What percent are you using for maintenance, vacancy, PM, etc???
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
11yI use:
8% vacancy
8% repair
5% capex
9% management
We have been in crazy growth mode but once summer hits we should be stabilized and done acquiring. I feel these numbers are conservative and we budget $65k a year for vacancy, repair, and capex.
My plan is to transfer a fixed amount of profit into our personal account each month. Then capex and any money not spent on vacancy and repair that month goes into a savings account (or if we overspent one month we will pull from the savings account to make up the difference in profit). At the end of the year what is left we will plan to spend on bigger proactive projects. So if a roof will need to be replaced in a year or two we will do it now. If we have an old furnace instead of waiting for it to die we will replace it now.
This way we will avoid big ticket surprises and not get comfortable living off extra profit.
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130 Replies
- Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes11y
Originally posted by @Kevin E.:
As an alternate take, I'm reading a healthy and informative discussion about various investment and accounting styles. I just account and interpret for different communication styles (aggressive, laid back, accusatory, ultra-affirmative, etc) and harvest the facts and ideas.
Currently my takeaway is similar to others - there's more than one way to analyze and execute a deal. I'm still in awe of those of you who find deals with ARVs of twice what you're putting into it in purchase and renovation.
Important point, how bout we expand the OP's question past purchase analysis and accounting style, into the disposition stage. What percentages and/or amounts do you disclose when selling your properties? Do you paint the rosy picture and let the buyer be responsible for due diligence to find the true value of the property? Or do you help them out by disclosing two years of tax returns, repairs, age of appliances, roof & HVAC, late rent, etc? Is hiding (when legal and/or when you think you can get away with it) the ugly stuff a legitimate way to increase one's bottom line?
I don't sell my rentals so I can't answer that very well. I sell my flips and I disclose everything. I would never hide anything if it was a material fact. If I did sell my rentals I would be happy to disclose all expenses, but their highest value is for owner occupied so it wouldn't apply well. I would think you would want to be honest whenever selling anything especially when dealing with a high amount of properties, because work will get out.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
@Mark Ferguson You're correct. The question was "what % do you take out for...?". My original answer was 0%, with the explanation that I cover it in my REFI cash out. Everything that developed from that point in time was a spinoff and not directed by me. I was simply answering a series of questions that resulted from my answer.
@Account Closed My "specific rental hustle" works just fine. The question was, well I'm not going to restate it, I just did above. What took place after that was a series of questions that resulted from my original answer.
Yes, I cover my CAPEX from my refi, because it is much larger and all upfront, than the slow bleed from the rent...one month at a time. Oh, and I don't miss my mark.
Also, when you state, "History shows that those sometimes go away for awhile", you are correct, which is shy I don't by for future appreciation. That has a bad habit of not being there when you need it...and history has told us that. My refi takes place in either 2 months or 6 months max.
One more thing, I always have a backup plan that I develop during analysis. If the property doesn't provide for one, I'm not moving forward. I don't speculate, I invest.
Granted, not all markets allow for what I do, but there are many that will. The question though wasn't asking for an idea of what should be done in all markets. The question was what do "we all" do for CAPEX, vacancy, etc...in our markets.
- Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes11y
Originally posted by @Joe Villeneuve:
@Mark Ferguson You're correct. The question was "what % do you take out for...?". My original answer was 0%, with the explanation that I cover it in my REFI cash out. Everything that developed from that point in time was a spinoff and not directed by me. I was simply answering a series of questions that resulted from my answer.
@Account Closed My "specific rental hustle" works just fine. The question was, well I'm not going to restate it, I just did above. What took place after that was a series of questions that resulted from my original answer.
Yes, I cover my CAPEX from my refi, because it is much larger and all upfront, than the slow bleed from the rent...one month at a time. Oh, and I don't miss my mark.
Also, when you state, "History shows that those sometimes go away for awhile", you are correct, which is shy I don't by for future appreciation. That has a bad habit of not being there when you need it...and history has told us that. My refi takes place in either 2 months or 6 months max.
One more thing, I always have a backup plan that I develop during analysis. If the property doesn't provide for one, I'm not moving forward. I don't speculate, I invest.
Granted, not all markets allow for what I do, but there are many that will. The question though wasn't asking for an idea of what should be done in all markets. The question was what do "we all" do for CAPEX, vacancy, etc...in our markets.
I would still love to know how you figure cap ex or vacancies if your cash out is much more or much less on different properties. It seems odd you would assume your expenses will equal exactly what your cash out happens to be. Investors know appraisals don't always come in at what we think houses are worth, especially with refis. What if you aren't able to cash out anything, how do you then figure for vacancies and cap ex?
Please answer my question about how an investor should figure these expenses if they are not doing a cash out refi?
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes11y
This has been an interesting read. I guess the big takeaway is that everyone uses different figures, that markets will affect our end results, and that failure to plan for these expenses results in poor returns for some investors. I use 10% vacancy, -0-PM, 7-8% CapEX, and 10% maintenance. Faster turnover will end up costing more than 10% in maintenance costs. In our market we have little issue with vacancy but I do figure 10%. I do my own PM. I predict CapEx by age of roof, exterior painting needs, etc. Without a doubt some of us will get by with lower costs than predicted. Great! My bottom line is: I would rather predict for higher expenses and get a pleasant surprise rather than plan on blue sky results and be unhappy with the results. BTW, it is very common to see sellers (and even agents) present a property with numbers that don't include vacancy, maint, CapEx, etc hoping someone will simply take their word on income. This will be a lesson some will learn the hard way by not planning on these expenses. They WILL happen whether budgeted for or not.
Originally posted by @John Thedford:
This has been an interesting read. I guess the big takeaway is that everyone uses different figures, that markets will affect our end results, and that failure to plan for these expenses results in poor returns for some investors. I use 10% vacancy, -0-PM, 7-8% CapEX, and 10% maintenance. Faster turnover will end up costing more than 10% in maintenance costs. In our market we have little issue with vacancy but I do figure 10%. I do my own PM. I predict CapEx by age of roof, exterior painting needs, etc. Without a doubt some of us will get by with lower costs than predicted. Great! My bottom line is: I would rather predict for higher expenses and get a pleasant surprise rather than plan on blue sky results and be unhappy with the results. BTW, it is very common to see sellers (and even agents) present a property with numbers that don't include vacancy, maint, CapEx, etc hoping someone will simply take their word on income. This will be a lesson some will learn the hard way by not planning on these expenses. They WILL happen whether budgeted for or not.
John,
Exactly!!
The expenses outside of PITI will happen with EVERY property, no exception. How you pay for those expenses, doesn't matter. You can pay for these expenses out of cash flow, out of your cash out refi, out of your IRA, on your credit card, or whatever money you have available.
Failure to account for these expenses is a huge mistakes.
@Joe Villeneuve has been talking about how he uses money from cash out refi to pay for these expenses, when the point of the post is to see approx how much investors pay/budget for these expenses and NOT how they pay for these expenses.
- Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes11y
@Joe Villeneuve would it be accurate to say that your strategy is probably a little more advanced for some of the newer investors here? From what I can tell it relies on a) buying properties below ARV so you can use the equity later b) price appreciation in the market that will pay for these expenses, the expenses from the refi and still give you a return. I don't think most newer investors could comfortably forecast either to the point that I can rely on it definitively including myself.
Also, many investors on here might not have the reserves to cover the costs when they are wrong on either of those which would spell disaster. I assume you do have the cash or equity in other properties so your situation is different.
Lastly, many markets investors like here do not have the appreciation or have already had huge run-ups making the strategy difficult to use.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Joe Villeneuve:
Also, when you state, "History shows that those sometimes go away for awhile", you are correct, which is shy I don't by for future appreciation. That has a bad habit of not being there when you need it...and history has told us that. My refi takes place in either 2 months or 6 months max.
My memory of cash-out refis refers to when certain loan products in 2007 and 2008 disappeared overnight. I was in escrow (more than once) to sell properties to buyers using your cash out refi strategy. The music stopped between going into contract and lenders pulling their loan commitment weeks later. Didn't matter how much equity their properties had. There were no cash out refis to be had by the end of 2008 for most buyers.
Are you really in a market that has a good supply of $68K props needing $10-15K rehabs that will appraise for $125K? I
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Damn it. I knew you'd say you don't miss your mark in regards to refi value. I hate when that happens. There's no where to go with someone who never misses the mark.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
@Sharad M. As I've said a couple of times already. I answered the original question with 0%, and gave my explanation of why. The rest of the conversation has been as a result of my answer. I didn't take the conversation where it has gone. All I've been doing is answering the same question over and over again.
@Charles Worth No, this is not advanced at all. When you understand how this works, it's actually pretty straight forward.
@Account Closed LOL. Yep, I hate when that happens too. My comment wasn't an act of cockyness, just a matter of fact based on the way I analyze...and the market I'm in. The market I'm in is steady and on a rise. I also refi within 6 months. Not a whole lot is going to change during that time period if what I buy to begin with already fits my profile criteria.
Originally posted by @Joe Villeneuve:
@Sharad M. As I've said a couple of times already. I answered the original question with 0%, and gave my explanation of why. The rest of the conversation has been as a result of my answer. I didn't take the conversation where it has gone. All I've been doing is answering the same question over and over again.
Joe,
That's not a good thing to be teaching newbies that outside of PITI there is 0% expenses. You claim to have been doing this for a number of years and yet you have failed to provide %s of your actual operating expenses.
I am not sure why you wouldn't provide that basic information and keep going back to your cash out refi money.
I am looking at purchasing my first rental property, and made a spreadsheet-
http://i.imgur.com/9BiQ0VY.png
Do these numbers make sense? 60 year old duplex that looks like it was flipped in 2009. Haven't gotten a chance to tour it, but the pics online show it to be in decent shape. Am I missing anything? Self managing, so no PM costs.
- Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes11y
Originally posted by @Sharad M.:
Originally posted by @Joe Villeneuve:
@Sharad M. As I've said a couple of times already. I answered the original question with 0%, and gave my explanation of why. The rest of the conversation has been as a result of my answer. I didn't take the conversation where it has gone. All I've been doing is answering the same question over and over again.
Joe,
That's not a good thing to be teaching newbies that outside of PITI there is 0% expenses. You claim to have been doing this for a number of years and yet you have failed to provide %s of your actual operating expenses.
I am not sure why you wouldn't provide that basic information and keep going back to your cash out refi money.
It is the same reason he won't answer my questions either. If he figured all the costs it would make his cash flow look too low for what he is trying to push. I have asked him three times how should someone figure the expenses if they are not doing a cash out refi and he won't answer. I also asked what if the cash out ends up being $0 and he won't answer.
- Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes11y
Any investor worth their salt knows you can't predict what a house will appraise for on a refi. It doesn't matter if the market it steady, how well you analyze two appraisals will come in 10 percent apart on the same exact house during refis all day long. They have no value to base the refi from and always error on the side of caution.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
@Sharad M. I've described the difference between taking money out of the rent per month vs. a lump sum. It would take 5 years to get the same amount I am getting by using the cash out from my refi in 6 months or less. What specific numbers do you want? It doesn't matter what anything costs specifically since I'm going to have more cash on hand than you will at all times.
@Mark Ferguson I've never missed on an appraisal yet. I am conservative to start with, and I know the markets I invest in. I don't assume anything, and I don't rationalize anything to make my analysis look good. The appraisals I get back always are within 10% of my analysis. This means I am always getting all of my cash back at the refi timeline...even if I need to add my cash flow before the refi into the number.
Do you remember this post of mine...from 3 pages earlier:
Profile: 3 bed/1.5 bath; 1066 sf; bsmt and garage; brick ranch; bank owned.Cost to Buy = 68k; rehab = 10k; ARV = $125k; 70% ARV (refi) = $87,500; CashOut = $9,500
Rent: =$1350; T/I = $220/m; PM = $130/m; REFI: CF = $640/m; CF = $360/m ($4320/yr)
End Result Moving Forward:
Cash Flow = $4,320/year
Equity = $37,500 (30%)
Cash Out from REFI = $9,500 (this is my CAPEX, repairs, etc...)
Cash Back from REFI = $68,000 (this is used for the next deal)If the appraisal came back 10% less than expected, then it would have come in around $112k, which would mean 70% = $78,400...so I only get $400 in cash out instead of $9,500 back,...but, the cash flow coming from the 6 months previous to the refi (with no debt) = $6,000...so I still end up with $6,400 lump sum in 6 months.
So you see, I do still have use of the cash flow, like you guys are wanting to do, but for me it is a backup plan, and I only need to do it for a limited time. Guys (and ladies), I cover everything you are covering. I just do it a little differently.
I never said you were wrong. The question was, "what % do you take out for...", and I answered "0%", and gave my reasons why. You take out 10, 16, 20, 30. etc...and that's fine. We agree on what has to be covered, we just differ on how we do it...and the reason why I can do it my way is my market.
Originally posted by @Mark Ferguson:
Any investor worth their salt knows you can't predict what a house will appraise for on a refi. It doesn't matter if the market it steady, how well you analyze two appraisals will come in 10 percent apart on the same exact house during refis all day long. They have no value to base the refi from and always error on the side of caution.
I have no dog in this fight but his strategy makes sense to me. He's obviously successful at what he does so that has to count for something. As to your question about whether his cash out is $0, he stated earlier that he has an account where all his cash-outs go to cover CapEx, with enough in there to cover a number of capital projects (Joe, please correct me if I misunderstood). In reading between the lines, I'm under the impression that even if a couple properties didn't cash out, he'd probably still have enough in there to cover any expenses that came up.
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes11y
When I started investing with a friend we just looked for deals. Was it below market and would the rent cover the expenses. Back then banks loaned you more than you paid if the value looked good to them. Gradually we changed our styles. We would figure in $300 to $500 per year for repairs. In time that went up but luckily so did rental income. I recently bought out my last partner in the SFR side and wish we had used a better model. Neither of us ever took money out in fact we often added money around tax season when a lot of money came due at once. Now the 50% rule is cool but I have never hit locally. Mortgage payments run 60% to 80% on new purchases but in fairness we use 15 year financing. Since I will be collecting social security in 15 years I need to pay stuff off quickly. The problem with not figuring a certain figure is that sooner or later you get bit. I am lucky as I can afford the bite a new investor might not. Last year I did one roof, it was only about $3000 because I did a lot of it myself and traded labor to help a friend with his roof. This year I NEED 2 roofs replaced and hopefully 3. I cannot do all of those myself. The bad news is that having $5,000 set aside will not cut it this year. The good news is that I have raised some rents so hope to have a little more come spring for roofing.
There is nothing wrong with having a different method for figuring deals, there is something wrong if a new investor does not account for expenses and loses his retirement or his kids college money, or even his personal residence because he did not do 15 minutes of math to see what his true expenses were likely to be. As you are in this business you learn every day. I have done it for over 20 years but probably know less than someone investing for 5 years who studied up before investing. ALWAYS figure at least one months cost for vacancies and 2 months for repairs and maintenance. Calculate taxes, insurance and any special costs like if you pay utilities. You cannot prepare for it all, but it is foolish to prepare for none. Joe has a way that works for him, great, but it will not work for a new investor. I actually have nearly as hard of a time preparing for annual tax costs. If that money is not set aside in a special account you will find something to spend it on. Anyway I loved the discussions as they highlight a very important area that should be calculated BEFORE you buy.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Marc M.:
Originally posted by @Mark Ferguson:
Any investor worth their salt knows you can't predict what a house will appraise for on a refi. It doesn't matter if the market it steady, how well you analyze two appraisals will come in 10 percent apart on the same exact house during refis all day long. They have no value to base the refi from and always error on the side of caution.
I have no dog in this fight but his strategy makes sense to me. He's obviously successful at what he does so that has to count for something. As to your question about whether his cash out is $0, he stated earlier that he has an account where all his cash-outs go to cover CapEx, with enough in there to cover a number of capital projects (Joe, please correct me if I misunderstood). In reading between the lines, I'm under the impression that even if a couple properties didn't cash out, he'd probably still have enough in there to cover any expenses that came up.
Yes. Thank you.
@Joe
I am not sure why you keep avoiding answering that question. I have asked several times and @Mark Ferguson has asked you several times and you keep giving vague answers to it.
I understand that you use the money from your cash out refi to pay for expenses outside of PITI, but the question we are asking is how much on average those expenses are?
So, let's say you do cash out refi for one of your properties that you mentioned and you walk away with $9,500. How much of that cash out refi money will you have left on average after 5 years? How much of that money do you use on average to pay for operating expenses?
What is your operating expenses percentage over a 5 year period?
Hope to get a clear answer from you this time.
- Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes11y
Interesting discussion. I agree with @Sharad M. in factoring in the expenses upfront, but if @Joe Villeneuve is having success with his methods, then so be it.
My answer to the OP's original question is: it depends.
It's area dependent.
If you have a rental property in an "A" or "B" area, factor in:
5%-8% for vacancy
0% for PM (why? I self-manage these properties as these are generally, not problem properties and easy to manage)
5% for maintenance and repairs
5% for reservesIf you have a "C" or "D" area, factor in:
10% for vacancy
8-10% for PM
10% for maintenance and repairs
10% for reservesFor "war zones" or what I call "F" areas, factor in:
10% for vacancy
10-12% for PM
15% for maintenance and repairs
10% for reserves - 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
@Wendell De Guzman I can't tell you how frustrating this is. LOL. I am taking this up front...more so than when you take this % out each month. Again, it's as simple as 2 + 2 = 4.
I take it out at refi. The refi would be between 1 - 6 months...based on opportunity.
This means (here comes the math), I will have more cash in my fund than those that take it out each month. In my example I get around $9k...that's $9,000 by the 6th month. On that $1000/month rent, where you can take as much as 20% out of it, by the 6th month, there will ONLY be $1200 total....and only $2400 by the end of the year.
I'm laughing because I can't figure out why every comment against this seems to say I'm not covering this...or I'm not covering this up front. My method covers it better, higher, and faster.
We all understand 2+2 = 4 and I am pretty sure that 4+4=8 and no one is arguing over that point.
You are clearly not wanting to answer the question. I will ask again:
NO ONE is questioning that you don't have it covered, but the point of this post is how much on average the operating expenses run, which you aren't answering.
- 11yJennifer T.Pro MemberInvestor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
Originally posted by @Aaron T.:
I am using the BP rental calc to evaluate properties for potential rental performance. What numbers is everyone using for their expenses?
I am using:
Vacancy- 6%-8% this gives me one months rent at 8% or just enough to usually cover PITI at 6%
CAPEX- 5% - If i were to have to replace a roof at 15 yrs, $8k roof/ 15 yrs = $533 yr /12months = $44 a month for CAPEX.
Repairs- 5% - for the unknown or unexpected repairs
Property Management- 12% - If I need PM to place and manage a property for me.
Thoughts?
Thanks for posting this. I'm a fairly newbie investor, currently looking for a second rental and have also been struggling with the right "mix" of these more variable costs to account for.
One thing that has never really made sense to me is CAPEX/Maintenance being based on the monthly rent. Because a new roof or a new hot water heater is going to cost roughly the same for a 1,000 sq ft. house, whether it rents for $400/month or $2000/month. As such, I am finding I shy a little more away from lower rent houses because, although they are also cheaper to buy, just one major repair over a few years can blow away a lot of my cash flow.
I am striving to be a buy/hold, set it and forget it type of RE investor. When I buy a property, I fix it up and fix it up properly, so that it will hopefully be a long time before it needs any CAPEX/Maintenance. And, just for my own thinking, basically consider those repair costs as part of the purchase price for buying the home.
I do analyze a total 10% of rent going to CAPEX/Maint., with a minimum of $800/year per property. So this can end up being higher percentage for lower rent properties. I also don't expect to spend much on CAPEX/Maint. for the first few years because the house is fixed up on purchase, but still include that expense for analysis.
I also look to buy properties that will rent easily, so I use 8% vacancy. However, if I was worried about a property not renting as easily, I'd up that percentage.
Depending on where the property is located, I calculate either $0 for PM or 10%. If it is within an hour of where I live, I'll manage myself. Further out than that, I'd still manage myself, but it is within the realm of possibility I'd go PM at some point in the future so I want to account for that.
I also look for at least $400/door/month cash flow after all expenses so, either way, I'm not "riding on the edge" if I end up with higher expenses than what I planned due to either my inexperience and/or bad luck.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
@Sharad M. Again. 2 + 2 still = 4. Read my post right above this. You are asking the wrong question. I'm not avoiding the question. I've answered it probably with more detail than you can handle. You're so focused on the spending of this money, that you're missing the biggest point. I have more money to spend than you do using my method.
So, here's my question to you. In month #6, when I refinance, and I have $9,000 to spend on these "issues/expenses", and you only have (let's take out all the profit and go with 30%/month from the rent) $1800. who has more money to spend?
In year #5, after you take out 30% = $3600/year>>>>$18,000 total. If neither of us spends anything (unlikely), then you would have more money than I would have. Next question. How much total do you think you would need? $18,000?
Keep in mind, that I have other properties that are funding this "cash reserve", plus my cash flow, an as I mentioned before a LOC in case of emergencies.
Here's another question for you. If something happened like a need for a new roof in month 12. I have my $9k, and you have your $3600. Can you do a roof for $3600?...and if you can, and it costs me the same, I still have $5400 left in my fund, and you have?????? $0.
I want to repeat the most important point here. No matter what the costs are. I have more money to spend on it over a 5 year period than you do, so whatever the costs are, assuming the same for both of us, I am in a better position than you since I have more cash accumulated than you...and faster....and, if I need it, I have more of my cash flow than you since I don't need to take out that 30% from it. That also means if I need to tap into it...I can.
What happens if (when), that expense pops up within the first year? Do you then, since you won't have enough in your cash reserve, have to cover the shortage from what's left of your cash flow?
- Flipper/Rehabber · Spring Hill, FL · Member since 2014 · 234 posts · 132 votes11y
Originally posted by @Joe Villeneuve:
@Wendell De Guzman I can't tell you how frustrating this is. LOL. I am taking this up front...more so than when you take this % out each month. Again, it's as simple as 2 + 2 = 4.
I take it out at refi. The refi would be between 1 - 6 months...based on opportunity.
This means (here comes the math), I will have more cash in my fund than those that take it out each month. In my example I get around $9k...that's $9,000 by the 6th month. On that $1000/month rent, where you can take as much as 20% out of it, by the 6th month, there will ONLY be $1200 total....and only $2400 by the end of the year.
I'm laughing because I can't figure out why every comment against this seems to say I'm not covering this...or I'm not covering this up front. My method covers it better, higher, and faster.
I totally get what you're doing and I like it! I like having that lump of money sitting there just in case from the get go rather than putting it aside little by little hoping nothing major happens.
I personally do a combo or both having that lump sum for a house and setting aside $ every month just in case. My CF is rolled into the next deal but I never touch that large lump sum.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Marc M.:
Originally posted by @Mark Ferguson:
Any investor worth their salt knows you can't predict what a house will appraise for on a refi. It doesn't matter if the market it steady, how well you analyze two appraisals will come in 10 percent apart on the same exact house during refis all day long. They have no value to base the refi from and always error on the side of caution.
I have no dog in this fight but his strategy makes sense to me. He's obviously successful at what he does so that has to count for something. As to your question about whether his cash out is $0, he stated earlier that he has an account where all his cash-outs go to cover CapEx, with enough in there to cover a number of capital projects (Joe, please correct me if I misunderstood). In reading between the lines, I'm under the impression that even if a couple properties didn't cash out, he'd probably still have enough in there to cover any expenses that came up.
To comment on your statement, "...if a couple properties didn't cash out, he'd probably still have enough in there to cover any expenses that came up...". Yes, that would be true, but my properties always cash out. They may not always cash out as high as I anticipate, but always high enough...and sometimes higher.
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