@Gordon Starr thanks for taking the time to respond. I really appreciate it.
Yes, that's correct.
That's a really good point. I haven't really seriously considered that.
From what I understand, regarding buy & holds, the money is made during the buy. So if I only make offers (and stick to them, rather than becoming emotionally attached and giving in) for purchases that make the numbers work, I would think it would negate that risk. Am I missing something?
Regarding turnover, I have baked in 10% vacancy into my estimates. From the properties I have evaluated, a bunch of them (a minority, not the majority) meet my requirements for cash flow. Given that they are 1% properties, it seemed like 10% was a good number to choose. Would others disagree? I don't want to fool myself into using bad numbers when evaluating a property's potential cash flow.
Regarding repairs, this is a big unknown that I'm still trying to figure out. I would assume that my capital expenditures are going to be rare, but cost a lot. Therefore, I was imagining that I would need to keep a certain percentage per property saved up in the bank in liquid funds ready to spend on the repairs. Knowing my luck, I would get 20 properties, and they would all have some massive expense at the same time that isn't covered by the insurance I had purchased for the properties. I was considering baking in saving up 10% of the home value into an emergency account for each property. So in other words, let's say I have 20 properties, each valued at $100k. I would aim to have $200k (20 x 10% of $100k) set aside, ready to go at any point in the bank, to handle capital expenditures. Does 10% sound like enough?
@Melissa Kirchhoff thank you for your insights, you bring up some concerns I hadn't quite been able to articulate. I appreciate you sharing your thoughts.
Regarding this, I was planning on going through alternate methods of finding highly recommended contractors and/or assessors to independently assess what is wrong with each property before I buy it. Perhaps I'm living in a dream world and this isn't as practical as I would like to think. I know people keep knowledge of good contractors a secret, since they are hard to find. That's why I have to also consider finding independent assessors, though I haven't really heard of this so maybe that's not really a thing people can do. I'm still new to all this. Are there any recommendations you could make for how to independently assess whether or not a property is too good to be true?
I'm planning on saving about 10% of the property's purchase price in an emergency account in case of unexpected capital expenses that insurance doesn't cover. Does that seem like enough or is that unreasonably low?
Honestly, this isn't a big one for me. I plan on buying 40-60 properties over the next 10 years and so if I bake that amount into the numbers I run, I'll learn from the first few deals and be more conservative in the future. I'll certainly have fewer properties that match my numbers, but I believe I can learn from these situations.
In this case, this is where I believe having multiple properties are going to really help. There will be dry months, but the more properties I have, the more the sum total of rentals can offset vacancy of others. With that said, I have baked in about 5% vacancy into each of the properties I have run, just to be safe.
If I lose my job *and* there is vacancy, then similar to the above answer, I'd be able to rely on the extra money brought in by the other non-vacant rentals. Additionally, in order to pay my own mortgage, pay for living expenses (food, utilities, etc.), I have saved up 6 months of expenses in an emergency fund to handle that type of a situation. For my risk threshold, this should give me time to find another job to replace my current income.
I want to build enough passive income to not only meet, but exceed my current W2 income. That way, once I'm comfortable with living off the passive rental income, I can not *have* to work. However, knowing me, I won't stop doing things, but at least if I want to take some time off, I am not forced to work if life throws curve balls at me.
@Jay Hinrichs thanks for sharing your thoughts. I appreciate it.
Yeah, this is what I'm counting on. I've been researching turnkey providers and have found really good recommendations for at least two of them from multiple people across BiggerPockets. I'm also doing thorough research of my own and comparing it to what the providers are saying, because if what they say doesn't match what I have found in my research, then I'm not going to trust them.
This is a really good point. I have built up a bit of an emergency fund that should get me through the tough times. However, that said, your point is still really valid. Given that I have lots of family in the area who I know I can rely on in hard times, I know I'd at least have a place to sleep if we had to sell our house and for some reason couldn't afford to move out of the area and rent an affordable home. I'm mentally/emotionally prepared to lose our house in the worst case scenario. I'd like to avoid that if possible, though, hence why I have about a 6 month emergency fund and a bunch of recruiters I talk to on a regular basis to make sure I can find a job to replace my current income in the event of something like losing my job.
I hadn't considered this. But it makes total sense. Thanks for this recommendation!
