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At this point, I would do what Titan305 did and use the Property Anaylsis Tool. You will see it listed under interactive on the left of the screen.

Robert

Hi again! You must be feeling alot of information overload right now.:goofy:
As you get more experienced, these numbers will clearer to you. Hey! I am so glad you came to this forum BEFORE investing!:D You can't believe some of the numbers that come across here, after the deal is closed.

Maybe this will help clean things up for you. I want to go back to your original message page one, where you asked about a rule-of-thumb. Here is a very commonly used one that I have seen here and by others who are experienced. I don't know of any knowlegeable investor who will consider a property where the monthly gross rent is less than one percent of the price of the property. You still have to crunch the numbers, but it is a starting place. MANY will fail at that rate. Most investors want to see more like 1.5 to 2 percent. Keep this rule in mind knowing that it is a used a good way to eliminate properties quickly. Tell me what you get.

Let us Know what your realtor says. I think All Cash has some real good advice about getting the "real" information.

Some of this advice may be hard to read, but really! you were very smart to come here.

:clap:

You have a lot to learn about investment properties--like NOT counting on appreciation. GREAT if you get it but don't bank on it! Too many people go bankrupt running backwards awaiting big appreciation to fall from the sky.

So maybe? you won't EVER have a vacancy (no one will ever walk out on a lease--nobody ever drops out of college). How much will your taxes be? Insurance? 29 percent expenses may have occurred in good year. Sounds like the seller hasn't replaced a ROOF recently.What is property management costing? You do pay for advertising through them! You are clearly seeing the sugar coated side of this deal. 6 college kids in a unit!!!! Sounds like A LOT of abuse to your property. If you only take one thing away from this forum do bank on the 45 to 50 percent expense number--over time it WILL happen. People write in almost daily into this forum because they figured 30 percent expenses and ran negative--people with much better cap rates than you will be getting.

If you are thinking that $8,800 a month on a 1.4 million property is a good cap rate, you are dreaming. That right there is enough to get anyone who knows investment to run! That is about what rentals get in (rate wise) in my area and rentals don't cash flow. You are not immune to the math no matter where you live.
There are some highly experienced people on this forum trying to keep you from making the typical newbie mistake of greatly underestimating expenses--for one, but you don't seem to be listening. I know California markets well. Please tell me where things are apprecitating that will make up for the loss that you will take, if you get into this "deal".

I read this forum daily and this is one of the scariest deals i've seen!

Robert

Robert

Hi Little Ivy,
I have to jump in because this deal looks scary.
:shock: I don't have the experience in RE that I do in the stock market (there are far more experienced people on this forum than me), but there are just some common sense things here that put up big :protest: no flags to me.

Let me ask you. If you really could get $4,400 for each unit of the duplex, how many college students do you think would have to pile in to make the monthly rent? Have you factored in vacancy as an expense? Surely, students will be going out in the spring and back in the fall. Just 2 months of vacancy could be very painful. Incidentally, who is telling you $8,800 a month? This sounds highly inflated even for California! I have lived here all my life.

Looking at the bigger picture, before you spend a dime in expenses you will be getting a 7.5 percent annual return without a day of vacancy. Now start putting your debt service, taxes, insurance, maint., HOAs (if applicable), vacancies, adverstising against it. Wouldn't you do better in a Money Market Fund and not have the headache of being a landlord to tenants who tend to turn over frequently and could likely be very hard on the place?

One thing that too many people have learned the hard way, and I have come to realize as a fact since reading this forum is that you have to calculate 45 to 50 percent of your gross rent as expenses. I know that seems high, but over time it really does work out that way.

I hope you will take a deeper look before taking the equity out of your home.

Robert

All Cash, I REALLLLY like your strategy! :clap:

Robert

Hi Shani,

REIT stands for Real Estate Investment Trust. They provide an investment in real estate like mutual funds do in the stock market. They can be purchased through a number of companies. Mine were through Vanguard.

If you go to www.bobbrinker.com and type in "REIT" in the "education research" search box, there are references to more detailed information on REITs.

Hope this helps.

Robert

IF I am translating corretly Ethan, I think you are saying "buy low, sell high". My strategy too!

The REITS I was in (commerical, office buildings etc) are still pretty high right now and considered quite overvalued by the best sources. Not a market that I would jump in on.

Ecacophonic, do your homework just like you would with any RE deal and it can reap benefits. I love the stock market and have done very well in it. But like investment properties, I have seen too many people get in on it without doing the hard work up front and wind up getting slammed.

Robert

PS I don't listen to those TV gurus on groups like Investools. Waste of time in my opinion.

Hi Ecacophonic, Your question interests me from the standpoint that I invested heavily in REITS and I can only tell you what I know.

First of all, I got into them heavily just over 3 years ago. The return has been excellent (20 to 25% a year!):woohoo: . I am just now buying my retirement home for two reasons. The RE market is a bit soft where I am going (very unusual there as prices tend to hold even in downtimes) AND REITS by all accounts that I have heard, are becoming overvalued. I recently cashed mine out a high and have to tell you I am a bit relieved to be out considering that I had a good long ride on them and it appears the party MAY be over.

I invested in REITS based on the advice of Harry Dent and Bob Brinker. They were certainly right in this case and others. You might want to check out what they have to say about REITS on their website and other places like the WSJ.

Good luck!

Robert

Thumbs up for doing all the math before you get into it. The main reason I even jumped in is because I have seen newbies make some real scary :shock: deals and then ask questions later.

Keep up the due diligence and come come back often!!

Hi BlackCorbra, I think you are very smart to come here and ask the questions NOW instead of AFTER getting into a deal. I too have been a long-term investor in areas other than income properties and am here to learn before I go too far.

From what little I know (and that is ALL I know in this area), I can't imagine how a place will cash flow given the numbers you supplied even with a large downpayment or do better than a regular MMF. I know that cash flow might not be your first objective. I have a feeling that Mike will chime in and tell you that cash flow is king and give you the news about 45-50 percent operating expenses. He and others know much more than me.

Just curious. Do you think you will have think you will rehab the properties you are considering?

Will surely learn a lot from this thread.