All Forum Posts by: David Fals

First-time rental property investor. When running cash flow, how conservative are you with reserves?

I’ve been testing:

Lean (~16%): 5% vacancy, 6% maintenance, 5% CapEx

Balanced (~21%): 5% vacancy, 8% maintenance, 8% CapEx

Conservative (~30%): 10% vacancy, 10% maintenance, 10% CapEx

Huge swing in cash flow depending on which I use.

What percentages do YOU actually use in practice, and has experience ever made you wish you’d budgeted differently?

I've been trying to purchase my first investment property, but I keep stumbling upon fully renovated homes, dated, basic ones, and some not-so-great ones. Is it wrong that I want my first property to look good, like I'd live there? 

Occasionally, I wonder why I should even care about how nice it is since it’s just for rent. What if tenants destroy everything? It's just for rent, and people will always find a place to rent. On the other hand, I worry whether my unit will get rented or stay on the market while I'm paying my personal home mortgage and the rental mortgage, which could drain my cash flow and hurt my investment if I just got a not-so-great unit. 

When I run the numbers, I estimate that I might barely cash flow as an out-of-state investor with property management costing 10%. Am I approaching this the wrong way, or am I just being paranoid, scared, and confused as I try to get into real estate investing on my own?

I am looking to purchase my first rental property, but I have encountered multiple roadblocks along the way. Since New York and New Jersey are expensive, I decided to explore options out of state, specifically in Pennsylvania. I have been focusing on regions like Allentown, Easton, Bethlehem, Reading, Pottstown, Lancaster, and recently York.

Most of the properties I’ve been considering are townhomes or row houses. However, I recently started thinking about single-family homes as an option. Initially, I believed investing in multifamily properties would be my best bet for maximizing cash flow and minimizing vacancy risks, but they are scarce and expensive. 

@Ryan Spath thank you Ryan. This is in PA, and I was previously unaware of this law regarding high transfer taxes.

I’m checking on how most mortgage companies' closing costs compare to this. I made an offer earlier today for a rental property 25% down and am waiting to hear back, but my realtor advised me to at least give a lender a chance to get me pre-approval, claiming they secured good rates.

However, the pre-approval they provided was significantly higher than what I expected 7.625% conventional. This looks like I will need $16k to close. I guess I need to keep shopping around.

Other lenders I reached out to never gave me a rate just pre-approval letters so I never knew what I was expecting until I got an offer accepted."

My credit score is 712 on Experian, 720 on Transunion, and 690 on Equifax. One of the loan officers informed me of these scores and said they always consider the middle number.

*Purchase Price - $189,900.00*

*Base Loan - $142,425.00*

*Downpayment - 25% ($47,475.00)*

Origination Charges

*Points - $2,146.00*

*Flood Certification - $8.00*

*Credit Report Fee - $100*

*Appraisal Fee - $800*

*Loan Origination Fee/Avg Branch Fees - $1,490*

Title and Closing Fees

*Lender's Title Insurance - $400*

*Lender's Title Insurance - $1,270.10*

*Owner's Title Insurance (Optional) -$267.10*

*Closing Protection Letter - $125*

Title Services or Lender's Title - $317*

*Deed Preparation - $75*

Recording and Transfer Fees  
Mortgage /Deed of Trust $144.25  
Deed - $90  
Transfer Tax - $4,747

I see that your unit is pending. Could you please let me know if flood insurance is required for all houses in Uptown?

I'm looking to purchase my first rental property and have been searching for a deal that would generate positive cash flow based on my projections. However, finding properties that would cash flow with a 20-25% down payment on 400k property has been challenging. I have some funds in my 401(k), and I'm considering whether I should cash out some of them to help with the purchase.

I want to remain local in NJ or at most drive down 1hr to PA (self-manage or, last resort, hire a PM)

However, I must also consider maintaining reserves, a safety net for my primary home, and an emergency fund.

It's just hard for a new investor now :(

I am a newbie investor looking to purchase my first rental property, and I have been caught between going for a single-family or a multifamily rental. I am scared of servicing two mortgages in the case of a vacancy. I saved up the down payment for a few months and have a few remaining as emergency funds. I would not want to go for the single-family and then run into a vacancy, as I foresee that could happen as one of the cons. How did you all start out? I am basically looking for a cashflow property in the Lehigh Valley or anywhere else, but I would love to visit the property as I am staying in the NJ/NY region.

Looking to invest there. Lets connect