All Forum Posts by: Keith Schulz

Mike,
I started with an owner occupied duplex, and I have a client that started with an owner occupied 4 unit. As long as the numbers make sense for when you eventually move out. I'd say this is the best way to start. You enjoy the advantages of residential owner occupied financing, and you'll quickly learn property management skills managing 3 rental units. I found it easier to manage a rental that I was next door to vs a properties 30 miles away.

Good luck!

I started out as an investor and I became a licensed agent (in Wisconsin) partially for the investor advantage you mentioned, and partially to earn a little extra income to help me get out of my day job.

Being an agent definitely makes it easier and more convenient to look at properties. Also the access to more detailed MLS info is great. However, there are a lot of fees associated with being a licensed agent. There's supra key fees, MLS dues, NAR dues, E&O insurance, and broker fees. I would say at a minimum your looking at $2200/yr just to maintain a license.

My broker allows my to buy or sell my own properties without any additional fees to them. In fact, I just closed on the sale of one of my properties last week, and saved $5,000 in commission, because I only had to pay a buyers agent.

In Wisconsin, I do have to disclose that I am a licensed agent with any personal transaction or I could lose my license. It hasn't been a big issue though (never scared off a seller or buyer).

There's pros and cons just like anything else. If your doing more than one purchase or sale a year it's probably worth getting your license. If not, just make friends with a good agent.

Thanks for the info.

I do have very good personal credit, and I have no problem garaunteeing the loan personally as well. I'm just trying to keep my personal credit score high by not puting more loans and credit lines under my personal credit.

I currently have an LLC set up. Although, all my financing in the past has been in my personal name. I'd like to get to the point where I have enough business credit to finance rehabs.

In any case, I'm getting prequalified business credit card letters. However, I don't currently have a business tax id number. If I apply for a business credit card and use my social security number will this appear on my personal credit, or will it stay seperate as business credit? I suppose I should probably just apply for a Tax ID Number. However, I'm not sure how that would affect my taxes at the end of the year.

Any other input on developing business credit would be appreciated too.

Thanks.

All Cash,
Your numbers are kind of what I was figuring too. I haven't seen this property yet because it's 2 hours away from me. So, I'm trying to determine if it's worth checking out. I'd also need to hire a manager for the property.

Here's what I'm thinking though for expenses:
park owned homes 50% x 78,000 = $39,000
rented lots 25% x $39,000 = $4,875
self storage units 25% x $13,440 = $3,360

Total expenses not including mortgage = $42,360 (or $3,530/month). It seems like this should cover management, plowing, taxes and maintenance, but I really have no experience in mobil homes or storage units, so I'm not sure how close those numbers would be.

Total monthly income = $10,833
- monthly expenses - $3,530
= total left to pay a mortgage = $7,303

The owner is asking $700,000. So if I could obtain a loan at 90%LTV at 8% for 30 years, payments would be $4622/month. Leaving a cashflow of $2681/month. I know commercial loans typically don't go to 90%LTV, but I've heard it can be done on trailer parks and ministorage. Any thoughts? Are my numbers way off? Again, I have no experience in mini storage or trailer parks, so I'm guessing here. Any input, comments or criticism is welcome.

Is there a rule of thumb for expenses on mobil home parks and self storage units?

I'm looking at a property with 26 mobil homes, 13 of them park owned, and 53 self storage units. The gross annual income is $130,000 (according to the seller). ...and I have no idea what the expenses are (and I wouldn't trust the sellers numbers if they gave it to me).

What are your thoughts on how much to figure for expenses, and what this property might be worth?

I understand what you are saying about management. I don't consider any costs for that. I manage my own properties like you do, but I don't figure that I am paying myself. My gain is based on the investments. The only money of my own I have into these properties is 10% down on the first property. So, I put down about $18,000, I have been cashflowing, and I now have $130,000 in equity between the two. I think the $112,000 in equity profit and the positive cashflow is more than enough to pay me for the little time I've spent managing these.

I'm not making any claims that my numbers would apply to all properties or all areas. I was simply trying to give an example and compare my actual numbers to this rule of thumb. I agree that with a larger portfolio of properties the expenses are probably higher (especially if some are appartments). However the person that started this topic was looking at a two family property. So, I think my examples are good info for them.

No, my numbers included vacancy. My income that I listed was actual income, not scheduled income. Therefore, if I had a vacancy, there was no income for that time frame. So, the 30% and 55% numbers include vacancy.

I 100% agree that everybody needs to have reserves. However, in my opinon, reserves are not expenses until there is an expense that uses the reserves.

I keep 6 months worth of typical expenses (including mortgage payments) in a cash management fund. However, I do not buget any dollar value each month to be added to this fund.

I have averaged around 5% vacancy, just from tenants moving in and out. My numbers are actual income, not scheduled. So, my numbers would include the lack of income for those months when the properties are vacant.

Also, those numbers include one eviction with a tenant who did about $2500 in damage, and one tenant who broke the lease, and moved out early.

I've been reading a bunch of the discussions where the 50% rule has been brought up. I have to say, I had may doubts that it was anywhere close to that high. So, I finally decided to go back and check the history on both my duplexes and compare. Here's the results:

Duplex 1
I've owned for 10 months. It's a 30 year old property that had been neglected. It needed minor cosmetic rehab work when I purchased it, and it was empty. So, after replacing some carpet, painting the whole place, and some other minor improvents, here's where I'm at.

Expenses $9600 (including everything but mortgage)
Income $17300
Expenses=55% of gross rents

Duplex 2
I've owned for 8 years, and it was 3 years old at the time of purchase and needed nothing but a little touch up painting at the time.

Expenses $31200 (including everything but mortgage)
Income $104200
Expenses=30% of gross rents

Total expenses between the two = 34% I do expect this number to go up a as the property that is now 11 years old starts to need more repairs. However, the property that I purchased last year will not need as much work over the next year or two since I have taken care of most of it. So, I would think that 40% is a decent long term average between these two properties.

In any case, I think the amount of your expenses will be dependant on the quality of tenants that your property attracts, the age of your property, and the number of units (the duplexes probably require a little less maintenance than say an 8 unit).

What Mike is saying about 50% costs is probably a good rule of thumb for conservative cashflow estimates. It'll pretty much garauntee that you cashflow if you use that number when you are looking at purchasing a property.