All Forum Posts by: Eric Bowlin

@Sharad M. Thanks for catching it. 

Though it was a rather silly mistake, glad I went through the exercise. I'm very analytical so it helps me really get deep into understanding the numbers and the general rules of thumb.

ok I couldn't wait to do it later. It was bugging me

Yes, I did 100k/year but the 2% rule is monthly.

Really is should be calculated 8333/month...means you need 27898/month in income..this equals 1,394,900 in properties.

Sounds a lot better now!

You know what..I might have converted it from months to years in there somewhere without realizing it. Thanks for point it out! I'm going to revisit this when I get some time.

@J Scott is right. You usually need a license to set up an account. I have a contractors license so I can *usually* set up accounts at electrical, plumbing and other supply stores. Usually they are very happy to set up an account with a GC.

I joined BP not long ago and learned about the 50% rule and 2% rule. Perhaps I don't understand these rules completely?.. Intrigued I sat down today to crunch some numbers:

Assumptions:

Expenses = rent*.5 

rent = .02 * value of property

Debt Service (5% for 30 years assuming 25% down) = .2013 cents per dollar (constant amount)

Math:

per $1 of rent, expenses = $0.7013

$1 - .7013 = .2987 income per dollar of rent

I want to earn 100k/year on rental income

(X rent)*.2987 = 100,000

100,000/.2987 = $334,784 rent income per year to give me 100k income

Rents are 2% of value..so 334784 * 50 = $16,739,203 in real estate required to produce these rents

Down payment on all this property = 16739203*.25 = $4,184,800 cash required to purchase these

100k return for 4,184,800 invested = .02389 = 2.39% return.

Assuming 2% REAL appreciation (5% nominal - 2-3% assumed inflation)

Real Return = 4.39%

These rules suggest I need 4 mil in cash before I can retire with my goal income and the rate of return looks terrible. Stocks suddenly look amazing. Where am I going wrong? Is my math wrong or am I not understanding the rules?

@Roy N. I absolutely see your point. I only know the info from another person I know who has done this and didn't do so well. I know it isn't my cup of tea but obviously that doesn't mean that it can't work for someone else!

This person I know, she bought the place and the best talent left with the former owner to a new location. This left the not-so-good people behind... I guess clients often follow their hair-stylist?? (I go to a barber so I don't know how those things work) so most of the clientele left. Word quickly got around that they gave bad haircuts and the whole thing went south quick.

The best people are often established somewhere and don't want to move..and if they do move they want to go to a good place with good customer base. You can see how this creates a redundant problem and becomes difficult to stop. I don't see how you could stop this unless you have good connections in this industry and can really attract that talent away from your competitor. Anyhow, how do I test you to see if you are good or bad? I don't know the first thing about hair cuts.

This is why I say you are now in the 'hair business'. Should these problems occur they then become your problems. If everything is smooth then obviously no issues and great money. 

Again this isn't my story so who knows what thousand things she may have done wrong. Maybe this particular one is just in a bad market for stylists..? Again, I wouldn't know that because I'm not familiar with that market. For me...too many unknowns.

I'm ok with borrowing money from anyone who will give it...But I think you need to bring something more to the table.

Maybe try to find someone in the business to partner with. Maybe consider becoming a real estate agent so you can have some experience negotiating and closing deals. Maybe you simply bring an Amazing deal to the table. 

I don't usually buy good quality properties that don't need work...So I'm a little hesitant.

5 unit building with 'bonus' lot of land with a very large shop/garage. Asking 234. My network and research leads me to believe he will go for 225 at the bottom

5 unit income - 2855/month,  

Garage income - 300/month

Total Income - 37860/yr

Expenses (yearly, actual)

Electricity - 275

Water/sewer - 1393

Trash - 923

Insurance - 3672

Maintenance - 600 (I have a local retired guy who already takes care of my other properties on the street for 50/month including mowing and snow-blowing. He just likes to stay busy)

Taxes - 2361

Estimated Expenses:

Repairs - 1893 (5% of rent)

Vacancy - 1893 (5% of rent..but is high..most tenants have been there for more than 5+ years..One has been there for 57 years)

Management - 0 (My wife and I manage our properties. Though  I could technically account for it...it's just money from one pocket to another.)

Total Expenses - 13010

NOI - 24850

Debt Service (25% down, 25 year) - 12084

Net Income - 12766

Cash on Cash return - 20.8%

Seems a little low for 5 units + the garage space...no?

Detroit may or may not make a come back..who knows. It's speculation at it's finest.

Just because it's there and has water and electricity doesn't mean it will come back. I'm sure some investor was buying up property in old Gold Rush towns for pennies on the dollar...thinking he'd be rich when things turned around. But then again, some invested in Las Vegas early on and probably made a lot of cash.

Depends on the REALTOR and their niche. Most probably don't know how to help you.