Investing with a W2 job affect your calculations?

Question

Hello BP!

I have been studying BP and investing for several years now and have a pretty good idea of what i want. The issue is actually finding deals where the numbers work and play out.

When analyzing different properties,  by not calculating repairs and maintenance costs, cap ex costs, vacancy costs etc. , the numbers will sometimes get me around 12% COC ROI and $300-$450 monthly cash flow.

I still have a sturdy W2 job that brings me about $5k each month. All money i am saving for my W2 i am planning to put toward my real estate goals and dreams and costs. Is this a good thought pattern to have or even logical? Knowing that money im saving from my W2 will be going towards these certain expenses. I imagine these expenses are very important to factor if your sole job is real estate investing and that is your only source of income.

I also am wondering if it is offensive or bad strategy to low ball an offer. For example, if there is a property that is asking $499,000 but i put in an offer for $400k because the numbers work with that, is that a bad move? Could the realtor/owner not be willing to even entertain any further offers if it is too low?

Thank you all!

Daniel

Account Closed · Answer

Put in an offer for how the numbers work. I could actually care less what someone puts down as their price.

All they do is say is NO. so you are out what an hour of your time tops.

I make offers all the time and get told 99 out of a 100.  I care about my successes not my failures.

Josue Vargas · Answer

What do you mean "by not calculating the repairs and maintenance, CapEx, etc.," do you mean estimating them as a % of rent or just merely not including them in the analysis and eat-up the cost, ultimately subtracting them from your net income?

You probably should do the analysis the right way, including all Maintenance/repairs, Capex, etc.  Either way, if your job is only REI or W-2, costs are costs, no matter how you see it.  Better to say "I have $100 cash flow" than "I have $400 cash flow but my net income now is reduced by $300".

COC ROI is just a number that compares your initial investment at the end of a certain period (usually one year) vs the net gains.  Take this example: Property value $100,000, down payment 20%=20,000.  Cash flow without most costs, $400/month = $4800.  COC ROI = 4,800/20,000 = 19% COC ROI.  Now Cash flow with all costs is $100/month = $1200.  COC ROI = 1,200/20,000 = 5%... Big difference.

Regarding the "low ball" offers, it may not hurt you, but your realtor may not take you seriously.  Doing so, you will need way more time to get a good deal that make sense.  Sometimes, knowing seller's particular situation makes sense to low ball offerings.

Wesley Whitehead · Answer

@Eric C. Concur with you on that

Michael T. · Answer

@Daniel Jodrey if you are able to get $300-$450 in monthly cash flow in the Southern California area that is great!  You'd have to provide more details in regards to the investment before I say that this particular property would be a good investment.

It's completely okay put all the money your saving towards real estate investing especially if your getting strong returns.

In regards to putting in a lower offer on a house it is completely okay.  What's the worst that can happen, the seller can decline your offer.  If the property has been on the market for a while maybe the seller is willing to negotiate.

The best way to live in Southern California is to live in a multi-unit, rent out the units and live in one of the others.

Account Closed · Answer

I consider my W2 job as just that. My job.  My investing at a minimum has to be self sustaining. Now I’m not saying if I had a major unexpected expense right out the gate that I wouldn’t have to pay out of pocket, but then I’d pay myself back to make up for it.  (This actually happened, you can’t plan for everything).

Well everyone has their own idea of cash flow and minimum they will accept with CoC return and what not, you have to do it for what works for you

Daniel Jodrey · Answer

Account Closed i agree, good to hear it from someone else.

Any thoughts on my above part regarding W2 job income?

Kathy Argento · Answer

Hey Daniel, you don't always need to pay PMI.  I am an experienced lender in Southern California and can build the PMI into the rate and you will have lower payment and never have to pay PMI.  Feel free to give me a call any time for a complete explanation

Daniel Jodrey · Answer

Hello everyone, thank you all so much for the feedback. I understand and agree with everything that has been said. I know that ultimately i need to be factoring in all costs. If i am being honest, running the numbers on the property i am looking at now, including a PMI and mortgage insurance and all variable expenses, where i believe i can get rents on both sides the property would come out even. However again, we would not be renting out both sides in the beginning but we would live in one side.

I feel that in Southern California it is so rare to see anything that works. I would say that this is most likely true in most parts of the country these days from what i am reading and hearing.

I feel our goals are slightly different at this point in the game and i am trying to gage on how our current situation can affect our decision making. This would be our first property , and one that we are trying to live in. The property would absolutely be a value add on as it is old and simple updates can make a big difference (paint, cupboards, landscaping etc). We really at this point want to get in the game and supplement our monthly cost. Currently we pay $1700 in rent for a very small studio in Santa Barbara. In my mind, if i can find a duplex to house hack and have that other side rent payment make my mortgage less then $1700, i am starting off well. And then the goal is when we are ready to move out (would be several years after) have the second half rented and be cash flowing. I just cant get over the PMI and how that crushes my numbers, and we do not have the money to put 20% down. I know that PMI is not forever and will go away after a certain %LTV.

If you can make sense of anything i am saying let me know. Thank you all again for all your time and feedback.

Chris C. · Answer

@Daniel Jodrey

Your offer should be based on the numbers working or not.

If you're getting COC of 12% without capex, repairs, etc. And using your extra W2 income when issues come up it's not an accurate COC. The difference would be either investing in XYZ property for an actual COC of 3% (with the gamble that if nothing bad happens, it could jump up to 12%). Vs COC of 3% in a nice and save CD at your local bank.

The risk doesn't out way the rewards. Compare apples to apples then see which one you want to do

Maugno M. · Answer

@Daniel Jodrey I use that strategy, and I have not been able to sustain. I use alot of my personal money to fund my real estate ventures. It works with a good w2, but sometimes you get confident and things dont go your way and bam, you in the hole. After i unload my latest flip, i will be paying off ALL my debt, and keeping everything strictly separate. I already have seperate accounts for my personal and llc's, but i find myself transfering loads of money from my personal accounts to my LLC'S to keep them going. I dont want to keep doing that !

Investing with a W2 job affect your calculations?

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