All Forum Posts by: David Song

Justin Harman So in PA, retail construction cost is about $100/ sf or so. We do not need to be super accurate here. In Bay Area, we can not find GC willing to do under $250/sf. But even this higher construction cost, that still can not account for the $800-1200/sf sale prices in Bay Area. The value is in the land, no matter whether it is $80 or $250/ sf. If the per sf construction should be lower, that further supports the land value in Bay Area.

Let me give you an example: In 2009, I bought a duplex in San Mateo, ca for 425k. 1600 sf or so. Similar to what you bought, but in much worse condition. Total rent is $3300 for both units, after some simple remodel. 20% down, about $340 k loan. 30 year fixed. Monthly mortgage, property tax, insurance about 2400. Monthly cash flow about -900. I was a newbie and did not even know what capex was. The house is very old, built in 1919. Foundation is settled. Windows are bad. Paint are peeling. We spent about 15 k to do some basic repairs. At that time, I did not know much about REI nor construction. A lot of the work was done poorly by contractors. However, now, the rent is $6500. Property values at 1.2 -1.3m. Now, I learned so much from my own mistakes. The key is location. Minor mistakes as a newbie can be overcome later with experience. The only two most important thing: 1: timing 2: location The house is of no concern to me now. Whether it is good or bad, I do not care. Because all those deficiencies are easy to fix. The only thing that can not be fixed is timing and location. If there is a fire that burns it down, I can rebuild a brand new for $300 k, and the new house would be worth around 2 m. From the picture of your duplex, it is in a nice neighborhood. That is what counts.

Coco Zuniga Your capex is fine. $180/ month is sufficient for this type of house. The house was not that big. Over years, if rent increases based on inflation rate, that will easily cover the capex.

Thomas Rutkowski Your suggestion is very interesting. But not sure I understand completely. How does that work, installment sale? Where to park those fund?

Coco Zuniga Great job. You picked the right house. The number looks very good. Some people will tell you to buy cheaper houses. They will tell you that your number is not good as theirs. That is just wrong. Every market has its own numbers. Your cash flow covers all expenses well. Wait for appreciation, you will win big. Utah is is a great place.

Dan Heuschele You are right. That is the point of this discussion. All the big ticket items will need replacement sooner or later. Some folks just are not willing to admit that they will eventually have to replace their AC, Roof, refrigerator, windows, exterior paint, furnace, etc. they think they will last forever. Never depreciate. When something breaks, it suddenly becomes a crisis. Wipe out a whole year of cash flow, or a few years. Capex depends on the size and structure of the house. It is not a fixed percentage of the rental income. A lower rent, lower price SFR will have to use a higher percentage of gross rent for its CAPEX. No way around it. Assuming 50 k house with 1000 rent, versus 100 k house with 2000 rent, same size SFR in two different neighborhood in the same city. The capex is twice higher as a percentage of gross rent, for the 50 k house. Since capex is only related to the structure, not the market value. This is a simple math question.

David Faulkner Agree.

For multi family apartments, offer subject to inspection is common. Nothing wrong with it. The seller probably is not that motivated and does not want to show to unqualified buyer.

Micki Larkin Agree. That is the point. In any city, there are a, b , c, d neighborhood. D neighborhood will always have higher cash flow in paper. Ironically, I just saw another post on BP someone asking for advice for an AC that needs to be replaced. He got quotes that will wipe off a whole year worth of cash flow. A few hundred dollar a month cash flow. The AC replacement quote he got was 5-7 k. If he has another roof leak, his 2% cash flow world get into a money pit really fast. That is the real financial risk. If you do not have enough capital reserve to start with, good luck.

Steve Olson What number are you talking about?