All Forum Posts by: Chin P.

Considering where interest rates are now, I would take the 30 year all day.  Gives me greater flexibility and I'm locking in a great rate long term.  When rates do rise significantly I would re-evaluate.

Just thought it was a bit humorous seeing the three different definition questions in a row from three different investors.

@Account Closed I'm guessing a superior cap rate just means a good cap rate versus a poor one.  

This is a common question in retail business. Lookup the mailbox rule in your state and also see if your lease specifies it one way or another.

Hi Lee,

I've read all of your posts on BP.  I have to second what a lot of others are saying here.  But I might take it even a bit further then that.  Please take this in the nicest, friendliest way possible -- in reading your 2 posts asking for $2,400 of income off of $30,000 in a turn keyish type investment (you didn't say turn key but that's certainly what you seem to be asking for) red flag after red flag jumped out at me.  Some of those red flags kind of carries throughout your posts here on BP.

I'm sure you're a very nice person, and you seem to have a can do, take action attitude. Admirable.  But I would suggest maybe taking a step back and working on getting your personal situation in order before jumping into the next real estate or other investment.  

I'm getting this undercurrent of you consistently feeling that negative personal circumstances leave you to feel that you need great results, immediately, now.  This leads you to take action (usually something encouraged here), but before you are ready for it.  Action like signing up for an expensive guru course because you wanted a program to jump start you immediately.  Action like trying to take on what sounded like a major rehab with little to no financing, experience, or knowledge.  Action like asking for a sweetheart deal from complete strangers because you teach children.  Action that has caused you to take on significant debt, create LLCs with little understanding, no plan on their structuring, operation, record keeping, and write posts that do not paint you in the best of lights as a serious investor.  But there's a vibe in your posts that you always want great results now.

Again, I'm not trying to be negative here but truly think more than real estate investing advice you need to get some advice on getting you personal self and individual financial situation in order before launching into yet another real estate deal.  You seem to be looking for a unicorn, some magical Golden Ticket of a deal that will lift you out of your dire circumstances and allow you to focus on some of the other pursuits you mentioned like helping children.  

And no, I'm not saying find yet another guru (financial this time) and throw money at him or her.  But rather look at your personal circle of family and friends and close colleagues who seem to have their personal and financial lives in order.  Not the ones who seem to be living a flashy lifestyle as those can often be empty shirts spending every dime they can get their hands onto.  But good, solid people you would like to emulate.  Seek advice (not ask for handouts) from those within your network and give what they say serious consideration.  For some reason discussing finances and personal struggles can often be seen as taboo in American society.  But I think you'll find that if you do reach out, there are always those who will reach back towards you.  It will be hard, it will take soul searching, and buckets full of discipline.  But you can start sowing a brighter future with the sacrifices you make and the work you do today.

Again, please don't read this a being judgmental or ridiculing you.  I truly do hope for the best for you @Account Closedvery kind offer to chat if I were you. 

Hey @William Kwong,

Your response has prompted some additional thoughts:

1. @Jonathan Towellis right.  Now that we know it's a duplex, most investors will be buying based upon comps and not based upon operating income.  You'll still calculate operating income and financing and such to determine whether it's a good deal, but commercial properties (5 units or more) are valued off of income and and 4 units or less are valued off of comps.  That's the way banks will finance it and if you ever plan on selling the property later on, that's what your potential buyers pool will be looking at also.  So that's two huge factors that affect how I would have to look at the property.

2. Your rental income number seems to include potential rents of $350 per month assuming some additional work is done.  As an investor, you really shouldn't be paying for potential unrealized income.  I'm not going to pay a seller for the value of that income if it's not already realized and seasoned as part of the operations.  Lot's of sellers will say oh, you can easily raise the rents, or you can add a unit, or you can do an endless number of other things that in the future will increase your income, so you should pay me now for the value of it.  It typically doesn't work that way.  If I as the buyer am going to be the one putting in the time, money and effort to realize the $350 a month and take all the risks that accompany that including the risk that the idea totally fails, then that's my profit to be made and not something I'm going to pay the seller in advance for as part of the purchase price.   Honestly, if it was so easy to accomplished, a good seller would have already done it.  So that leaves you with either it's not so easy to do or realize or the seller isn't all that good or willing of a landlord.  

3.  Just to give you a feel about how the notes I made in the last post affects how I would view the project, I ran the deal through my calcs with your numbers plus some of the differences I noted in how I would view the property.  That gets me to operating expenses of $21,848 and net operating income of $16,552, which is about $4,000 per year or $333 per month more expenses and therefore less net income that I'm accounting for.  

But I'm also not going to credit the deal with the full $38,400 of rental income for the $350 a month that's never been realized and that I would have to work to try to get the property to earn that.  So that changes my calcs to $34,200 of annual income, $20,574 of operating expenses, and $13,626 of net income, about $7,000 less net income than your assumptions.  Plug that into J Scott's calcs above and you'll a very different potential purchase price.

4. The estimated repair charges would totally be worked into the sell price. Similar concept with flippers who do ARV x 70%/65%/60% (different fliipers use different %) -repair costs. But for me personally I probably wouldn't want to do a straight subtraction from my ideal purchase price that I calculated - my estimate of repair costs. I'm not a flipper and have done relatively little renovation. So I'm going to assume that I'm probably going to screw up something in the estimate or make a hash of something in actually getting it repaired, or for the hidden surprise the no one could have realistically planned for. Also, I'd expect some room for the fact that I'm actually doing the repair because my time money and effort in doing the repairs is worth something also.

So for all of those reasons I'd probably lower my ideal purchase price by something more than just what I estimate the repairs will cost.   Maybe a pro like @J Scott who's a flipping ninja and could probably personally do the renovation blindfolded with two hands tied behind his back in one day and be finished in time for brunch would be okay just lowering his ideal purchase price just by his estimated repair cost, but I'm not that good.  

Anyway, sorry for the long post.  Just take all of the above as things to consider.  You know the property better than any of us here and will ultimately have to use your own judgment and it should be a good learning experience.  

Good luck and if you do happen to take down the deal be sure to let us know how it turned out.

Just some thoughts below. Let me preface by saying it could totally just be me not understanding something, but: 1. $3,200 hundred monthly rental income sounds high for a property with an ARV of $152k, or even $175k. Are you sure your income numbers are right? Feel like hitting 2% off of a market rate ARV (not some good deal some investor bought from a motivated seller at a discounted price) seems unlikely but does happen in places like the mid-west. But that's usually off of much lower prices and rents, right? But you stated it's a lower income area so maybe it's a multiple unit property such that the rental income number makes sense. 2. If I'm an investor and I agree with your ARV of $152k for properties in that area of that type, not sure why I'd be paying something higher than ARV like what Jay is calculating. Now I'm sure Jay knows his numbers and his calcs are right. I'm just scratching my head at a mid 100s ARV and investor purchase prices at 200k or above depending upon cash or financing. My gut feels like maybe some inputs or assumptions are off, but I could totally be missing the boat here. Otherwise I'd just be buying houses at ARV if the net operating income numbers were that good because I'd be getting well above the assumed desired rate of return buying at ARV. To me, I'm usually needing to get a number well south of ARV to make the buy and hold numbers work. 3. People calculate them differently, but 5% for repairs with nothing for CapEx on the expense side seems very low. Even if the repairs to get the property rent ready mitigates CapEx and repairs in the short term it's still going to be there. 4. I usually see property management quoted as higher than 7%, but I can see it being possible in a particular area. If I was looking at this deal for myself, I'd want to recheck that to confirm. 5. I personally do vacancy at 1/12th or higher depending upon the area, quality of the property, and tenant quality. It's quibbling, but I might bump 8% up to 8.3% at least. In a lower income area I might want closer to 10% at least, but my definition of lower income might be different from yours. Again, I'm not saying stuff is wrong here. Just that these are some questions about the property that come to my mind when looking at your write up and it could just be that I'm off base.

If a tenant wanted to screw you over they could do it much more efficiently and in a much less traceable manner then depositing lots of bad checks. So while possible, I'd be more worried about surprise damage they left in my house for me to discover months down the road.

@Jay Hinrichs makes a good point about seeking an opportunity like that presented by  @James Wise.  I like my day job and do well by it, so it's not attractive for me. But I've thought tons of times that if I was young, hungry and looking to hustle, James' posting for new employees sounds like a great opportunity to learn the business from someone doing it well.   I'm continually amazed he's still looking and figure it's a mix of growth in his business such the he needs more, natural turnover of employees, time necessary to find the right employee, etc.  

The point isn't for every newbie to bombard James or that his is the only opportunity to earn and learn.  But that there's opportunity eveywhere to find investors or professionals in the business who need good, hungry help and where you can learn vital parts of the business.  

One of the BP newbie post casts (the one where Josh's guest cancels at the last minute and you can tell they scrambled to find someone to interview), Josh interviews one of his own employees.  Someone who was first introduced as a friend of a current employee, showed his desire and hustle at the first meeting, ended up getting a job at BP (maybe on the IT side?), and had now purchased his first house hack duplex in Denver.  Do you think that guy wouldn't get lots of fantastic advice from Josh, Brandon, and others at BP on his real estate investing just by being a great employee and a good guy?   For those of you guys asking for mentors, this is one way (of many) to get one.  Being in that environment he's got great opportunity to pick up loads of valuable knowledge and can leverage their experience.

Seems like every third podcast the guest is looking to systematize and turn over more and more of the operations to others.  Some use distance help like O-Desk.  But plenty look for local people that are willing to work.  There's opportunity like that to learn from current investors, or from established businesses like Jay mentioned. 

Lots of industries work this way--music, movie, sports.   Start at the bottom in a good organization.  Hustle, learn, build contacts.  Then you have a good foundation to start moving up the chain or start taking on deals yourself.  You can certainly do real estate investing without all of this.  It's just that every little bit that you can do that increases your knowlege, experience, contacts, assets, and tools will increase your odds of succeeding and reaching your goals.  Good luck.

Thanks @Jay Hinrichs for the cautionary tale.  Appreciate the word of warning.  Sounds like you limited your risk by starting off with someone new to you with a relatively smaller deal for you (which might be a bigger deal for others), meaning that you wouldn't be significantly hurt if the deal went south?

Would it help to give your tenants pre-filed put deposit slips? Like once a year give them a dozen or so deposit slips with the info you need pre-filled out?