Originally posted by @Account Closed:
Originally posted by @David Montore:
Hi all, total newbie question here. Or maybe a couple, really. Or maybe I just need to ramble a little about a few things that confuse me as I make my way through these initial first stages of real estate self education. The pic below is a screenshot from a CAPEX Estimate spreadsheet that was posted to Rod Khleif's Facebook group during a discussion about property analysis. According to the poster this estimate list came from somewhere on BP and was intended for SFHs (although I keep reading that CAPEX doesn't apply to SFHs, so feel free to clear me up on that as well). Having seen Brandon use the BP calculator on webinars to guesstimate percentages for determining potential cash flow it seems like something like this, with very deliberately determined hard numbers, would be a safer bet, especially since it's pretty universal for SFHs regardless of which grade property we're talking. Does everybody here follow something like this when analyzing potential cash flow for SFHs? Do you tailor it to the property, putting aside money only for the things you know will need servicing and pocketing the rest? I have a bit of a contingency obsession where I can't see myself truly pocketing any cash flow until at least a few years into the life of a rental since I don't have mounds of cash sitting around in case "stuff" happens. In that regard, cash flow always seems to be a relative term to me. Like when I hear someone say "I'm cash flowing at $330/month on a $300k house", I can't help but think they'd better be socking that little bit away for a rainy day considering it isn't going to cover much even if you let it build up for a couple/few years. Thanks in advance for helping me wrap my head around this.
Hi David, the reason you are confused is probably because there are so many ways to be involved in real estate and people tend to be imprecise when talking about their specific experience. In fact, almost every deal is different. What I learned over time is 1) that "Fix & Flip" is the hardest, riskiest, most taxed way to get into real estate. 2) I learned that "Buy & Hold" & being a landlord wasn't for me because I'm too nice and making a $100 a month on a property as most people try for, is small potatoes. They are actually hoping to have the property go up in value and have the tenants pay off the mortgage over time. Meanwhile they forget about little things like roof replacement, vacancies, water heaters that burn out, failed air conditioners (granted, that one isn't a big deal in the Northwest ;-), etc. 3) I learned that buying "Subject To", or using Wraps or Lease Options and selling to Tenant Buyers who give me a substantial down payment and who maintain the property provide the easiest entry, highest return and least risk. I don't even think of Capex. It is immaterial in the way I buy & sell. The average house I buy involves an investment of about $50K for a $250,000 property, no bank is involved so no hassles there, and I usually get about $25k from the Tenant Buyer that I get to keep. The Tenant Buyer does any necessary repairs, I make $400 to $1,000 monthly cash flow per property, and I don't have to worry about appreciation. It's the difference between 1) riding a mule into battle or 2) riding a sherman tank into battle or 3) riding am M1A2 tank into battle. Why choose the mule when you have access to an M1A2?
Of course there are plenty of other ways to get into real estate but those are pretty common.
Mike I appreciate the contribution. I'm currently making my way through one of Dave Van Horn's books on note investing and Brandon Turner's book on "No and Low Money Down" so a lot of the strategies are starting to become clearer to me now, and I agree on your take on lack of specificity. I imagine that's due to an assumption of the education level of the audience as made by the author or speaker, where those readers and listeners with experience understand the multitude of unwritten steps that were taken in between the ones mentioned, whereas us kids are still trying to figure out why someone would go through months of trouble for $100/month return. I know that's a generalization but I think I'm with you, I'm a nice guy also and I have a day job that precludes me from being too hands on to landlord, plus I think my risk tolerance isn't there for such a thin margin. $500 or more, perhaps, but since my lifestyle only supports a more passive approach to investing I won't hold my breath for stumbling across any gems that would offer such a return anytime soon.
On the "subject to" and lease option front, I'd love to pick your brain a little more on how some of those kind of deals might look. I thought I understood the concept but until I read your reply I've typically only seen those deals between motivated sellers and cash-strapped buyers. Your way of doing business kind of puts that picture on its side in my mind though. Any chance I might PM you with a couple of questions? Thanks again for chiming in.
