New to the community, active duty stationed in San Diego. My goal is to buy my landlords house using seller financing with the intention of doing a live in flip and then renting it out. With doing research and all the BP resources, everyone talks about the 1% rule and the 50% rule when investing in buy and hold properties. I understand that you’ll need to stash away money for capex and maintenance cost, but putting away 10% from a $3,000 rental versus 10% for an $800 rental in the Midwest does not seem comparable.
So for people investing in more expensive markets, is there a dollar amount you put away monthly versus the percentage when calculating your expenses? Also, is there a maximum reserve amount you reach per property that feels safe like 6 months PITI or something like that. thanks,
6 Months PITI is a good rule of thumb. Have to remember to account for SD's massive appreciation. The 1% rule isn't relevant.
Appreciation & CAP are typically opposite ends of the seesaw. We are at 20% increase median sales price year over year right now. So, if you purchased a $500k house last year you just made $100k.
6 Months PITI is a good rule of thumb. Have to remember to account for SD's massive appreciation. The 1% rule isn't relevant.
Appreciation & CAP are typically opposite ends of the seesaw. We are at 20% increase median sales price year over year right now. So, if you purchased a $500k house last year you just made $100k.
Thanks for the response. This is what I was looking for, I'm in the process of trying to buy my landlords house using seller financing. My biggest concern is figuring out the most I can pay for PITI and still come out on top renting it out. Plan is long term flip, the house has a ton of equity I can build into so I'm excited to jump in
@Nicholas Miller Sounds like a great opportunity for you. I agree with you and Max. 6 months is good. 1% is very unlikely with a SFR here. And I think now is a great time to invest with a red hot rental market in SD. I'm a multifamily investor, but I think there is a good argument to be made for SFR investing with San Diego headed toward a more multifamily way of life. SFRs will be harder to come by, and people may or may not pay more to live in one. And if that isn't the route you want to go, SD is becoming more and more ADU friendly which is proving to be a great investment as well.
If you ever need a third party perspective or a fresh set of eyes on your plans, let me know!
@Nicholas Miller Great opportunity! In addition to the 6 months recommendation, keep in mind that some of those expenditures are predictable on a timescale... ie if you have a 10-year-old roof vs a 1-year-old roof, you know that you have a major expense coming up. While 6 months PITI is a healthy reserve goal, know that in the short-term you can stop-light these expenses to help stretch your dollar while in rehab. I.e. red light=needs my attention in the next 90 days, yellow light=needs my attention in the next 6 months, green light=does not need my attention in less than 12 months.
The scale can be personalized to your own needs, obviously, but it's a decent way to organized your phased-approach to a big project.