All Forum Posts by: Steven E.

You only need to post this 1 time, not in 12 different threads !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

 (1) Zero days, zero hours, zero minutes.

(2) Yes, many. You just have to find someone local to you in the mortgage industry that is smarter than average.

Note that my answers were predicated on "cash buyer." If you borrowed $100k from your uncle a week prior, you aren't a cash buyer. You purchased with borrowed money, that would make you a financed buyer.

Hi @Steven E. - I'm not in MI so I can't speak to the property tax calculation but for the one lump sum you have for Property Management, Vacancy, Repairs and CapEx I think it's better to break those down separately.

Property Management - assuming 10% of rent each month plus 50% of one month's rent for every new tenant and an average of one new tenant every three years that comes to $114 per month.

Vacany - 8% is conservative since that equals 1 month out of every year. I would use 4% since it can take longer than one month to get a new tenant in place even when using a PM. So that's $40.

Repairs - I prefer to use a flat rate, not a % of rent. In my market for the types of properties I purchase $50 per month is good.

CapEx - This one is tricky. You do need to include something for CapEx reserves - so far so good. The amount per month can vary a lot -- are you trying to seriously build up enough reserves to cover all the major components that will need to be replaced over the next 20 years or so? If that's the case then you can do the math to see what those costs are along with the expected life of each item. Even more accurate is for the particular property -- roof may last 5 years, need to paint the entire outside every 8 years, etc. You can see from my paint the outside example that I consider CapEx to be "big expensive stuff" not just what is literally capital in the IRS definition. These calculations can come up to over $200 per month pretty easily. In general I use somewhere between $100 and $150 per month with the additional assumption that I have funds to cover things that need to be done sooner so I'm not relying ONLY on these set-asides but using it more for the overall cash flow calculation.

So with my approach that one lump sum would be between $350 and $400 per month.

Excellent that you are running your numbers in a logical manner!!

@Steven E. After looking at your estimates, here is some feedback based on the properties I own in Grand Rapids.

• $400/mo for a 25% down, 30-year mortgage with 5% interest
• Seems accurate (you may be able to come in closer to 4.5% if you are using conforming lenders)
• $300/mo for PM/vacancy/repairs/CapEx (30%)
• Seems reasonable (10% for PM is $100 + 5% vacancy is about $40 + 10% for repairs/cap ex is $100 for a total of $240)
• $250/mo for property tax
• This is your main variable. I don't pay 250/month or even 200/month for any of the GR properties I own. The most I pay for taxes is around 200 a month. But I have houses that I rent for 1500 with taxes that run 130 a month. So this is just too variable to estimate super accurately.
• $50/mo for home insurance
• This is a bit too low. I don't pay less than $75-80/month in GR. Kalamazoo is higher because, according to my agent, claims are higher in Kalamazoo.

I have properties in Holland, Kalamazoo, and GR. If you ever want to discuss investing in this market more, let me know. Im happy to help. 

I think your math is generally correct; when I look at my numbers for properties in GR I'm around 14.4% for PM expenses, 5% vacancy, and average around 10% for repair/CapEx. I'd try to land on what kind of property do you want to buy and who you want to manage your properties because that will determine the management costs as well as give you someone local who can give you a better idea of what market rent should be. A great property with a poor manager is worse than an average property with an excellent manager in my opinion :) You're correct that the "1.2% Rule" is better than the "1% Rule", however finding that will require you to switch from generalized percentages to a specific analysis on a specific property because many of your expenses will scale right up with your rent: a PM's fee is almost always a fixed percentage (although some do offer a fixed fee) and taxes, vacancy, and insurance also usually increase as the rent does and if your Pro-forma uses all percents then you'll likely overlook a real deal because you'll be overestimating your expenses on a steal of a property. Good luck! What made you decide to choose West Michigan as the place to invest? I spent 8 months in Palo Alto, so I know that Silicon Valley is NOT the place to find cash-flowing properties, but I'm curious how you decided where the best place was.