All Forum Posts by: Sean Autry

Hi @Kiersten Vance

I'm sorry I'm just now responding.  I'm always trying to improve those assumptions.  One question, though.  I took a look at your profile and saw that you are into rather niche markets.  Do you think the data on your rentals would be comparable?  I just wonder if the costs on your rentals would be different given the property-use.

In either case, I'd be interested in connecting and learning more about how you came across such focused markets.  I have never considered taking such a focused approach (at this point I'm just trying to get started), but now I'm intrigued by it.

And I might also add that I'm impressed at how far along you've come at such a young age. I'm not much older, but I am older and have nowhere near the experience you appear to have. Good for you!  

Alright @Account Closed, I'm taking your comments from 2 months ago to heart.  I open escrow on my first rental tomorrow here in So Cal and will be managing it myself.  Wish me luck; it's 68miles away.  Regardless, I'm sure I'm going to learn the most by self-managing.

Hi All-

I'm opening escrow tomorrow on my first rental property. For the down payment I am using a mix of cash and HELOC on my primary. Once I close the purchase (and after a seasoning period, if any) I would like to (if equity allows) open a 2nd on the rental property and pay off the HELOC on my primary.

Here are my questions for all you lenders out there: 

• Can I do this?  Do banks even offer 2nds or HELOCs on investment properties? 
• If they do, do the costs and rate on these types of loans make sense?  
• What LTV would I be able to go to?

I know there are a hundred factors to determine bullets 2 and 3, but assume excellent credit and that the DTI will work.

Thanks for your help!

Sean

Hey there BP Community-

It has been a dream of mine since college, and 5 years later it's finally happening.  We open escrow on our first rental property tomorrow!  I've been financially ready for probably a year, but honestly taking that leap into the first deal was challenging for me.... The risk; the unknown; I was just nervous.  Finally I told myself that I will NOT be that guy that is just all talk and no action... A week and half later here I am opening escrow.

Here are the details:

• Location: Apple Valley, CA
• Property: 3 Units
  • One X 2 bed/2bath +den
  • Two X 1bed/1bath
• Occupancy: 100% occupied
• Purchase Price: $202,000
• Gross Rent: $2,075/mo (w/ a little room to come up to market)
• Total Expenses (excluding Mgmt Fee; including Reserves): $750/mo
• Total Expenses (including Mgmt Fee; including Reserves): $950/mo
• P&I Payment (90% LTV): $840
• Cap Rate (excluding Interest; w/o mgmt fee): 7.9% 
• Cap Rate (excluding Interest; w/ mgmt fee): 6.7%
• Cash on Cash (after financing @ 90% LTV; w/o mgmt fee): 23.8%
• Cash on Cash (after financing @ 90% LTV; w/ mgmt fee): 13.6%

We plan to manage it ourselves, but have looked at it both w/ and w/o mgmt fees just in case we feel we need management in the future.  Per the current owners, 2 of the units (the larger one and one of the smaller ones) always pays on time.  The last unit is consistently late, pays in partial payments throughout the month, but is always caught up by the end of the month.  (This one worries me a bit).  

The property, though dated (very dated) is still in good shape.  Roof appears to have plenty of life left in it, and no visible damage through the rest of the house as far as I can tell in the initial walk-through.  It's just dated and dirty, though the outside appears to have been freshly painted in the last few years.

The sellers have been great as well.  They've been an open book about the property itself, problems w/ tenants and things to look out for w/ them, and (them realizing this is our first rental) they've been completely helpful in sharing their insights on property management and approaches to it.

Anyway, sorry for the novel.  We've been working on this deal for a week or so and now that I've walked through the property and sent this thing into escrow I can't help but be excited and wanted to share.

And for those of you who want to invest in CA but have heard cash flow investing can't be done- NONSENSE!  It can be done.  It may not be in Malibu, there may not be granite counter tops, and your tenants may not be walking on marble floors... But it can be done... You just have to find the deal, and clearly it is much harder to find in CA than other states.... But they're out there.

Questions and comments are welcome.  Any advice for first time landlords is welcome as well.  We'll have a lot to learn over the coming months.

Sean

@Casey Miles, as for rehabbing, I would actually love to find one to rehab and capture equity earlier on.  I'm just not sure if attempting to manage that from another state is wise.

@Casey Miles, are there AZ areas other than Phoenix you might suggest for those kinds of returns.  I could go down to the 7-8% range (levered up, my cash on cash would still be good), I like 10% because that leaves room for unforeseen additional costs/expenses.  Ancillary management fees are a good example.

@John P.,  thanks for the post.  I'll keep Rice in mind if I go the LV direction.  How long have you been with them?

I know many management companies charge other fees (repairs, tenant placement, etc).  Did you find that the flat % model was uncommon?  For obvious reasons, that's the preference on the investor side because it's predictable; but maybe not profitable enough for the managers?

@Aaron Mazzrillo

LOL- I actually laughed out loud on a couple of those (Hemet, Adelanto). 

My friend, I live in the sheltered bubble that is the OC.  I agree w/ all of your comments- investing in those areas makes me nervous.  But they're the only areas (from a rental perspective) that pencil out around here.  And that's true, I always include Riverside in my search criteria, but come to think of it I don't ever see much.

I bought my primary 3-4 years ago, and I've crushed it in equity.... In fact I wish I was further along in my career at that point.  I could have crushed it a good deal more...

But that was then.  I have cash now and need to do something with it.  Real estate is an asset class I can understand.  It clicks for me a lot more than paper investments which seem like they can be so whimsical.  Some British guy with a funny accent makes a policy change an ocean away, and US paper assets go haywire.  It's hard to invest in that environment w/o a team of Econ PHDs working for you.

Are you an active RE investor in CA ? If so, what markets are attractive to you these days?  Ever gone out of state?

@Sam Shueh, Thanks for taking the time to reply.

For rental income I've been using whatever is posted on the MLS. If it looks out of sorts, I usually go to Trulia and see what similar units are going for in the area. Come to think of it, I should start to use the MLS for that as well. If you have any other suggestions on where to get rental data- I'm all ears! Clearly that's the most ciritcal assumption- so anything I can do to fine tune it.

Yes- I imagine Bay Area caps are low.  I'm actually surprised to hear they're as high as 3%!  Prices in So Cal are high- there's no question, but they are not Bay area high.  That's a whole other ball game.  Rent is high there, sure, but purchase prices are HIGHER!

For property tax I use the prior year's total tax divided by total assessed value then apply that rate to my assumed purchase price.  That's how I'm calculating my property tax assumption.

Remember, 17% is cash on cash- not cap rate. So I'm applying leverage to get there. Even so, 17% CoC has been the highest I've seen and it was probably either in a crummy area or the published rent just wasn't reliable. Believe me, I'll require the seller to prove their rent rates prior to committing to anything. Most of what I'm seeing is 9% - 11%, and that's me cherry-picking the properties that look like they might have a return.

I 100% agree.  I'll definitely be working w/ a broker.