All Forum Posts by: Ibn Abney

Aaron McCarty if you look at the formulas/metrics in isolation then the numbers don’t mean much. The formulas/numbers is all relative, especially as everyone/business has different goals and risk tolerance. Compare the results to the alternative, example: compare the historical stock market return on blue chips to an A class area. Caps rates (assuming no debt) are probably around 5%-8%. Whereas, your return on the alternative is 2-3%. Same thing when comparing A class properties to C class. Determine how fast you want your money to grow and the time you want to hold your money in the investment (break even in years), relative to the risk of each. Then compare the numbers to decide which fits your goal more. Some people don’t mean a lower cap as the investment is usually the safest and the stock market return is lower. On the other side some people don’t mind the risk for a much higher turn of their money. Define goals for your money. Then find a property/investment which meets or exceeds that goal.

@Joe P. Lol, I am in Chicago and on the northside (nicer area compared to higher cash flow/higher crime areas). I only own SFRs right now, but the lowest I get is $385/month. That's on a condo i own. 

Alot of folks get caught up in the % game (which is important to a degree), but I always shoot for a $ return. Anything less than $300/unit/door is not worth the time IMO. preferrably $400. Folks I know who BRRRR or rehab to buy/hold get $500-$700/door

So many things can go wrong with $100/door MAX profit. 

@Joe P. I would hold out for a better cash flowing deal. I aim for $350-$400 per door/unit minimum.

also this assume 100% occupancy and/or economic occupancy. However, if one unit is vacant or the tenant doesn't pay you may go negative for a month.

Melissa Mccrary treat it just like any other piece of real estate or investment: study the local RE market, study financing options, study your competition then run the numbers. Not sure about MHP, but generally Craigslist and google is a good start for understanding local rents. Good luck!

@Tim Coulter

1) I am not in this market so not sure how realistic $550K ARV is and not sure if the seller would take a $70K haircut on price, on a MLS deal. This alone determines the deal.

2) You need a much bigger reserve. Especially if you are rehabbing and expecting to carry a $2000+ mortgage each month. It will take you at least 6 months or so to finish rehab and find renters. 

3) Your closing cost is too low. Closing cost is about 3%-4% of purchase price in my market. $12Kish for this deal + inspection cost+lawyer fees.

4) Rehab cost can vary depending on finishes. I would suggest pricing a hypothetical rehab at the item level to help you become familiar with prices. Literally itemize a budget and imagine picking out every piece of a rehab (kitchen, bath, hvac, plumbing, roofing, etc.). gives you a good understanding of what things may cost. Then find a contractor to help you estimate labor.

5) if you plan to live in the property and rent half out you don't need management fees.

good luck

@Steve Sun Why go through all that cost just to reduce the HOA fee?

Why not just offer to  manage the property yourself (you run the HOA/PM) . This way you control the cost. Essentially, give the 1 owner half the HOA (1200/yr) or free HOA fees. Shouldn't be a big argument when you save them money.

@Albert Plawinski this area (and similar areas nearby) are definitely block by block. I would definitely recommend driving through the area if possible. Relative to other areas in Chicago, definitely higher crime rate. Tenants via section 8 shouldn't be an issue/ are plentiful.

I would consider your capex expenses vs. purchase price. A Lot of folks like the high cash flow/low purchase price in this area, but I find expenses and property management cost outweigh the purchase discount.

good luck!

@Mark Lange I suggest learning the definition, purpose, and application of the formulas below. Once understanding these, all the calculators are about the same. However, I prefer to calculator myself in excel

Cap rate

Cash on Cash Return

Break even Point (time and dollars)

Net Operating Income

IRV formula

Debt Coverage Ratio

Internal Rate of Return

Return on equity

Hello @Albert Plawinski

What exactly do you want to know about the area? 

@Omar Gavin welcome!! congrats as well. Not 100% sure what exactly you are asking for or need here?

In my opinion, never buy anything more than appraised value. The goal of RE investing is buying below market value. $45K with no down payment may be is a ok deal, as you can do a live-in flip then resell at $80K-$90K or refinance. Very hard to get a deal with no money upfront  though, but the seller wins because he owns the debt and is selling above market price.  He can only sell the house on the open market for $38K Plus taxes/commission.

Mortgage wise you need to buy at or below ARV. Going the FHA 203K route is fine, just harder to find a property to fit those lending requirements.

good luck