@Carter J.
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?
Yes, most buyers in our market do a home inspection. Just make sure you find someone good, there are some that aren't as good and others that are amazingly thorough. Also, some have a special guarantee, like one locally is insured with something that if an inspection issue was missed, allows you to sell the house and buy another one without losing out on any money. I think that's a little extreme, but just want to let you know what type of questions to be asking and 100% get an inspector. We see new construction houses with major problems and the flips out this way make me cringe with some of the make-shift things they do, and I'm hardly an inspector!
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?
Nope, that's awesome, most people don't hold money back, so that's what I was looking for. Of course, I'd base it on the inspection, like if the furnace was old, or the roof, I would hold back more or less depending on what might need done, but have some just in case anyway. The most unexpected things can happen!
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.
If anything, I would plan more conservatively now, and when you have more units in the future, I think you can take more risks and not have it effect you as much.
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.
As long as you are planning for these things to happen, I think that's the important part.
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.
What you're speaking of though sounds more like you are purchasing a complex? Initially I assumed you were talking about SFH? And at 1%, does that really cover the mortgage and the cost if something comes up and your vacancies and your living expenses? And is 6 months long enough for you to get another job (it probably just depends on your position) but just some things to think about. To me, those numbers don't really make sense, which is why I would personally want to do more than 2%.
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.
So then, my question, why 1%? Why not buy up cheap properties and have a team to rehab if that gets you a higher amount? Plus, then, you could have the option to BRRR and build that up even faster, IMO, than buying turn key and not necessarily knowing what you're getting.
Just a few things to think about but otherwise, I would suggest buying one or two and seeing how it goes. Plans can always change and you can see if it works well for you or not.
