All Forum Posts by: Dana R.

I think Gabe has a question many people have. What’s it going to take for me to quit my day job and earn a comfortable income from real estate?

Gabe said $50,000 would be a comfortable income for him.

So, using the 50% rule, Gabe isn’t realistically getting $500/month cash flow from each unit. Let’s say he’s really getting $200 from each property or $4,800/year.

To make $50,000 year, Gabe would have to own 10+ units.

Questions

How does Gabe actually acquire 10+ units? Let’s say he’s currently employed in the Midwest and makes $50,000. I’m imagining that not too many banks are going to keep rolling out the red carpet for Gabe and saying, Sure, we’d be happy to give you another $80,000 mortgage (assuming for that he’s buying $100,000 houses with a $20,000 down payment). Also, if Gabe is making $50,000/year, how’s he saving up $20,000 to make down payments?

Even if Gabe were buying $50,000 houses, he’d still have to save $10,000 for a down payment. Seems pretty hard to do on a $50,000 salary, especially when the furnace blows in one of his rentals and there goes X thousand out the door.

So, given that Gabe has a current salary of $50,000, how does he acquire the 10+ units he needs to replace his income?

Gabe, feel free to chime in, of course! I'm just using your name/salary as examples.

Check out this list of books that @Joseph Taybron put together. It’s a list of every book recommended on the BP podcasts and the number of times the book has been recommended.

http://www.biggerpockets.com/forums/311/topics/114495-every-book-ever-recommended-on-bp-and-times-recommended

Bryce,

I've been looking at rental properties, too, and have been using BP's 50% rule as a quick and dirty method of evaluating a property.

Basic 50% rule says that 50% of gross rents will go towards expenses like vacancy and repairs.

So, 50% of $3900 would be $1950. If you put 20% down on $360K and took out a 30 year mortgage at 5%, then your monthly debt service would be $1546.

$1950 (monthly rent using 50% rule) - $1546 (mortgage payment) = $404 cash flow if you manage the property yourself.

Here's a link that provides more info about the 50% rule

http://www.biggerpockets.com/forums/52/topics/98334-50-rule

PS. I live in a college town, too. Glad to hear the place you surveyed looked like it was in great shape. Really!? No puke stains on the carpet? No holes in the drywall? : ) Best of luck!

Karen,

I just posted a reply about vacation rentals on this thread

Please Share Your Knowledge And Experiences Regarding Short Term Rental Vacation Homes

My reply should help you out with your current question.

Keith,

My vacation rental condos in Waikiki are booked 85-90% of the year. Hawaii, like Florida, really doesn’t have an off season. I agree with your basic formula. I’d also note that renovated, updated units rent better than worn out, outdated ones.

Karen,

I just looked on VRBO for vacation rentals around Redding. There are 18 places listed. The houses with 3+ bedrooms start at $200/night. I haven’t checked their calendars. When you do, you’ll get a good idea of how booked the places are. If houses around Redding (at least the ones comparable to yours) are booked pretty solid all year, then you’ll know that there’s a market that supports them.

Hi Erik,

Welcome to BP! You've found the right place to get all your questions answered.

To get started, check out the forum on Wholesaling

http://www.biggerpockets.com/forums/93-wholesaling

You might also want to read this. It's full of excellent info

The BiggerPockets Ultimate Beginner's Guide to Real Estate Investing

Good luck and see you around the forums!

Dana

Happy New Year, Zee!

Welcome to Bigger Pockets.

Here's a link to a post from someone who had a similar question to yours http://www.biggerpockets.com/forums/12/topics/99226-where-would-you-start-with-200k-to-invest?page=1

The answers to the post are guaranteed to get you thinking about different options for your investment dollars.

Best wishes and happy reading.

Hi Everett,

The financial analysis for vacation homes isn’t any different than the financial analysis for other kinds of rental homes. Is there more money coming in than going out?

Typical money-going-out categories

HOA dues (for condos):

Property taxes:

Insurance:

Internet:

Repairs:

Advertising:

Mortgage:

To figure out what rents/occupancy could be, check vacation rental websites like VRBO.

I do my own bookings through VRBO and hire cleaners/maintenance people in Hawaii.

Of course, one of the perks of owning vacation rentals in places you like to visit, is that you get to stay in your own place while you’re there. : )

Sherrie,

I own a couple of vacation rental condos in Hawaii that provide a monthly cash flow. The property is also appreciating in value so that’s a plus.

When you came up with the $13,000 carrying costs, did you factor in maintenance costs such as new furniture, paint, toilets, bathroom/kitchen faucets, etc? Vacation rentals get a lot of wear and tear so money needs to be set aside to keep your unit looking as good as possible.

As for return on investment…. Given your numbers, you will be getting a very low or negative return on investment.

If you did not include maintenance wear and tear costs and will be hiring a private management company, then you’d be losing money on your investment.

$20,000 (income) - $13,000 (carrying costs) - $5,000 (management fees) - $2,400 (maintenance costs for wear and tear) = -$400 net income

If you did include maintenance wear and tear in that $13,000 and did not hire a private manager, then your return on investment would be 2.7%.

$20,000 (income) - $13,000 (carrying costs) = $7,000 net income

$7,000/$260,000 = 2.7% return on investment

If you did include maintenance wear and tear in that $13,000 but decided to hire a private manager for an extra $5,000, then your return on investment would be

$20,000 (income) - $13,000 (carrying costs) - $5,000 (management fees) = $2,000 net income

$2,000/$260,000 = .77% return on investment

You’ll have to decide what kind of return on investment is acceptable to you. One thing you could do to get a better return on your investment is to increase rents or try to get the unit more fully occupied.

Aloha Justin,

I own two vacation rental condos in Waikiki. I stay in either condo when I need a sun fix, but otherwise, I rent them out through VRBO. Both condos are really popular with guests and get booked out months ahead of time. So, your idea of buying a vacation rental condo in an area you like can work… IF the numbers work out and, like @Heather Bayer suggested, you do your research to find out what kind of properties rent best in your area.

I don’t know what condo prices are like in the Outer Banks, but here in Waikiki, condos are expensive. So, in order to make the numbers work for me, I had to purchase my unit in a certain price range. It took almost a year of looking before the right unit came on the market. When it did, I put in an offer that day.

Vacation rental purchases can be emotional, I know. Especially when you are purchasing a rental in an area you want to visit. You can already picture yourself in your new condo, sipping a Mai Tai on the lanai, watching the sun set over the Pacific Ocean. Sounds ideal. But ha ha, then you rent out your place and a guest calls you at midnight your time to say the toilet is overflowing and what should she do?

So, buy smart. Forget the Mai Tai on the lanai until you’ve run the numbers to see if condo purchase makes financial sense.

Good luck! I’ve had a lot of fun renting out my condos to guests all over the world.