Investment Property in Georgia | Need advice/guidance

[Akshay Bhaskaran]

Hello Investors,

I'm planning to buy my first investment property in Georgia (probably a SFH or Condo or TownHome). While I'm trying to crunch the numbers for my analysis, I'd like to hear from the experts here to see if my calculations are right:

(Context: I'd be taking a HE loan against my primary house to cover the down payment for this investment property)

1. Gross Rental Income = Rental Income/month * 12

2. Gross operating expense = Vacancy charges for 3 months (3 * P + I for mortgage and HE loan) +

                                                      Property management fees (12 months) +

                                                      Property tax (12 months) + 

                                                      Insurance  (12 months) + 

HOA (12 months) +

                                                       Maintenance/repairs 

3. Net Operating Income (NOI) = (1) Gross Rental Income - (2) Gross Operating Expense

4. Gross Financing Cost = 12 * P + I for mortgage and HE loan

5. NIAF (Net Income After Financing) = (3) Net Operating Income - (4) Gross Financing Cost

6. Cash-on-cash return = (5) Net Income After Financing / (Down payment + closing costs)

Now my question is this:

- I am already tallying 3 months of vacancy charges (no rent) as part of gross operating expense (2)

- So, in my gross financing cost (4) - should I put it as 9 * P + I for my loans (coz 3 months vacancy is already tallied in gross operating expense [OR] it should be 12 * P + I for one complete year)

[Abel Curiel]

Quote from @Akshay Bhaskaran:

Hello Investors,

I'm planning to buy my first investment property in Georgia (probably a SFH or Condo or TownHome). While I'm trying to crunch the numbers for my analysis, I'd like to hear from the experts here to see if my calculations are right:

(Context: I'd be taking a HE loan against my primary house to cover the down payment for this investment property)

1. Gross Rental Income = Rental Income/month * 12

2. Gross operating expense = Vacancy charges for 3 months (3 * P + I for mortgage and HE loan) +

                                                      Property management fees (12 months) +

                                                      Property tax (12 months) + 

                                                      Insurance  (12 months) + 

HOA (12 months) +

                                                       Maintenance/repairs 

3. Net Operating Income (NOI) = (1) Gross Rental Income - (2) Gross Operating Expense

4. Gross Financing Cost = 12 * P + I for mortgage and HE loan

5. NIAF (Net Income After Financing) = (3) Net Operating Income - (4) Gross Financing Cost

6. Cash-on-cash return = (5) Net Income After Financing / (Down payment + closing costs)

Now my question is this:

- I am already tallying 3 months of vacancy charges (no rent) as part of gross operating expense (2)

- So, in my gross financing cost (4) - should I put it as 9 * P + I for my loans (coz 3 months vacancy is already tallied in gross operating expense [OR] it should be 12 * P + I for one complete year)

 Hello Akshay,

I'd leave (4) the way it currently stands since you'll be paying P + I on the loan for all 12 months regardless of vacancy.

Question is, where did you get 3 months vacancy from? Is this anticipating a 3-month vacancy period due to a renovation period in which the property would be uninhabitable? Is 3 months vacancy a conservative figure?... seems a bit high.

[Jeff Fountain]

Hi Akshay,

Manage your own property unless there is a MAJOR reason you are unable to. You will save a ton of money and you will learn A LOT about real estate investing. Easiest way to market your property is throw it on Zillow, minimal fee and Zillow completes your backgrounds as well as makes your lease signing very simple. For repairs, network with friends for handymen or use Angi. Remember, don't make owning your first property a science project. If you have a nice property, you will not have a 3 month vacancy. My guess is it will rent within a month if not within 10 days. Keep it simple and keep moving forward. Note, I did not say, don't do homework. Keep it up. REI pays off!

[Akshay Bhaskaran]

Quote from @Abel Curiel:

Quote from @Akshay Bhaskaran:

Hello Investors,

I'm planning to buy my first investment property in Georgia (probably a SFH or Condo or TownHome). While I'm trying to crunch the numbers for my analysis, I'd like to hear from the experts here to see if my calculations are right:

(Context: I'd be taking a HE loan against my primary house to cover the down payment for this investment property)

1. Gross Rental Income = Rental Income/month * 12

2. Gross operating expense = Vacancy charges for 3 months (3 * P + I for mortgage and HE loan) +

                                                      Property management fees (12 months) +

                                                      Property tax (12 months) + 

                                                      Insurance  (12 months) + 

HOA (12 months) +

                                                       Maintenance/repairs 

3. Net Operating Income (NOI) = (1) Gross Rental Income - (2) Gross Operating Expense

4. Gross Financing Cost = 12 * P + I for mortgage and HE loan

5. NIAF (Net Income After Financing) = (3) Net Operating Income - (4) Gross Financing Cost

6. Cash-on-cash return = (5) Net Income After Financing / (Down payment + closing costs)

Now my question is this:

- I am already tallying 3 months of vacancy charges (no rent) as part of gross operating expense (2)

- So, in my gross financing cost (4) - should I put it as 9 * P + I for my loans (coz 3 months vacancy is already tallied in gross operating expense [OR] it should be 12 * P + I for one complete year)

 Hello Akshay,

I'd leave (4) the way it currently stands since you'll be paying P + I on the loan for all 12 months regardless of vacancy.

Question is, where did you get 3 months vacancy from? Is this anticipating a 3-month vacancy period due to a renovation period in which the property would be uninhabitable? Is 3 months vacancy a conservative figure?... seems a bit high.

 Thanks for the reply, I will leave (4) as is. 3 months vacancy was just my wild assumption, I mean in the worstest of worst scenarios, so tallied 3 months. Would you consider 1 month vacancy to be a decent number to be included in the calculation?

[Akshay Bhaskaran]

Quote from @Jeff Fountain:

Hi Akshay,

Manage your own property unless there is a MAJOR reason you are unable to. You will save a ton of money and you will learn A LOT about real estate investing. Easiest way to market your property is throw it on Zillow, minimal fee and Zillow completes your backgrounds as well as makes your lease signing very simple. For repairs, network with friends for handymen or use Angi. Remember, don't make owning your first property a science project. If you have a nice property, you will not have a 3 month vacancy. My guess is it will rent within a month if not within 10 days. Keep it simple and keep moving forward. Note, I did not say, don't do homework. Keep it up. REI pays off!

@Jeff Fountain
the problem is I live in Austin, TX and I'm planning to invest in Georgia, that's the reason going with a property management company. I 200% agree with your words on learning a lot, but I'm afraid that will also give me additional headaches amidst my full-time job with complaints or requests from the property. Now, are you telling me the for a first investment out of state is risky? I'd like to hear your perspective on that too. 

[Jeff Fountain]

@Akshay

Yes, my first rental was out of state. You goal should be to minimize risks while continuing to moving forward. Remember, analysis paralysis kills. I maintained a rental property through a year long military deployment later followed by a 15 month deployment, and again followed by a two year deployment. Not sure a person is going to be busier that a person deployed abroad. Managing property out of state/country can be done. Here is the trick. You own, at least a Class B asset and you put NO ONE in your property that does not have good credit.NO EXCEPTIONS. Anything less than that and you are asking for multiple challenges. I still own that very asset in Northern Virginia (D.C. area) and live in Georgia. Have had that asset for 20 years and it has been an out of state rental for me for approx 15 of those 20 years. I also own property in FL that I manage. If you have the right renter, have an agreement where they give access to the repair person while you handle the repair coordination and payment. I am coordinating repairs, from out of state, as I type. I am away in another state and have two separate issues on two separate properties, working through each with minimal pain and aggravation. You will have minimal tenant requests if you spend the money and keep your property up, fix things and do preventative maintenance. If you slack on repairs, you will have requests and aggravation. Here is an example. I was contacted yesterday about the lamppost in the yard of one of my properties not working. We think it is as simple as the lightbulb needing changed. I asked her to not get on a ladder that I would have someone check it out. I responded immediately, I will fix the problem. Don't allow problems to fester and be responsive. You have to be willing to burn some midnight oil. If you're not, by all means, give your profits to a management company. 

[Rick Baggenstoss]

@Akshay Bhaskaran. Atlanta is one of the best cities in the USA for investing, but so is Austin.   There's no need to invest out of state when you're in TX.

Secondly, condo investing is pretty risky in Atlanta.  Townhomes are ok. 

Lastly, I concur with the other comments - 1 month vacancy per year would be pretty bad.  3 months per year and you've got a huge problem.  

[Joshua Austin]

Consider Savannah too. Lot of opportunities still!