All Forum Posts by: Simon Campbell

On the surface, it would seem to be a ridiculous standard, but often the rent and the expenses on both properties will give nearly the same monthly return. I know, crazy. I think the reason behind this is that cheaper houses usually get a higher rent per value than larger homes.

For example, if you applied the 50% rule to both the $50k and the $150k property and set a target cash flow of $100 per month with a mortgage with 20% down, 5% interest and 30 year term. You would need to charge rent of $820 on the $50k and $1,430 on the $150k property.  In many markets, those rents are off base. Since the expenses are higher on a higher priced house, the profit often comes out the same.

That is why investors often focus on low value homes because the cash on cash return is higher.

 Honestly, I would have to agree with you. But, in all my years in this business, I have yet to see a widely publicized standard for determining rental profitability that is expressed as a percentage of value rather than a dollar amount. If you find one, let me know. Thanks. 

When it comes to costs to a building, what you need to be focused on is the value of the lot as vacant less demolition costs. That would be the market value of the lot as is. Then subtract your profit and any other out of pocket costs and there is your offer to the property owner. 

Since you have two separate entrances and two separate kitchens, it looks to me as if this is already designed as a two unit rental. Does the zoning allow it? When was the work done? Could it have been grandfathered in? You would have a harder time with the city if you were converting, but the conversion was already done by the owner.

On the part about the utilities. Tenants have a nasty habit of running up utility bills when they are not paying them. Why turn off the A/C when they go shopping. Oh just leave the water running while we are washing dishes, etc. If possible, I would definitely look into the cost for separate meters - at least for the electric. Which should be easy since it is most likely that each floor will be on their own circuits. 

@Account Closed as is usually the case, you cannot deal directly with a bank to buy a REO. You have to go through their listing agent... if and when they get around to listing it.

Often there is a waiting period before the lender can relist the property. At times, this waiting period is due to a state mandated redemption period. This gives the original homeowners a final chance to redeem the house for the auction price. Most are unable to do that. But, a savy investor can contact that homeowner and pay them to redeem the house in exchange for title. 

If it is a REO or bank owned property, you have to go through the listing agent. Banks do not deal directly with purchasers. Even though the property is expired, the listing agent would be more than willing to submit an offer with the home of getting the home relisted.

So... you called. Now what? What will you do with the information? Is it a viable deal? Are you looking to buy and hold, fix and flip or wholesale? The first call is only the first step. What is next?

Lenders are going to be much more interested in future income rather than past. If you are not staying in Japan then that income source is drying up - unless you will be working remotely. Your best bet would be to get a job that has a signed contract. This would be proof of future income. Additionally, the higher the down payment, the better you will be.

Don't waste your time with building costs - really. You won't make any money going that route. Sell the house on one lot (2 plat lots) to a rehabber or sell just the house and have it moved. Then sell the other two lots to whomever wants them. Take your cash and leave the building details to someone else.

Two kitchens, definitely should split this one. Lets say you can get $650 per unit. Gross monthly income of $1,300. Less 50% expense rule (does not include mortgage or PMI). Less mortgage payment of $518 +/- including PMI. NOI before tax is $134 per month or $1,604 per year. Meaning you make your down payment back annually.

Cap rate is 8.4% - not bad.

But your cash on cash return is 129.8%!