All Forum Posts by: Sam Tato

@Mark Elliott @Craig Garner @Emily Wu @Carley M. For anyone looking for an investor meetup in Buffalo, I attend "Real Investing Network Buffalo."  Info can be found on FB.  Great information and networking.  The group is relatively new and is up to about 100 people now.  Next meeting is November 17th, 7pm at 5500 Main St, Williamsville, NY.  Hope to see you there!

Hi Lamar, what is the reason behind knowing the outstanding bills? Are you looking for motivated sellers who are behind on their bills or do you have a specific property in mind already? If you already have a specific property in mind I would say not to worry about any outstanding bills until you have an accepted offer.  You can check on outstanding bills during due diligence with a title search.  If any come up then you can renegotiate price.  

Hi Zach, I use Michael Conway who also works at Red Door Real Estate as an agent.  Super easy to work with and should be able to give you some insight.

@Michael Kissel 

I have a 3/2 - 2,200 sqft double in North Buffalo.  Here is the simple Cap Ex spreadsheet based on that double.   

Cap Ex Spreadsheet  

please remember that it does not account for inflation and it also assumes that everything in the house is new.  

Here is a more advanced spreadsheet that you can take a look at which accounts for both inflation and the age of the items. This is shared on Google Docs so please do not edit. Please make a copy and save it to your own drive before editing.  I would love to provide an excel version but it isn't converting correctly. 

Advanced CapEx Spreadsheet

As you can see, when you account for inflation and the age of the items the numbers get much much higher which is a bit of a reality check! Pretty positive I have done all of the numbers correctly but if anyone spots any errors please let me know.

@Thomas S. Who is to say what normal percentages are? I would argue that percentages vary by area and property type.  I definitely think it's better to go in depth with the numbers and be as accurate as possible regardless of your investing experience. 

Hi, Matt.  I use Michael Conway for my taxes every year. He's based in Tonawanda.  I haven't spoken to him about business entities but his linkedIn says he knows something about it.

@Jerry Padilla Hi Jerry, I'm looking to use a private money for the 25% down payment on a MFR. I want to secure that private money with a second mortgage on the property. Would you still be able to do 75% LTV if there is a second mortgage on the property for 25%?

Hi @Arthur Fuller II, I would stay away from percentages.  When you use a percentage you are essentially saying that expenses are based on what a landlord charges for rent.  In real life we know contractors don't base their prices on your rental income so it doesn't really make sense to calculate your expenses that way.  For example: In your area carpeting might cost $2,000 and need to be changed every 7 years.  If you charge $1,000 in rent per month that is $84,000 over 7 years.  That means $2,000 is 2.4% of your income.  If you charge $500 per month your carpeting expense isn't going to go down to $1,000.  Carpeting will still cost $2,000 which means the expense is %4.8 of your income.

To answer your specific questions.  

Cap Rate - I wouldn't worry about this number if the property is under 4 units.  Cap Rate is normally used to calculate the value of a commercial property.  For non-commercial properties value is determined mostly by comps.  Cap Rate is still a useful metric for comparing different properties but personally I wouldn't worry too much about it.  

Vacancy - I normally assume the property will be vacant 1 month per year.  This is very conservative for my area but you never know.  Vacancy is determined by how desirable your property is.  How much demand is there for the units you are looking at? Is your target rent more or less than comparable units? Vacancy will be determined by how good of a deal it is to your tenants. For the first year I would give a significant amount of vacancy since you will most likely have rehab time and time to find those initial tenants after the rehab.  

Repair and Maintenance - Think about how often things break and how much you think they will cost.  How often will the toilet need to be replaced? How often will doors, plumbing, drywall, etc need to be repaired? Depends on the age of your property and how well you think the tenants will take care of it.  I use between $75-$100 a month.  

Cap Ex - You can make a spreadsheet of everything in the property that will eventually need to be replaced - Roof, driveway, carpeting, flooring, kitchen and bath remodels, etc.  Once you write everything out assign a useful life and a cost of replacement so that you can calculate how much it will cost every month.  This depends very much on your location, how much materials cost, and what contractors charge.  Maybe contact local contractors and ask them for general numbers.  This number is very important since they are huge expenses.  You don't want to think you're cash flowing $200 a month when in reality cap ex is costing $300 more per month than you anticipated.  Here is a spreadsheet I made.

Cap Ex Calculator

Income Increase - How much do you think you can increase the rent every year? How much increase will your tenants agree with?

Expense Increase - Maybe use an average rate of inflation. I use 2.5%

Hope this helps, good luck!!!

Hi James, I've found that duplexes are definitely the easiest to find in the city.  Triplexes can be found but there aren't nearly as many. Very hard to find a quad.  Elmwood is definitely more expensive than North Buffalo but that's because the neighborhood is nicer and the demand for buyers and renters is higher.  Since Elmwood is doing so well people are looking to the west side which is an improving neighborhood.  If you're looking for a higher chance of long term appreciation you should do some research into the neighborhood west of Elmwood past Richmond.  But consider that you may have a tougher time managing as the neighborhood isn't established yet.  

Welcome David! To help answer your questions:

1) If you have cash to use for you closing costs then personally I would use the cash. That way you wouldn't be paying for the extra interest. You always have the HELOC in your back pocket just in case you need money for something in the future so I don't see a good reason for you not to use cash.

2) What you prefer to use depends on the interest rate and the costs associated with using each method so you just need to calculate the costs. I assume the HELOC would be cheaper since you already have it and you only need to pay interest on the portion you are using. With a Home Equity Loan you have costs to open one up and interest on the entire loan without regard to what portion you are using.

3) You can't have more than one FHA loan in your name at one time. So if the current FHA is in your name maybe your wife could put it in her name.

Hope I could help!