All Forum Posts by: Bill Jacobsen

If you dream of starting your business and its not just because of the possible profit but it is the type of work you want to do then I would sell and start the business. Make sure it is a business you want to be in.

Your rental is only making $84 per month before any repairs. Also, remember that there will be some selling costs and taxes when selling.

The best to you.

Bill

Since this is your first flip I would recommend that you find one that doesn't need as much rehab. Two risks in flipping is that the house won't sell for your estimated ARV and that you will underestimate the rehab cost. I include a factor in my estimates that will cover 20% of estimated rehab costs. On a $90K rehab budget that is $18K which is close to your estimated profit. Just be careful.

Bill

As an investment I see $2,000 per year on a $260,000 investment. That is only .77% per year on your money. We don't know where the stock market is going but if I project 6% per year that is $15,600 on your money. $15,600 - $2,000 is $13,600. If you would stay 2 weeks per year the cost of the stay is $6,800 per week.

Two items. one, you did not mentioned HOA fees. Are they part of the $13,000 expense? I did not count appreciation, if any.

I own 4 vacation condo's including two on the beach. I pay HOA fees of $250 per month to $750 per month. They are one and two bedrooms. Having purchased one two years ago I have enjoyed 10% to 15% appreciation.

Good Luck.

Bill

We own vacation rentals in NC, SC, and OR. where we live. We bought them because we liked to vacation there and hoped we would make a little money.

We self manage two and use property management on two. Typical charges are 30% to 40% of rent. HOA's run $250 to $750 per month. The properties are rented 33% to 65% of the time. Ours run on the high side.

We use VRBO for properties that we self manage. We are 3,000 miles away and don't find management too bad if you don't mind phone calls.

I hope that our experience is of some help to you.

Bill

You just need to be patient. Given your irregular income as a real estate agent you should have 3 to 6 months living expenses saved up as an emergency fund. Then you can start saving up for investments. By that time you should have the necessary tax returns. Then it is time to invest in real estate. Just my opinion.

Bill

I think it was an OK buy if you complete your plan. I would repair the carriage house if it will produce $1,800 per month in rent for a $40,000 expense.

Good luck.

Bill

Although I don't know what the property would rent for so can't evaluate a buy and hold, I don't see how this could be a successful flip given the above numbers + the holding costs and the selling costs.

Bill

When making your decision, please consider the cost of selling plus the tax consequences of selling. If the cost of selling was 7% you would have $43,000 of capital gains + the recapture of depreciation taken.

Once you have determined that number, figure your net operating income on it. Does that return satisfy your needs and goals?

Good Luck.

Bill

First, I look at the projected CAP rate. Depending on the part of the country this should be in a range of 8-12. If I am not using all cash then I can adjust my CAP rate depending on my cost of money. I want my CAP rate to be at least 3 percentage points above my cost of money. For instance, if my cost of money is 5% then I want a CAP rate of at least 8%.

I consider cash flow to be a risk issue. The less cash flow compared to income the more risk you are taking. On an individual investment I want cash flow to be at least 25% of net operating income.

For example, if a property has a CAP rate of 8%. I will borrow at no more than 5%. I can borrow about 93% of the purchase price and still have cash flow of 25% of net income.

Hope this helps.

Bill

There are 3 other factors to consider. They are vacancies, repairs, and property management. I would estimate 5%, 10%, and 6% of rent. That is 21% of rent.

$5,350 X .95(vacancy factor of 5%) X .84= $4,249. Mortgage + utility is $4,200. This only creates $69 of cash flow per month.

It would be too thin for me.

Good Luck.

Bill