All Forum Posts by: Simon Campbell

@Brandon Luke LOL love the question. $100 per door is referring to each rental unit. So if you have a 4-plex, your minimum cash in pocket at the end of a month should be $400.

@Timothy Riley I can see that you are getting a handle on the concept. Investors are going to look at their properties using two points of view. Short term and long-term returns. 

The short term returns should be figured on a monthly or annual basis. That is the $100 per month/door qualifier. This is effectively referred to as cash flow. An income property should produce a profit or why invest?

The long-term returns are a little more subjective. This is what @J Scott it talking about. This includes terms such as capitalization rates, returns on investment and cash on cash returns. These are ways to measure the return on the value of the property or the return on the cash you have invested. These returns are realized either through a re-mortgage (using the gained equity) or when the property is sold. 

It is a similar concept to dividend paying stocks. The annual dividend payment is only one consideration. Most stock investors expect to make much of their profit when the sell off the stock down the road. The same holds true for real estate investors as well.

The Key here is that if you are looking at a very long holding period (i.e. willing these properties to your heirs) then the cash flow is going to carry more investor weight. If you are a fix and flip investor than cash flow has little impact and the cash on cash return becomes more important.

A good investor should learn how to recognize profitability using both paths. But, each investor is going to have different qualifying factors based on their investment goals, finances and market area. 

Redfin recently conducted a study of the reliability of Trulia and Zillow. Their report stated that these two sites are missing around 20% of the active listings and that it takes 7 to 9 days before a new listing is uploaded. Additionally, 36.5% of their active listings are no longer for sale.

This means that if 20% of the listings are missing, then you will be missing 20% of the sales as well. The lack of that amount of data will have an effect on the accuracy of your statistical results.

Work is a means to live. We should never live to work - especially if you have a family. If you can maneuver your finances in a way that your investment properties generate enough income stream to cover all monthly expenses and give you a little extra for emergencies then go for it. Your children need a father and your wife needs a husband. 

If you are having your properties managed by a PM company, consider retiring into this business. Self-management will give you a part-time job and you can consider the 10% you are paying the PM as income to yourself. 

Worst case scenario: You find out your can't make it without having to work FT in real estate and you go back into the business. Meanwhile you had a nice vacation. Go for it! 

Depreciation is not an income statement item. It is an intangible expense that impacts primarily your income taxes. For example, if you calculate that you are loosing $3k per year in depreciation, how do you physically prove that you have lost that amount of money? No money has left your wallet. If you have maintained the property, then the actual cost of depreciation is negligible. 

Much will depend on the type of buyer. If your buyer is going to use it as their personal residence, then much is subjective to their likes and dislikes. Hold investors are going to look at it from the income standpoint - as in what is the correlation of rent to value. Wholesalers are going to look at how much it can be resold for if renovated or purchased at a discount.

The basic tenant of all three, however, is to know what similar properties are selling for in your particular market area. Without this knowledge it is only a shot in the dark. 

I sold my house as a FSBO and would do it again. I used an online site that worked similar to the MLS and featured only FSBO listings. Had a professional sign and everything. I suggested that the buyer use a form very similar to the one used by Realtors (actually got a copy and adjusted it for my needs). I also had the closing go through a title company which utilized their in house lawyer which saved me hundreds.

That is the thing. Providing that the loan is assumable (you will see this in the loan documentation), you will need to meet the exact same qualifications as if you were getting your own loan. 

The only reason you would want to assume a loan rather than getting your own financing is if the terms of the old loan are better than anything locally. Since it is an older loan, I doubt it. 

I would recommend just getting conventional financing and paying off the original loan. If you apply for a loan that allows you to wrap repairs into it as well as the purchase price, and can get it up to $50k then you will meet the minimum secondary mortgage market requirements and will get the best rate. 

I would never recommend using your personal residence to pay off a rental property. IMO it would be better to do it the other way around. Maximize the loan on your rentals without sacrificing profitability with the goal of paying off your personal home. Then if anything unforeseen happens (and it will somewhere down the road), your home is safe.

Additionally, pulling a HEL or HELOC on a rental property is very difficult. Lenders hate that. I would instead look at a HELOC on your paid off primary to fund a down payment on an investment property. Then take ALL surplus income and pay off the HELOC as soon as possible. Once that is paid off, the credit is there again for another purchase without having to go through the loan process all over again.

Zillow can provide you with a free estimate. But how accurate is their estimate? According to Zillow’s own Zestimate data accuracy report, they have a median error rate of 6.9%. In fact, further down in their report they state that only 38.3% of the time are they within 5% of the actual sales price. The reality is that they are 20% off the actual sales price 84.7% of the time.

In the wholesaling business, a 20% mistake in pricing is suicidal. Follow the Zestimate's price recommendations and you could very well lose all your profit on every deal. You need to base any purchase decision on actual verified comps along with active listings from the local MLS.

Making a purchase decision on solely on $100/door is ludicrous. It is one identifier in the process for deciding if an investment property if viable. Investment decisions have to be weighed against other investment options both within the realm of real estate and outside (CDs, stock returns etc) and the viability of the income stream. 

I have seen many a new investor say that the property meets the 50% rule and even the 2% rule but when you factor in the mortgage payment, they have a negative cash flow. All of a sudden their qualifying investment opportunity doesn't look so hot.