All Forum Posts by: Steve Maye

Scott- Could you explain what you mean by "back into the price"?

It looks right, but with an investment of $40K and a profit of only ~$36/month really worthwhile? I know it is my choice by I have no frame of reference. What would an experienced invester do?

@Brian Hoyt

This is a new home and the rental income is based upon what my property mgt company feels is the low end of what it would rent for; $1600/month.

Thanks for the tip on the 50% rule. I watched that video the other day. My head has been swimming in the 50% rule along with the ROI. COC, NOI...... Was not sure where to start to say this is a good idea or bad.

Based on the 50% rule:

- Rent =$1600/month ...$800 expenses..$800 for principle and interest

- Principle and Interest Payments- 20% dwn= $40K, 30 yr fixed, 4% =$764/mo

- $800 - $764 = $36

So, yes I make $36/month profit. Not much for a $40K investment. Am I looking at this correctly?

I am trying to understand the ratio information

Ratio Information
Loan to Value... 80%
Cashflow / Initial Investment...8%... (I am making 8% on the 40K down?)
Cashflow / Assets...2%... (I am making only 2% on the total asset purchase price)
CAP Rate...6%...(Appears low as explained in the
"Introduction to Real Estate Investment Deal Analysis")

I actually listed a link to the entire spreadsheet in my previous post.

Cost Information
Building Cost $200,000
Land Cost
Cost Basis... $200,000
Less Mortgages...$160,000
Equals Initial Investment...$40,000 Amortization Period...27.5

Ratio Information
Loan to Value... 80%
Cashflow / Initial Investment...8%
Cashflow / Assets...2%
CAP Rate...6%

Mortgage Information
Balance.....Payment...Interest
$160,000.....$(752)....3.88%

"Loan Term"..."Amtz Period"
...30............360

POTENTIAL RENTAL INCOME...$19,200
Less: Vacancy..............$(384)
EFFECTIVE RENTAL INCOME...$18,816
Plus: Other Income............$-0
GROSS OPERATING INCOME....$18,816

OPERATING EXPENSES
Real Estate Taxes..........$2,000
Personal Property Taxes.......$-0
Property Insurance...........$900
Property Management........$1,920
Payroll.......................$-0
Expenses/Benefits.............$-0
Taxes/Worker's Compensation...$-0
Repairs and Maintenance......$500
Utilities....................$150
Accounting and Legal..........$-0
Licenses/Permits..............$-0
Advertising..................$100
Supplies......................$-0
Lawn and Grounds Keeping.....$500
Miscellaneous................$500
HOA Fee.......................$53

TOTAL OPERATING EXPENSES...$6,623
NET OPERATING INCOME......$12,193
Less: Annual Debt Service.$(9,029)
CASH FLOW BEFORE TAXES.....$3,164
Add Back:Principal Payments..$2,829
- Depreciation............$(7,273)
TAXABLE NET INCOME(LOSS)...$(1,280)

I have read the article by J. Scott, "Introduction to Real Estate Investment Deal Analysis". Excellent, but still need help. This would be my first purchase of a property as a rental. I want to understand all the performance measurements to know why this is a good or bad deal.

Here is the info requested. Full file link below:

POTENTIAL RENTAL INCOME...$19,200
Less: Vacancy... $(384)
EFFECTIVE RENTAL INCOME... $18,816
Plus: Other Income... $- 0
GROSS OPERATING INCOME...$18,816

OPERATING EXPENSES
Real Estate Taxes... $2,000
Personal Property Taxes...-0
Property Insurance... $900
Off Site Management ... $1,920
Payroll... $-0
Expenses/Benefits... $-0
Taxes/Worker's Compensation... $-0
Repairs and Maintenance... $500
Utilities... $150
Accounting and Legal... $- 0
Licenses/Permits...$-0
Advertising... $100
Supplies... $-0
Lawn and Grounds Keeping... $500
Miscellaneous... $500

TOTAL OPERATING EXPENSES... $6,570

Here is the full file. http://www.biggerpockets.com/files/user/smaye/file/200k-creekside-analysis

I previously posted a different deal. This is a lower priced one. Below is a snapshot.

[b]Ratio Information
Loan to Value 80%
Cashflow / Initial Investment 8%
Cashflow / Assets 2%
CAP Rate 6%

TOTAL OPERATING EXPENSES ...... $6,570
NET OPERATING INCOME ..... $12,246
Less: Annual Debt Service ...... $(9,029)
CASH FLOW BEFORE TAXES ...... $3,217
Add Back: Principal Payments ...... $2,829
- Depreciation ...... $(7,273)
TAXABLE NET INCOME (LOSS) ...... $(1,227)

Can someone explain what is good and bad about this deal and why?

I knew it sounded too good to be true.

So with regard to the recapture it is safest to assume they recapture the full amount of the amount depreciated?

I am new. I have been working with the Property Analysis Worksheet and have a question about depreciation. Depreciation is the amount we can claim as a loss each year against our profit. If the property really does not lose value or is not damaged is it really a loss? Does the government somewhere come back to claim all these amounts that have been claimed as depreciation on your taxes?

27 CASH FLOW BEFORE TAXES....$4,392

28 Add Back: Principal Payments.....$3,022 Principal Paid on Loan

29 - Depreciation.................$(7,273) Tax Depreciation on Building

30 TAXABLE NET INCOME (LOSS)........$141

Hello Guys,

Thanks for your replies.

The need to decide yesterday was driven by me having to make a decision to buy or pass and let them go ahead and list it. Based on your replies I passed.

My wierd background- I am originally from Hendersonville, TN. I moved to WI for my job. Due to the market I decided to rent my home in Hendersonville out rather than sell. Not a calculated decision. I had wanted to get in to rental property for a while. This was my first try and working well. I want to retire early in 3 years so I can move back to Hendersonville. I have savings, but wanted to create some income through rental properties. Besides I cannot see myself just sitting around. I would like to see these rentals become my job in retirement.

@Will K - This will tell you how new I am when I tell you I don't understand your Return on Investment and principal paydown comments. Your comments on the history of the stock market are correct, but I have no faith that they reflect what is going on today. I have seen my retirement savings crash twice and essentially go no where in 12 years. I am dead even with where I was in 2000. I need to develop a new revenue stream if I am going to retire on my timeline.

@Jon Klaus - For what it is worth, this new subdivision is in the ideal rental location. Hendersonville is one of the higher end communities in the area and this subdivision is located in the most desirable school district. My crude evaluation was a very dated ranch home would cost me about $100K to purchase and rent for about $800 - $1000. I can have a new home for $235K and rent for ~$1,800. So sort of the same income from one as opposed to managing two.

Seriously guys I do appreciate the insight. With my passing on this home it is fine. There will be at least one more come available soon. If I am totally off-base on these new homes where would recommend I be looking?