All Forum Posts by: Kelly McCullen

Scott,

I would consider the roof a major repair - a replacement even. Your gut instinct is right. You may buy it at $7,000 but it really needs the $20-$25,000 in repairs to secure the property not to mention reduce your liablity (the roof is in terrible shape and I wouldn't want a tenant living underneath it).

Therefore, you're paying $30-$35,000 for the house or more.....the discount price is illusory as some of the "price" is trapped in absolute major renovation.

Good luck. My first buy was for $55,000 and I didn't see or overlooked the $45,000 in repairs it needed BEFORE a tenant could move in. I stilled maintained a sliver of equity, but the cash flow isn't worth my time. I've been in your shoes. Excited w/ an instinct my mind wants to override and make the deal happen.

I am not a lawyer and this isn't legal advice.

I recently closed on a deal and my contract allowed me to make requests for repairs or contingencies, but the seller could refuse my request - rendering the sales contract null and void because, of course, we aren't in agreement. My deal allowed me 10 days to get my inspections done as well. I met the deadline per the contract's demands.

If they met my contingencies, the contract was binding. If I made requests (within contract guidelines) and they refused to honor those requests (repairs, namely), then we could part ways unless I agreed to remove my contingency requests.

My mortgage broker lost a closing the same day I was closing on my property because the owner passed away days before. It sounds to me like you're a victim of bad timing.

Good Luck,

Slushy.

Here goes it, folks.....
2 bed/1.5 bath - 1300 sq feet.

List Price: $40,000
Last renter paid: $400/month ( I know, it's the 1% rule in this case)

The $400 per month rate was based on a house that needed some "sprucing" up - I wanna lay eyes on the level of "sprucing up" needed, however. I think up to $500 is possible.

I wouldn't pay full price, realizing that it likely needs a new central AC unit, will need new carpet, and maybe some large kitchen appliances. Do those upgrades count against the "2% rule" initial analysis as a cost of acquiring the property - or is it counted as part of the 50% of the NOI eaten by monthly expenses (only taken as a hit when the rental is purchased)?

In using the 2% rule, I'm assuming I'm carrying a 100% LTV mortgage, but I'd, in reality, be paying 10% down. Do you NOT count the down payment in the 2% rule? That makes it easier, but it's my money.....

The house needs some TLC, but I don't think it's outrageous. The home was last rented, in current condition, about three months ago, so it'll rent almost 'as is.'

Asking guidance of "masters" - is there any possibility here?

KMc

Determine cash-on-cash return....check!

But regarding the 2% theory, I'm assuming that the 2% formula is the most broad of financial analysis. Should a property meet the threshold, that's when I dive "deeper" into the financials, upgrade costs, etc?

Correct? Not Correct?

Thanks for the warm welcome. I was literally practicing the art of the basic 2% rule using gross rents and sales prices. I've yet to find a deal meeting the parameter by following "asking price," but it's good "math" practice.

Anyway, when one finds a property meeting the 2% rule - and there's a sliver of profit leftover after subtracting my mortgage payment from the N.O.I., is that the only profit I should consider when determining a property's cashflow? It seems obviously so, but I wanna make sure because it's tempting to cheat "the math" by saying, "There's no way gross monthly expenses will total 50% - maybe 40% or 35%"

It's the proverbial devil on one shoulder and angel on the other. I know who to listen to.....but I'm recognizing this isn't a "jump off the diving board head-first" investment career.

By the way, have most you 2% adherents found you meet the 2% rule through skill negotiating almost exclusively?

Okay, I've asked two questions.

KMc

As a matter of fact, the "widget" tipped me off that there were multiple replies to this introductory posting....widgets are - or should I say, "can be" - the best!

Thanks for all the replies....I'm feeling that all the power is in "the math" when buying RE.

KMc

Hello All!

I'm poised to dive into REI with hopes of buying and holding residential properties which cash flow. My wife and I believe slow and easy is the best way to win this race, but we'd like to keep growing our portfolio as we achieve experience and success. Currently, we're pre-qualified with a lender to purchase investment properties.

I believe the biggest lesson I have to learn is determining the cash flow potential of properties by comparing sales price and against gross rents - the 2% rule as I've read. It sounds simple but something tells me it isn't.

A secondary inquiry would be whether or not I could sensibly handle multi-unit (5-plus units) properties using commercial loans - an area I've never venture or come close to inquiring or learning much about. Yet, I recognize the potential.

I visit nightly and have downloaded the Apple widget as well. Thanks to all for the postings. I'm ready to learn.

KMc