All Forum Posts by: Tim Herman

@Estefania Navas You won't insure two houses for $60 per month unless they are the fire station. Unless you have a quote and only insuring for cash value, mine runs around $75 per month per house. Certain states it is a little more. If you suffer greater than 50% loss you will be required to update to present code and that cost will be more than the property is worth, and most likely the insurance company will get you the percentage of loss and you will have to foot the bill for the update.

Here is a simple repair budget. Turnover cost + number of service calls over a timespan. Using 1 turnover per year and 1 repair a year. So for 4 years you can get by with a refresh by a handyman and cleaner. The 5th year you most likely will have to repaint the complete house. Assume a quick turnover costs $500 and a complete refresh  is $1500. 1 service call per year @ $150. Your 5 year cost is 4*$500+1*$1500+5*$150=$4250/60= $71 per house per month. That is with made up numbers. Your costs could be greater.

Capex budget will be similar. Since you didn't specify the size other than 2/2 I will make some assumptions. Assume 1500 sf of flooring. My area cost me $6 sf to replace. Go to your favorite flooring store and ask what the commercial warranty is: 10 years or less(5 years for carpets). That is your lifespan. $9000/120 months=$75 per month for 1 item in a capex budget. This would allow you to do both house floors. Still have to save for roofs, appliances, hot water heaters, hvac, exterior, sidewalks, window, remodels, etc. Percentages do not tell the story. They give you a chance to find some properties that you can do a deeper dive. With this much income for the price it will probably cash flow just not as much as you are expecting.

@Estefania Navas how did you arrive at your numbers. Have you run maintenance and capex budgets. Most of the time my capex budget is twice as large as my repair budget. Banks will underwrite at 5% vacancy. Your 3% is your tenant staying an average of 33 1/3 months. I am a conservative investor and use 8%. Have you verified the income for the rental. Most higher class property will not be in the 2% range. Most of the properties that generate this much cash flow are in economic deprived areas and your variable costs will be significantly higher. Insurance looks low. Size of property also changes your variable cost and the number of units.

@Jake Bourgraf what do the numbers tell you. Using updated rents and the 50% rule. Half to expenses and half to mortgage. total rent rent $2400. Payment @ 5% on a 280k mortgage is $1500 per month. Net loss of $300 per month. 

@Estefania Navas can't open report. Try doing it again.

@Matthew Irish-Jones this should be put under the education tab for new investors to see. I always ask if the investor has run capex and maintenance budgets instead of using percentages, In almost all cases the amount being reserved is less than necessary. As you pointed out condition also plays an important role. Great post.

@Sierra Thornley just looked at your updated numbers. Taxes would not be 3k per month but closer to $300 per month. 

@Sierra Thornley Is there a property tax exemption. Taxes average almost 1% of ARV in the USA. This would be over $250 per month. No PMI for less than 20% down. Just googled interest rates and 30 year term was 6.7%. No PM will only work for 5%. With all the fees it will be closer to 10-12%. According to your inputs you will be cash flow negative for over 20 years. This would be an appreciation play but what happens if there is another 2008 and the price of properties drop. If you look at the 50% rule it shows you will lose almost $700 per month.

@Colin J Kavanagh So you ran capex and repair budgets and it came to $85 per month for each. Seems low. I use 8% vacancy, 5% repairs and 10% capex. Vacancy of 3% is the same as a turnover every 33 1/3 months. Banks will underwrite at 5%. Just googled interest rates and it showed 6.7% for 30 years term. Go down and look at the 50% rule and it shows you will lose $160 per month.

@Steven Westlake Notice must be given with the interruption of utilities. The utility companies send notice when planned service updates and there is going to be a disruption of service. I don't think you keep the water flowing when you clean the water heaters. There could be the potential damage to an appliance in use when the water is shut off.

@Robert Ruschak will not see your comment until now. You have to tag people using the @ sign and start typing their name. Clicking their name and it goes into the comment box in blue and they are notified.

@Steven Westlake Did you give the required 24 hour notice or just assumed it was okay to violate his right to privacy. You have the right to do maintenance and inspections with proper notice. You need to study the landlord tenant laws of Ohio. Further mistakes in not following the law could be costly.