- The economy is stable

- There is potential for long-term equity growth

As I'm primarily interested in long-term equity growth, I'm currently exploring new-construction properties and working with the builder's lender to secure excellent incentives and introductory interest rates.

You said it may be impossible to make something work in your area. 

My question. How many deals a day/month do you analyze like this?

I think that you are close but vacancy and repairs should be at least 10%. Just to change a fridge would destroy your budget. The normal vacancy takes 4 - 8 weeks before a tenant actually moves in (2 weeks for maintenance, 2-4 weeks to find a tenant, 2-4 weeks before the tenant can move in). You have only allotted for $1,200 on rents of $2,050. I don't know what all of the utility bills would come out to or if they are included in rent but at a minimum you would have to pay them while the property is vacant. Hope this helps

Have you looked at the Biggerpockets Calculators?

Also, you are looking at your equations the wrong way.

Figure out the ROI you want, then work backwards to come up with the price to offer.

You may need to make 100+ offers to get one accepted, but then it will work - and it beats waiting for interest rates to drop.

Seems right although I would avoid anything with HOA's if possible. They're so unpredictable and can increase at any point. 5% for repairs seems a little low. Hate to say it but unless you're buying turnkey I doubt it will be less than 10%. One small thing could wipe out that for the year.

 @Riley Harris

So generally speaking it looks 'mostly' right... but...

Why are you paying for electric each month?  Shouldn't that be a tenant shared expense?   

I'm never a fan of HOAs... plus they often get in the way of landlords.  But if that is actually providing for lawn / water / sewer that isn't so bad probably.  But make sure they are on board with you renting the unit.  Often HOAs have many rules about how many units can be rented out (not owner occupied), among other things like minimum lease terms.  Other's say you can't rent for the first 2-3 years... they must be owner occupied.  Also be aware that you can get hit up for special assessments.... "the pool needs resurfacing, the streets need to be paved, the roof needs to be replaced, etc, etc. You think you are upside down now... try getting hit with a $5,000 bill.  I was reading about a condo on the beach in Florida where all the railings had to be brought up to code.  It was a $15,000 assessment per unit.  OUCH!

Other than that, you can see what a hit you take with property management.  You should see about managing it yourself.  (We manage 37 units...it's really pretty easy if you systemize things.)  Use a rent collection program that will also screen your tenants, market your properties, etc.  That along with have a few vendors on speed dial is well over 1/2 the battle.

What most people starting out don't realize is that very little if anything will cash flow at 7+% interest.  New people just say, "Ok, the interest rate is 7.5%."  What they should say is, "Wholly HE** the interest rate is SEVEN POINT FIVE PERCENT(!!!!) and stop right there.  I get that means you can't buy a property right now... and make a profit.  But you seem to think you are doing something wrong, when really it's just that the financing world is against you right now.  NOW is not the time to be buying a property... put succinctly.  Interest rates are over the top, and only going higher in the short term... but are predicted to drop to the mid 4's by 2025... the last I saw.  That doesn't mean you have to wait that long... but trying to buy at over 7% is almost going to be a non-starter unless you just find an amazing deal.  We personally look for a minimum cashflow of $300/unit/month on a single family long term rental.  If it's not generating that, we aren't buying it... which means we aren't buying right now.  And as your numbers show you, neither should you!

But beyond the basics... you need to recognize that property management is extremely expensive in terms of how much of your profit it steals each month.  You should think of property management as a luxury that you can't afford right now.

If we had our 37 units under property management it would cost us over $50,000 a year! (The numbers start to get "real" when you start multiplying by 37!!!).  Even with your single unit... that's $2,706/year you would give up to property management.  That's a no-go for us right now.  Managing one or two units is really very easy!  Think about how many times you have to call for service on your own residence.  That is more or less what you would expect for one other unit.  Maybe once, or twice a year something breaks that needs looking at?  Is it worth $2,706 to avoid those two phone calls.  As for filing units, it's not rocket science. We use RentecDirect.com to manage our properties... but there are a number of services out there that will broadcast your rental unit for rent, collect applications, screen your tenant, etc.  Pretty much everything a property manager would do.  Yes you have to deal with it... but for thousands of dollars we think it is a no-brainer.

Hope some of it helps!

Randy