2nd Brrrrr under contract ! πŸ‘πŸΎ

10 Replies

I finally have my 2nd rental under contract. Set a goal this year of 4 units and currently half way there.

Details: 3/2 single family.

Arv 135,000

Purchase 72K

Rehab budget 25K

Rents $1400

Thoughts ?

@Maurice J. That's awesome!  It'll make a great cash flowing investment!  If you have sufficient deal flow--in other words, if you can find another property like this and do it again--you also have the option to flip it and repeat.  That's a $38K spread!

Promotion
NestEgg
Smarter rental management
Outperform your peers by 71%
NestEgg landlords save $6,960/yr in fees & 20 hrs/mo*. Self-manage for free or go hands-off for $29.
Start now, get $500
Originally posted by @Ben Unger:

@Maurice J. Congrats!

@Cameron Tope What are your assumptions behind the ~$200/month for capex? Also, is 16% around average for PM in Houston area? Seems higher than what I have seen in the forums.

Thanks!

If you run numbers including 1 months rent for lease up it comes out to greater than the 8-10% used regularly. 

Rent = $1400

PM at 10% + 1 month rent = ((1400*.1*12)+1400)/(1400*12)=18.3%

@Ben Unger good questions! You'll have to search for it but Brandon Turner had an awesome post about the average monthly cost of capex which showed ~$170/mo when you break down the cost of replacing roof, ACs, flooring, etc every x number of years. We just round up to $200/mo for even figures and it's been unbelievably accurate. 

As far as 16% for PM, if you lease your property every year (and the cost of most lease fees is one months rent) then that's 1/12 of your rent each year or 8.33%. Then you have to add the monthly PM fee on top of that, which is usually 8-12% so your total PM fee is somewhere between 16-20%. 

Most will argue that you don't lease out a property every year, which is true. BUT the PM company will still charge a fee of usually half months rent. So even if you get your tenant to renew every year (most PM companies don't like signing leases longer than a year) then you're still looking at 12-16% (4.2% for the lease and 8-12% for the management). 

This is why when I started our property management company, I only do a flat management fee instead of a percentage. And our owners have really appreciated that. 

Does that make sense? 

@Cameron Tope Thanks for the clarification! I had been breaking down the nuts and bolts of Capex and am using a table in my analysis based on average life expectancy, cost of replacement, and estimating how much "life" is remaining for each item.

Saw this link from another post which helped:  http://www.safehaveninspections.com/life-expectancies.html

...In any case, don't mean to derail from Maurice's awesome deal.

Originally posted by @Ben Unger:

@Cameron Tope Thanks for the clarification! I had been breaking down the nuts and bolts of Capex and am using a table in my analysis based on average life expectancy, cost of replacement, and estimating how much "life" is remaining for each item.

Saw this link from another post which helped:  http://www.safehaveninspections.com/life-expectancies.html

...In any case, don't mean to derail from Maurice's awesome deal.

Thanks for sharing! That's some pretty handy info. So what number have you come up with for Capex based on that data?

Just looking at the standard items it does come around $200 funny enough. I had intended it to be a refinement tool to evaluate properties with a little more detail. Below is just a snapshot of that extension of my calculator.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you