All Forum Posts by: Peter Aziz

Good morning BP Family! I hope everybody has had an amazing week and is looking forward to an even better weekend! I'm still on the hunt for the a new acquisition and am looking for SFRs or multi units in the Indy area. As I hone in on my numbers, I'm trying to figure out what I should be accruing for my fixed expenses (read, CapEx and Maintenance accruals). Here's what I'm coming up with so far for CapEx, irrespective of property type/class:

• Roof - 1,000 sq ft; replacement cost per sq. ft. $7 ($7,000 total); Useful life 20 years (240 months) = monthly roof CapEx accrual ($7000/240) = (a) $29.17
• Water Heater - replacement cost of $1,000; Useful life 10 years (120 months) = monthly water heater CapEx accrual ($1000/120) = (b) $8.33
• Kitchen Appliances - replacement cost of $1,000; Useful life 10 years (120 months) = monthly kitchen appliances CapEx accrual ($1000/120) = (c) $8.33
• Driveway/Parking Lot - replacement cost $5,000; Useful life 50 years (600 months) = monthly driveway/parking lot CapEx ($5,000/600) = (d) $8.33
• HVAC - replacement cost $3,000; Useful life 10 years (120 months) = monthly HVAC CapEx ($3000/120) = (e) $25
• Flooring - replacement cost $2,000; Useful life 5 years (60 months) = monthly flooring CapEx ($2,000/60) = (f) $33.33
• Plumbing - replacement cost $3,000; useful life 30 years (360 months) = monthly plumbing CapEx ($3,000/360) = (g) $8.33
• Windows - replacement cost $5,000; useful life 30 years (360 months) = monthly windows CapEx ($5,000/360) = (h) $13.89
• Paint - replacement cost $2,500; useful life 5 years (60 months) = monthly paint CapEx ($2,500/60) = (i) $41.67
• Cabinets/Counters - replacement cost $3,000; useful life 20 years (240 months) = monthly cabinets/counters CapEx ($3,000/240) = (j) $12.50
• Structure (foundation/framing) - replacement cost $10,000; useful life 50 years (600 months) = monthly structure CapEx ($10,000/600) = (k) $16.67
• Components (garage door, etc) - replacement cost $1,000; useful life 10 years (120 months) = monthly component CapEx ($1,000/120) = (l) $8.33
• Landscaping - replacement cost $1,000useful life 10 years (120 months) = monthly landscaping CapEx ($1,000/120) = (m) $8.33

Sum of (a) through (m) = apx $214/mo for my CapEx accrual - Does my approach make sense and does it seem reasonable?

Aside from CapEx, I'm also trying to determine my monthly maintenance expense. I'm coming up with a monthly gardener expense of $30 and a (TBD) expense for snow removal. Since my entire current rental portfolio is in SoCal, I don't have any experience with snow removal (or the expenses associated with it). Do you Indy landlords budget for snow removal expense?

For PM, I'm budgeting 12.5% of gross collected rents (10% standard fee for gross collected rents plus another 2.5% ancillary expense for turnover/lease prep/inspection fees, etc).

For vacancy I'm conservatively budgeting 10%

Based on the above assumptions, I'm modeling out potential investments. For whatever it's worth, I'm primarily looking in B+ to B- areas. Can anybody opine on my assumptions relative to their actual real world experience - I'm primarily at a standstill when it comes to my CapEx accruals. Are my assumptions reasonable?

I really appreciate the help. I hate asking for help without providing some sort of value in return, so I'm happy to share my excel model that I'm using to analyze properties in exchange if any of you find that useful. Again, thanks for taking the time!  

Hello BP! I'm beginning to look at properties in Indianapolis - both flip and buy and hold opportunities. There is one specific property that came across my desk that I'm seriously considering... The numbers look decent. Not a home run by any means, but a decent base hit and looks like it may work well as either a flip or as a buy and hold.

Given that this will be the first time I pull the trigger in Indianapolis, I was curious if there were any PM's and RE Agents that could help my verify my numbers. That may help in determining which direction I go in. Very basic questions:

• ARV for a 3/1 in a specific neighborhood north of the 65, inside the loop;
• Fair market rents in said neighborhood;
• Avg. vacancy rates in said neighborhood; and
• Avg, turnover in said neighborhood.
  

All should be readily available information for professionals that are involved in the area. My goal is to put together a minimum of three transactions this year in the area. Again, not a TON of business, but it would be great to develop relationships with some professionals that can provide guidance in exchange for my listings/rentals.

Thanks again and hoping to connect with all of you!! 

@Mike Bargetto, smart move sending your expense accruals to an interest earning vehicle. After paying PITI and my monthly gardener and pool man on each of my current rentals, I have been sending the remaining proceeds to my brokerage account and investing the funds in equities - worked out really well since 2011 while I was experiencing double digit returns through 2017ish, but the last few months haven't been the greatest :)


I get the V and M expense and I think it's relatively simple to calibrate. CapEx is difficult to estimate because it depends on a lot of different factors, such as the condition, the age, and the property type. I created a simple worksheet that outlines the major capital expenditures that a typical property has, then looks at the total replacement cost for that item and how long that item will likely last. From there, I can determine how much I should be saving to replace that item and then break that figure down into a monthly expense accrual; However, I determined that there are limitations to estimating capital expenditures this way. This worksheet assume that everything was brand new when the property was purchased... What I then went on to do was create an estimation for how old each component is in an effort to determine the remaining useful life of each component, and then went further to recalibrate my accrual based on the remaining useful life each component. Essentially, I determined that it was also important to take an inventory of what will need to be replaced sooner rather than later and save extra just for those items.

I'm happy to share my worksheet with those of you that are interested... Just shoot me a PM.

Originally posted by @Mike Bargetto:

@Peter Aziz some good news for you. a 2% increase is far more than a 2% "pay raise". Think about the fixed costs associated with your rentals, ie your PITI. Said costs are already accounted for and don't go up as rent increases. Take a 2% increase on your rent, set aside your typical % for V/M/CE and then divide by current cash flow.

example:

Rent-$1000

Cash flow-$200

Rent increase-2% or $20

Less 30% (V/M/CE) or $6=$14

14/200= 7% pay raise

Also, it isn't just about cash flow as you have the other 3 pillars at work; Leverage, Appreciation and Tax benefits. 

The cash flow in this scenario alone allows you to live your current setup. The other three pillars will take you much further. 

Don't sweat inflation in life yet watch your back for lifestyle inflation! Haha

Very helpful, Mike! The Math definitely works. Regarding your V/M/CE expense, are you budgeting a 30% fixed expense? My thoughts were to budget for (i) V by calling different PM's and getting their feel for what my target regions are experiencing in vacancies, (ii) M by getting actual M costs (gardener, annual lawn maintenance, etc) from service providers in the area, and (iii) CE by taking the useful life of every major component in the property (roof, electric panel, water heater, etc) and dividing by the cost to replace in an effort to determine expected CE. Am I overthinking my CE accrual budget?

Hey there, BP,

A little about me - My wife and I have been investing in SFRs in SoCal since 2011 and have done okay putting together a small portfolio; However, the market right now in SoCal, or at least in our desired geographies, is at a point where we just can't seem to justify the market rent:price ratio (read high price appreciation without an equal % increase in rental prices). On average, we're getting about an 8.5% CoC return on our properties, but the real 'money' we've made has been through appreciation (110% return on invested capital, but that's all equity).

Our plan all along has been to purchase enough properties where we can retire and not have to worry about taking draws from our 401Ks, Social Security, etc., etc., etc.. We would like to be in a position where our current after tax W2 income is 150% subsidized by real estate cash flow.

It appears that the MidWest might be the region to invest in in an effort to leverage the highest CoC returns. Indy specifically is appealing. I'm seeing properties on the West Side, just south of Questend, going for $40K - $60K that are renting for $600-$650/month. The numbers look fabulous, but I'm sure there's so much more that I need to look into. I'm starting to my diligence, but I have some basic questions. I'm hoping that I can leverage this community's expertise to at least get a tip as to where to begin addressing some of my most basic issues/concerns about investing in the Midwest. 

• What are the typical vacancy rates in the area - I realize the answer to this is going to be very geography specific, but how do you even go about determining vacancy rates;
• Is non-payment of rent (uncollected rent) an issue and what are investors accounting for;
• What are the typical eviction timeframes one should expect in Indy or in St Louis;
• Although $600/mo in rent satisfies the 1% rule assuming a $60K purchase price, can an investor in fact accrue maintenance funds (while operating in the black) quickly enough to satisfy maintenance needs as they arise (i.e. a 10% maintenance accrual on a $600/mo rent is only $60/mo or $720/yr. If a new roof is needed every 10 years and the cost is $5K, you may quickly run out of maintenance funds to satisfy any other repairs, such as a furnace, that may be needed); and
• What should one account for for rental rate appreciation in the region? One of my concerns is that if I'm living in a high cost / high inflation area like SoCal and am experiencing 6ish% annual inflation, but am only able to raise my rents in the MidWest by 2% per year, is my true purchasing power actually decreasing year over year?

I really appreciate you all taking the time to walk me through any details you'd be comfortable sharing.

Cheers, Peter

@Jeb Brilliant, I'm also a SoCal resident and looking to invest in the Indy metro area. My office is in Santa Monica - can I take you out to a cup of coffee or dinner and pick your brain a little?

Originally posted by @Jeffrey J.:

Originally posted by @Peter Aziz:

Historically I've just provided a self prepared acknowledgment or a personal certification.

Given how stringent I've heard the income test is (e.g., showing tax returns, w-2), a simple self-certification (e.g. "I Jeff J attest that my investment in XYZ syndication is in the amount of $100k") would suffice?

The platform that I invested through (PeerStreet) allowed me to sign one of their prepared acknowledgements certifying that I was an accredited investor. What is it that you're trying to do? Syndicate your own transactions?

Historically I've just provided a self prepared acknowledgment or a personal certification.

@Jeffrey J., I remember going through this when I started investing with Peer Street. If you don't meet the income requirements, there are Net Worth requirements that you can satisfy. Investments in syndicated transactions are included in your net worth. Think about it from a Balance Sheet perspective - you're converting cash to a note receivable. The principal balance (and any subsequent interest earned) would be used in calculating your net worth. 

@Shraga Braun, welcome to BP!