All Forum Posts by: Tony Gazetti

@Matt Souza - I agree with you, and I think the reason I was settling for that mindset in order to get myself in the game was because I thought that's the best there was. Christian's post has shown me different with some actionable information.

@Christian Hutchinson - thank you, your response has been one of the best I've received on BP since I joined. Actionable advice is what I needed! I've briefly taken a look at the MLS in the areas you mentioned, and see that everyone was absolutely right, those areas are much better. It just shows me how much more valuable it is to have advice from an investor that invests in the same area you're looking in. Are you a member of any REIAs? If so, are there any you would recommend? I think that's the biggest piece of the puzzle I'm missing; those connections with people that are actually doing what I want to do in the area I want to do it.

Thanks for the advice everyone! I'll be adjusting my trajectory from here!

@Andrew Johnson - I do get that I am making the deal a little safer than it is by putting more money down on it. Let me put it to you this way: I've been researching REI for about a year now, and have not taken action. So is this a terrible, run away deal? Because if not, I need to start learning from experience. And in my opinion, is it a home run? Absolutely not. Do I want my entire portfolio made up of deals like this? No way. But in my estimation, it's fairly likely after 15-20 years of holding it, my COC ROI will be a minimum of 5-6%. I feel like that's a pretty decent return for my very first property that will enable me to start learning more about the rest of the business. Sorry to be argumentative, it just seems like whenever I post something on here, I'm given all the reasons not to do it, and absolutely no reassurance that I'm anywhere near being on the right track.

@Matt Souza - can you give me some examples of some cities where 1% rent ratios are the minimum? I'm not looking to be in C - D class neighborhoods - I've already explored that option and I don't think it's for me. I noticed in your profile you mention shooting for $20k-$40k properties. Where are the three properties you purchased? Maybe I'm not quite experienced enough yet in scouring the MLS for deals,or maybe I'm concentrating too much on proximity to my residence, but from my observation, most of Michigan is closer to a .8-.9% ratio, with the exception of class C-D.

@Christian Hutchinson - none of the properties I'm looking at are duplexes. They are SFH in class B neighborhoods. I apologize for the confusion - I mentioned replacing 2 of each of the CapEx items just so I could illustrate that I was attempting to estimate more than I would most likely need.

Thank you @John Leavelle, I appreciate the response. I guess you are right, there are several things I neglected to account for if I'm trying to have a conservative CapEx estimate. I am definitely going to have an inspection done on anything I buy.

@Andrew Johnson , you were gracious enough to chime in the last time when I was on a different path, any insight into what I'm looking to do this time would be greatly appreciated. 

@John Leavelle Thanks for your response!

So, it just makes a little more sense to me to calculate my CapEx as a lump sum number over the course of the time that I plan on owning it, rather than monthly. So you are assuming that over the course of 18 years, I'll be putting over $32k into the place for CapEx? I'm just curious how you get to that number. The places I'm looking at are all in fairly good condition, but as I mentioned in my OP, I accounted for replacing all of the big stuff once, and all of the small stuff at least twice. If your number is, indeed, more accurate, then I think it might make sense to only put down $40k and finance $100k, which would keep my ROI over 7%. Either way, I'm not so much concerned with my CapEx reserves for one house at this point - I'll always have enough money to cover something that goes until I have multiple properties. I'm more interested to hear if my method of analyzing the deal and the ROI is sound. Also from what I've seen, tenant pays for all utilities in most SFR in my area.

Does anyone else use the method I used to analyze their ROI on a property, or does everyone throw all of the expenses into the payment and look at how it cash flows?

Hello all!

So I'm still in the process of finding my first rental property. I put in an offer on one that looked like a good opportunity, but it didn't pan out. That offer allowed me to discover that there are quite a few more opportunities out there for what I'm trying to do. However, I wanted to run my thinking past the community to get some feedback on my thought process.

These calculations represent a realistic purchase that I could make in the area I live. It assumes a purchase price of $140k with a down payment of $50k, resulting in a loan of $90k and a total payment of $857. The payment includes taxes, interest, insurance, 8% vacancy, and $50/month of repairs. I did NOT include CapEx in my total monthly expenses number, which is the reason I want more experienced investors to check my numbers. The box in RED is how I figured CapEx into my Total ROI. I assumed an extremely high CapEx over 18 years (2 washers, 2 dryers, 2 fridges, 2 water heaters, 2 water softeners, 2 dishwashers; 1 furnace and 1 AC unit, and 1 roof). With that conservative estimate of my total all in cost, and a pretty conservative estimate of only 3% annual appreciation on the property, I'm still at 7.33% ROI when you factor in the cash flow income (which is also conservative, because I didn't account for any rent increase over 18 years).

Also I should note that I am already approved at 4.75% for the loan, so that part is not an issue.

Is there anything I am missing? It seems like a pretty solid plan, and if anything goes better than I projected here, it could be even more solid. Thank you for taking the time to review and any advice you can give!

Tony

@David Chan

I really have to get this tagging thing down - doesn't seem to work when I post from my phone. @Andrew Johnson @David Chan @John Leavelle @Dirk Jackson please see my previous comment. Thanks!

@David Chan @Andrew Johnson any thoughts on my update? 

@John Leavelle thank you for the suggestion! I think I'm going to start looking at that option for little nicer properties. 

@Dirk Jackson my thought is if I can finance, I'm using the banks money not my own. If I didn't finance that's $40k of capital gone. It would take 16 years to make that money back with $207 in cash flow per month. Am I looking at that the wrong way? 

First of all, thank you so much for all of the advice! I'm amazed at how many successful people take the time to help and guide new investors, and I look forward to the day when I'm able to pay it forward!

Just to be clear, BRRRR is the strategy I was pursuing here. Here are a few more details about my situation: I live in Waterford, MI. It borders Pontiac, MI (where the aforementioned property is located, and clearly a class D area). It also borders Clarkston, MI, a nice Detroit suburb with affluent neighborhoods and good school district.

My initial thought was to buy rental properties in the not too terrible parts of Pontiac for cheap, where I could get good cash flow, and where I could build a large portfolio that brings in enough cash to reinvest into other endeavors (15 properties that cash flow $300 each would get me and extra $50k/year to play around with). I'm in sales, and with the current state of the economy, my income allows me to able to save/invest around $60k+/year (I currently have about $70k saved, ready to invest). So I figured with my current savings and income it wouldn't take too long to get a decent sized portfolio of cheap rentals. The cash flow from that set of properties could then be reinvested into some higher end properties that would offer less cash flow but a good possibility of appreciation, like in Clarkston.

Given the feedback I've received from everyone, I guess my question becomes - is that a flawed strategy? Would my money be better spent on higher priced properties with more appreciation potential? Also, is it a bad idea to put more money down on a deal to force cash flow? I thought the idea was to play with other people's money... Because there is no chance of finding a decent cash flowing property in a place like Clarkston - rents on 3/1s are right around $1200-$1400 and you won't find one to buy cheaper than $120k. That puts mortgage plus expenses right around $1300 with a break even proposition at best.

I want my REI to snowball - and to me that means getting a large enough consistent cash flowing rental portfolio to fund the initial growth so that I can keep it growing exponentially.

Again, I'm very appreciative of all the feedback, and really want to just make sure I'm on the right track with my thinking. Thanks everyone!

Hello all!

I'm on the cusp of making a move on my first rental property - I've been learning and researching for months, I now have enough knowledge and money to jump in and start doing, and I'm extremely excited!

I would, however, like to share my deal analysis to make sure I'm on the right track and not under/over estimating anything. If some seasoned investors with at least a few buy and hold deals under their belt wouldn't mind taking a look and giving their feedback, I'd really appreciate it! Thanks!

Details:

I plan on paying cash for the property and then financing with a 30-year mortgage.

These numbers are assuming that it appraises for $51k so that I have 20% equity in it when I finance, and the loan is for the full purchase price (no money out of pocket sans closing costs).

LP: $45,900

Assumed purchase price: $41,000

Assumed appraisal: $51,250

Tenant occupied, current rent: $875

Does this look like a good deal? Anything I might be missing?