All Forum Posts by: Mark S.

@Michael S. Yes, it's about .84 ($1,600 gross monthly rent / $190,000 sales price), however, does the fact that the duplex is BRAND NEW - with hopefully next to any major maintenance for the first few years, at least - count for anything? $1,600 is a low-end estimate. There are some of those units renting for $850 / side for $1,700 total gross monthly income; this would bring it to .89. If I can buy it for less than ask at, say, $185,000, then I'm between .86 and .91. Still way under 2, but is this doable?

@Ruslan Khachatrian What are you studying at UMass? I enjoyed my time there greatly.

@Jonathan Cubeta I already have a home. I built my primary residence last year, so I wouldn't / couldn't occupy one side of the duplex. I did consider this beforehand, but for many reasons, I decided against it.

@Mehran Kamari Thanks for the words of encouragement!

Sorry for such a long post, but I'm semi-obsessed with this potential deal. I've been wanting to buy one of these brand new, all-brick duplexes for some time now. I tried to further break it down. All advice and guidance is greatly appreciated. Thanks in advance, everyone!

2 bedroom / 2 bathroom, 1,320 sq ft each (2,640 total), new, all-brick, side-by-side duplexes.

THE NUMBERS - TWO SCENARIOS
SCENARIO 1 - Pay Asking Price, Collect Lowest Rent Likely
Purchase Price: $190,000
Down payment @ 20%: $38,000 down
Loan Amount: $152,000, 30 years at 6.00% (estimating here)
PI: $911.32/month
Gross Monthly Rent: $1,600/month (conservative estimate)
Yes, I realize according to the 50% rule, I'm already cashflow negative.

Expenses
Taxes: $2,119/year = $176.58/month
Insurance: $700/year = $58.33/month
Vacancy: 8.74% (according to www.bestplaces.net, as of June, 2012) = $139.84/month - I think this is a bit high, as these units seem to have very little trouble getting occupied.
Groundskeeping: $500 = $41.66/month
Advertising (Craigslist, Internet, For Rent signs): $100 = $8.33/month
Maintenance/Miscellaneous: $1,000 = $83.33/month

Total Annual Expenses (including vacancy): $6,097.48 = $508.09/month
Net Operating Income: $13,102.52/year = $1,091.87/month
Less Annual Debt Service: -$10,936/year = -$911.32/month
Cashflow Before Taxes: $2,166.52/year = $180.55/month
Yes, below the ideal $100-$200/month per door.

Cap Rate: 6.90%
Cash-on-Cash Return: 5.70%
Taxable Net Income (after adding back $1,816 principal payments and amortizing over 27.5 years for $6,909): -$2,926. So, cash flow is not taxable.

SCENARIO 2 - Pay Slightly Below Ask, Collect More Likely Rent

Purchase Price: $185,000 (instead of $190,000).
Down payment @ 20%: $37,000
Loan Amount: $148,000, 30 years at 6.00% (estimating here)
PI: $887.33/month
Gross Monthly Rent: $1,700/month (more realistic estimate)
According to the 50% rule, I'm still slightly in the red here.

Expenses
Taxes: $2,119/year = $176.58/month
Insurance: $700/year = $58.33/month
Vacancy: 8.74% (according to www.bestplaces.net, as of June, 2012) = $148.58/month - I think this is a bit high, as these units seem to have very little trouble getting occupied.
Groundskeeping: $500 = $41.66/month
Advertising (Craigslist, Internet, For Rent signs): $100 = $8.33/month
Maintenance/Miscellaneous: $1,000 = $83.33/month

Total Annual Expenses (including vacancy loss): $6,202.00 = $516.83/month
Net Operating Income: $12,999/year = $1,083.25/month
Less Annual Debt Service: $10,647.96/year = $887.33/month
Cashflow Before Taxes: $2,351.04/year = $195.92/month
ALMOST meets the minimum of $100/door per month!!
Cap Rate: 7.03%
Cash-On-Cash Return: 6.35%
Taxable net Income (after adding back $1,768 principal payments and amortizing over 27.5 years at $6,727) = -$2,609. So, cashflow is not taxable.

These numbers are probably far less than impressive, but remember that the property is brand new, my estimates are very conservative, and I'm essentially buying at retail price.

Hey guys, I also work in financial services. It was my understanding that we were not able to hold a securities license and real estate license simultaneously. Is this true? I didn't think it was a company-specific rule, but maybe it is. I know financial services is very broad and maybe you're a banker, for example, without securities licenses, but I can't help but ask. I'd love to be able to hold both!!

I'll divide this post into two parts: Cash Reserves and Self-Directed IRA.

CASH RESERVES
I realize every lender is different, as is every investor. My question is how much cash reserves - after down payments, closing costs, etc. - would the "average" lender like to see? Also, how much cash reserves as an investor do you personally like to see?

I'm personally much lower on cash than I would like to be, and I'm trying to decide if I should continue to wait and save more cash reserves, or put some IRA money to work in an SDIRA (please see questions below).

SELF-DIRECTED IRA
I've heard a lot about self-directed IRAs, but I can't say I'm too knowledgeable about them. I understand that instead of investing in the traditional stocks, bonds, mutual funds, ETFs, etc., they allow you to take control and can hold real estate.

I guess my initial question would be whether or not you have to have enough funds in the SDIRA to cover the entire purchase price or can you just use some cash in the SDIRA for the down payment?

Would it be more advantageous to do this with funds originally coming from a Traditional or Roth IRA, especially for someone under 59 1/2?

Finally, I would have to think there are many tax disadvantages that would deter someone from using an SDIRA and make them more inclined to use after-tax cash. Right?

Hey BiggerPockets Community,

My name is Mark and I'd like to take a moment to introduce myself to the community. There was a gentleman who recently introduced himself with a very lengthy introduction and I enjoyed reading the whole thing. I hope you don't mind if I do the same.

I have been interested to some degree in real estate investing since about 2006, when I graduated college (B.B.A. in Marketing from UMass Amherst) and became someone else's tenant paying $900/month for a one bedroom apartment about 30 minutes south of Boston. Boy, would I liked to have been on the other side of that table! Well, soon, hopefully I can be.

After living south of Boston for a couple of years, working in sales management for a Fortune 100 company, I decided it was time for a change - a career change, a geographical change, and an overall lifestyle change. I moved to Kentucky, where I currently live. I finished my M.B.A. in 2012. I now work in financial services and have been for almost five years. Things are going fairly well and I'm looking to finally pull the trigger and get started in real estate investing no later than next summer (2014).

I am interested in buying/holding rental properties. I hope to be able to acquire 10 units in 10 years, likely picking up a duplex every two years. Later, I may upgrade to apartment buildings, commercial, who knows?

My two main concerns about real estate investing are:

1.) I am not handy AT ALL. I can barely change a light bulb.

2.) I am very particular about everything. I'm trying to already condition myself not to freak out over small things tenants may do that aren't to my liking.

I think these two things, as well as not having as much cash as I would like, have held me back.

My initial strategy is to buy either a new construction duplex (which costs more, but the rents, and hopefully quality of tenants, are higher) OR to buy a less expensive single family home that's not too old.

The one potential deal that I can get out of my head are these brand new, all-brick duplexes (2br/2ba, 1300 sq ft. Each) for $190,000 total, bringing in $800/month each side. So, $1,600/mo gross rents for $190,000. Location is good, right off main road. Area is okay, although there are other brand new apartments (competition, where they can rent for $100/mo less), and it's in a college town (although this area is a little further away, so it's not "too collegey"). It's definitely expensive, but I'm thinking that since they're brand new, this should save me a lot on any maintenance costs for the first several years. I figure this is obviously reflected in the asking price. I'd like to think I could get one of these duplexes in the $180,000s. I think the last one sold for $185,000. For that, though, I could probably pick up several smaller houses out here. I've talked to some smaller community bank lenders and 85% LTV is the best I can find for an investment property, but it's on a 5/1 ARM. I'd rather get a fixed, if possible, but as I said, right now cash is tight. I need to stop dumping funds into retirement accounts (hazard of what I do), and start accumulating cash for rentals.

It's time to get serious. It's time to set goals. It's time to get started. I'm looking forward to continuing to learn from everyone here and hopefully to provide value to other members as I gain more experience. Any thoughts, comments, or advice is greatly appreciated. Thanks in advance.

Hey BiggerPockets Community,

My name is Mark and I'd like to take a moment to introduce myself to the community. There was a gentleman who recently introduced himself with a very lengthy introduction and I enjoyed reading the whole thing. I hope you don't mind if I do the same.

I have been interested to some degree in real estate investing since about 2006, when I graduated college (B.B.A. in Marketing from UMass Amherst) and became someone else's tenant paying $900/month for a one bedroom apartment about 30 minutes south of Boston. Boy, would I liked to have been on the other side of that table! Well, soon, hopefully I can be.

After living south of Boston for a couple of years, working in sales management for a Fortune 100 company, I decided it was time for a change - a career change, a geographical change, and an overall lifestyle change. I moved to Kentucky, where I currently live. I finished my M.B.A. in 2012. I now work in financial services and have been for almost five years. Things are going fairly well and I'm looking to finally pull the trigger and get started in real estate investing no later than next summer (2014).

I am interested in buying/holding rental properties. I hope to be able to acquire 10 units in 10 years, likely picking up a duplex every two years. Later, I may upgrade to apartment buildings, commercial, who knows?

My two main concerns about real estate investing are:

1.) I am not handy AT ALL. I can barely change a light bulb.

2.) I am very particular about everything. I'm trying to already condition myself not to freak out over small things tenants may do that aren't to my liking.

I think these two things, as well as not having as much cash as I would like, have held me back.

My initial strategy is to buy either a new construction duplex (which costs more, but the rents, and hopefully quality of tenants, are higher) OR to buy a less expensive single family home that's not too old.

The one potential deal that I can get out of my head are these brand new, all-brick duplexes (2br/2ba, 1300 sq ft. Each) for $190,000 total, bringing in $800/month each side. So, $1,600/mo gross rents for $190,000. Location is good, right off main road. Area is okay, although there are other brand new apartments (competition, where they can rent for $100/mo less), and it's in a college town (although this area is a little further away, so it's not "too collegey"). It's definitely expensive, but I'm thinking that since they're brand new, this should save me a lot on any maintenance costs for the first several years. I figure this is obviously reflected in the asking price. I'd like to think I could get one of these duplexes in the $180,000s. I think the last one sold for $185,000. For that, though, I could probably pick up several smaller houses out here. I've talked to some smaller community bank lenders and 85% LTV is the best I can find for an investment property, but it's on a 5/1 ARM. I'd rather get a fixed, if possible, but as I said, right now cash is tight. I need to stop dumping funds into retirement accounts (hazard of what I do), and start accumulating cash for rentals.

It's time to get serious. It's time to set goals. It's time to get started. I'm looking forward to continuing to learn from everyone here and hopefully to provide value to other members as I gain more experience. Any thoughts, comments, or advice is greatly appreciated. Thanks in advance.