Rental Property Investor · Amherst, OH · Member since 2017 · 66 posts · 35 votes
Hello BP! I just closed on my first buy and hold property and wanted to share my success with everyone! I never would have been able to do it without the help of the BP community!
I actually considered getting into REI over a year ago, however I was quickly talked out of it by friends and family. Then in the spring of 2017 I was referred to BP by a friend and I finally found the courage to jump in! This year I have read alot real estate books, listened to many of the podcasts, and done research in the forums.
I would like to give a special thanks to @Michael Swan for all of your advice and encouragement along the way. I purchased a duplex in Euclid, Ohio on December 12th from Swanny and here are the numbers.
I'm glad I could help Mike get started!! I still have 4 single family in that area and a 12 unit there too. If Mike gets 9 more little deals like that, (his numbers are a bit conservative) and if he kept plenty in reserves like I suggested to begin, he could get about $40,000-$50,000 cash flow from 9 little rental properties (duplexes). That's what I did when I purchased 10 little single family here in San Diego in 2011-2012. To my delight, all 10 nearly doubled in value and I 1031 exchanged them for apartment complexes in NE Ohio in Mike's neck of the woods and went from $50,000 cash flow to the current $160,000 cash flow per year.
Real Estate Agent · San Diego, CA · Member since 2016 · 52 posts · 29 votes
8y
@Mike Rosso those numbers are incredible! Here in San Diego, something that will yield $1350 in rent will still cost you at least $186k. I clearly need to find something out of state. Thank you for sharing!
good job @Mike Rosso . them numbers look conservative. you probably can do 6% for cap ex and maybe 8% for maintenance. but good 1st deal.
I saw a couple posts making the claim that the numbers look conservative but PM total fees nationwide average 14% for non high capacity PM fees when cost of turnover and managing maintenance is added.
Cap ex of $108 for a duplex is $54/unit. My calcs show hot water heater by itself is ~$8/month. Kitchens are expensive. Bathrooms are expensive. Roofs are expensive. I have had 3 slab leaks in the last 4 years at a low of $2k and a high far over $10k (but we declared it against our insurance). My cap expense estimates are much higher. I have had a foundation issue on a duplex that approached $30k. My point is cap expenses add up and $54/unit is very aggressive.
I also have higher maintenance estimates than $67.50/month per unit but that estimate likely is closer to reality than the PM fees estimate or the cap expense estimate. So maybe ok seeing there is no neglected maintenance.
These numbers look aggressive to me. Take a cost of a kitchen remodel and then life of kitchen in a rental and you can get some idea to how aggressive that cap expense is. The PM fees are well established to average 14% for non high volume clients. Use of any value less than 14% is aggressive.
Monthly cash flow of $345 is $172.50/unit with the aggressive numbers. Even using PM RE investing is not 100% passive. Hopefully OP experiences some appreciation otherwise numbers look tight to me.
Rental Property Investor · Amherst, OH · Member since 2017 · 66 posts · 35 votes
8y
@Tiffany Hoffman thanks! I have never been to San Diego but I hear that properties are crazy expensive! Hard to believe you would need to spend 186k to get that kind of rent. Time to start looking in Cleveland!
Rental Property Investor · Amherst, OH · Member since 2017 · 66 posts · 35 votes
8y
@Dan Heuschele thank you for your input. I don't plan on spending any of the cash flow until I have built up a solid amount of reserves. As @Michael Swan always says, you need to be prepared for when Murphy's law rears its ugly head.
As far as PM goes it seems like the common number that people on BP use is 11%. Just curious why you use 14%? Also if this was your investment, what numbers would you use for maintenance and capex?
@Dan Heuschele thank you for your input. I don't plan on spending any of the cash flow until I have built up a solid amount of reserves. As @Michael Swan always says, you need to be prepared for when Murphy's law rears its ugly head.
As far as PM goes it seems like the common number that people on BP use is 11%. Just curious why you use 14%? Also if this was your investment, what numbers would you use for maintenance and capex?
The 14% is a number that I believe I got from @Jay Hinrichs as the national average. I am unsure of his source but he has a lot of RE knowledge and it seems very reasonable because PM that are 10% or less are typically filled with additional fees (new tenant fees, lease renewal fees, service call fees, etc).
We only have two properties (3 units) that are not self managed and one of them (the duplex) is STR. So we have only one unit LTR that is not self managed and I suspect our total PM costs have been less than 12% but we have had no tenant turn over in 7 or 8 years. We get charged half month rent for tenant turnover. So our PM fees have been low due to no tenant turn over.
I think it is smart to build some reserves but I fear long term your cap expense estimate will be insufficient and that when a major expense occurs it will devour multiple years of cash flow. I have experienced 2 cap expense costs that exceeded $25k one of which exceeded $40k. Theses are rare but imagine what such an expense will do to your cash flow. I have had 3 slab leaks in the last 4 years (cheapest was over $2k). Slabs from the 1960s and 1970s are hitting end of the enclosed copper plumbing lifespan. I have remodeled 5 kitchens and 8 bathrooms in the last 3 years. Kitchens and bathrooms are expensive. I have replaced 4 hot water heaters in the last 2 years. They are not cheap. Point is that maintenance/cap expense costs are not cheap. $54/month per unit for cap expense if you planned on doing all work yourself may not be that low but if you are using paid labor to do the work you are way too low.
Real Estate Investor · Lakewood, OH · Member since 2017 · 39 posts · 9 votes
8y
Great job making the Jump. I read in reply about a BP Meetup in Cleveland. Can you tell me more info on that meetup please. Thanks and good luck.
Colleen
Investor · Oakland, CA · Member since 2016 · 171 posts · 63 votes
8y
@Mike Rosso Congrats! I also recently purchased my first rental in Euclid, OH near the hospital. The micro economics of Euclid were enticing to me and very much affordable. Hopefully population growth starts to grow a bit more over the next few years. What do you like about Euclid? Looking forward to hearing more about your continued success! -Jason
Rental Property Investor · Amherst, OH · Member since 2017 · 66 posts · 35 votes
8y
@Dan Heuschele I see what you mean about capex being very expensive. Sounds like you have had some pricey repairs on your properties. In my situation I do not plan on doing the repairs myself. With that being said what would you reccomend I use for my maintenance/capex estimates?
Rental Property Investor · Amherst, OH · Member since 2017 · 66 posts · 35 votes
8y
@Jason Pabon thanks and congrats on your first rental as well! I looked at properties closer to my house but couldn't beat the price to rent ratios in Euclid. I like investing there because of its affordability and proximity to downtown Cleveland. There also is a high demand for rental housing in Euclid so vacancy costs should be relatively low. Good luck with your future investments!