All Forum Posts by: William Anderson

Doug, this is a late response.  I use 8% for vacancies.  That's one month of rent per year.  If the tenant stays for two years, I do not factor in a vacancy rate for year three, etc. until I need to replenish.

The capital reserve is ok at 8-10%

Regarding property managers, an absolute necessity.  Don't ask a real estate agent to be your property manager, rather ask one to recommend a property manager.  If the real estate agent has a reasonable expectation that you may at some time in the future use them for the sale or purchase of property, they may go out of their way to find a good one for you.

Another tip.  That real estate agent can do a big favor for you by driving by every six months and looking at the outside of the property.  This is a double check on the property manager.  

I agree with Sergey.  First, before you call the insurance carrier, obtain quotes for repair.  In your case, it seems it was a complete roof replacement.  There are many cases where I live on the MS Gulf Coast where wind causes some damage but the cost for repairs is below the wind deductible which runs from 2-5% of the value of the house.  

Do not contact the insurance company if the cost is below the threshold.  Find a company that can repair your roof and pays for it.  Remember claims stay on your record from five to seven years.

When the cost exceeds the deductible by a large number, then file a claim before you start the work.  Let the claims adjustor come and assess the damage.  The last thing you do is find a contractor.  You should never discuss the source of payment with the contractor.  

One last thing about roofs.   Insurance companies are refusing to renew policies and terminating some for poor roofs.  If your roof is 10 years old or older, consider being prepared to replace it or suffer a higher insurance premium.  This may only apply in high wind areas.  If your roof is older than 20 years in high wind areas you may not be able to get coverage.  I tell my clients when looking for an investment property to factor this into the buying price.

I use Wave Apps online free accounting system.  Bank and credit card transactions drop into the system.  Your CPA gets access and prepare your tax return.  Do EFT for vendors or bill pay.  All of my transactions are electronic and accounted for.

My advice to anyone with risky property is to do the following at a minimum (that's in addition to your renter's insurance):

1. Post signs warning of the hazard and risks that you are not responsible

2. Include in your guest book detailed instructions about how to deal with that risk e.g. swimming pool, creek, bayou, etc.

3. Post on the back of the entrance door or some other wall a short list of rules including a mention of the risk

4. Create a Youtube video explaining the risk.  Don't post as public but put a QR code with the link in your guest book.

5.  If you greet guests via phone, text, etc. include mention of the risks.

6. Fence it in, rope it off, do what you need to to keep guests safe.

You simply can not go overboard. Remember, anyone can sue you for anything at any time. Be sure to put your property into an LLC. And, make sure you have the correct insurance, not homeowners but renters. Prosper is a good source for specific coverage.

First year about $40k gross.  

You may find it easier to obtain financing without the LLC. Try buying the first one as a vacation home. After closing transfer it to the LLC. If you later want to refinance, take it out of the LLC and then put it back after financing is complete.

A true commercial loan will not be a problem but they are usually 15-20 year amortization causing higher monthly payments.  Using residential financing until you are tapped out is the best.  If you work with a save loan broker they can tell you what to do based upon your circumstances.

Let me give you an example of not following the regulations. One of the cities on the Mississippi Gulf Coast hates STR's. There are casinos with hotels and they have leverage. People continue to defy the regulations which are zoning based. I often learn of real estate agents who sell properties in this city to people they know are going to do STR. I tell my clients where they can and cannot buy for STR. If they want to do an illegal, we have a face to face and I get them to acknowledge in writing that I told them the property was not zoned for it.

To the good stuff. One of the code enforcement agents called a vendors of mine who owns a few condos in that city. He wanted to look at a condo before he rented it for STR, he found it on ABB. They met and when he was finished looking he asked them for their permits. Fortunately they had permits (were not posted). This was one of the very few places where they allowed STR. They were fined for not displaying the permits in each of their units. He told them that he regularly goes through the online platforms and finds people every day. If they are operating an illegal STR there is a $500 per day fine. Yes, he does collect lots of revenue for the city.

My point here is that you need to stay clear of any government agency with police authority. Don't even think about turning a house in a development into an STR without getting the planning and zoning department approval signed in blood.

Let me give you an example of not following the regulations. One of the cities on the Mississippi Gulf Coast hates STR's. There are casinos with hotels and they have leverage. People continue to defy the regulations which are zoning based. I often learn of real estate agents who sell properties in this city to people they know are going to do STR. I tell my clients where they can and cannot buy for STR. If they want to do an illegal, we have a face to face and I get them to acknowledge in writing that I told them the property was not zoned for it.

To the good stuff. One of the code enforcement agents called a vendors of mine who owns a few condos in that city. He wanted to look at a condo before he rented it for STR, he found it on ABB. They met and when he was finished looking he asked them for their permits. Fortunately they had permits (were not posted). This was one of the very few places where they allowed STR. They were fined for not displaying the permits in each of their units. He told them that he regularly goes through the online platforms and finds people every day. If they are operating an illegal STR there is a $500 per day fine. Yes, he does collect lots of revenue for the city.

My point here is that you need to stay clear of any government agency with police authority. Don't even think about turning a house in a development into an STR without getting the planning and zoning department approval signed in blood.

I recommend you set up your own website.  We use MotoPress Hotel Booking plug in to our wordpress site.  It's a great tool, it synchronizes with any platform using Ical which is ABB and VRBO.  They have a package that includes the theme and plugin.  Spend a few hours entering data and uploading photos and you will have a first class site.

One of the great features is that you can set up a whole variety of charges for offerings to guests such as a pet fee, extra cleaning, bicycle rental etc.  They select and pay through the site.  Their central calendar shows all bookings with color codes for different platforms.  The cost is minimal and support is excellent. 

The market in CA and other high cost states is starting to cool.  If you are in it for appreciation you may be at the top of the curve.  I bought and sold in CA for a decade and made lots of money until luck ran out.  High taxes on everything and prices for property pushing hard on profits.  Rents just can not keep up.  

You may want to cast that net further afield. For what you will pay there, you can buy multiple properties in other areas and spread out your risk. This is not a pitch for the area where I work but it's an example. I have a duplex for sale at $222,000. Both unit are 4 bedroom, 2 bathroom in high demand. Gross income is $2,224 per month. Compared to your proposed investment this may seem simple but the COC and ROI will be higher. No need to wait on appreciation for income.

This is just an example. Another example is a SFH that I bought last September for $130,000 two blocks from the beach. It grosses about $3,200 per month as a vacation rental. See what I mean? Before you decide to buy everything insight here on the Mississippi Gulf Coast, you will have some competition. Most of my clients are from out of state and sometimes it takes a few weeks to find a good deal.

Hope this helps.