All Forum Posts by: Frank B.

 $100 cash flow on a $180k property sounds a little thin to me. If you are putting 20% down and putting zero cash into the place, that's still only like a 3% cash return on the cash you are investing.

You just need to decide what your goals are and determine if this property meets your goals at the price you can get it for.

Also, not sure what is included in your $100/mo cash flow calculation for CAPEX, but you pointed out that the property will be in need of major work soon. That spells more cash requirements from you.

Buying from a friend can be a good way to get a scoop, but don't force the deal if it doesn't meet your goals.

Wow Scott--that is awesome! Sounds like you are doing great! I'm just getting started, but I hope that a year or two down the road I can be where you are.

There was an interesting article last week about how long-term costs affect cash flow:

http://www.biggerpockets.com/renewsblog/2015/03/03...

I don't know if you had a chance to read it, but I would be interested to hear your perspective about how maintenance cost and CAPEX costs have affected your cash flow so far, and how you think they will play out in the future.

Can someone explain why CAPEX would not be included in the NOI?

It seems like it should be included, whether as avg CAPEX, depreciation, or reserve fund contribution.

These costs will affect cash flow and profit--why are they excluded?

 Heh.

+1

Do you think $1,600 rent is realistic? 

What process did you use to estimate the rent ranges? 

Is $1,600 on the high end or the low end of what you found in your research for a 4 bedroom in the area you are looking at?

@Sean Chen

What will your revenue be?

Rent Revenue: $3,080 x (1-vacancy rate) = ?

What will your cash expenditures be?

Debt Service: ?

Prop tax: ?

Insurance: ?

Management fee: ?

Regular Maintenance: ?

Avg CAPEX expense: ?

Income Tax: ?

What cash flow do you get when you add this all up? 

What % return is that on the cash you plan to invest (down payment + transaction fee + rehab cost not financed)? 

What would an acceptable return be?

Hopefully the people more experienced than me can correct me, but this is how I would think about it.

@Joe Villeneuve How does having a credit partner work? Are they typically putting any capital into the deal, or are they guaranteeing the loan?

How are credit partners typically compensated for their participation? Is it a flat fee, some % of the profit from the deal, or something else?

@Ben Leybovich I'm not sure I understand your original post.

Are you saying that the results of the calculator are incorrect? Is it that the outputs are misleading or that new folks don't know enough to figure out what to use as inputs?

I'm kinda new still but I thought all the calculator did was take inputs and calculate income, cash flow, returns, etc. And it's up to the person using the tool to decide if the results mean it's a good deal or not.

Also if someone who is about to do a $650k deal doesn't know enough to interpret the results of the calculator, I'm not sure denying them access to the calculator would stop them from doing the deal.

@Greg Baker  Thanks for the feedback, and that's a good suggestion about looking at turnover in the long term.

The part I'm struggling with is thinking about expenses as a % of rent vs in terms of $. If I'm looking at 2 properties in different areas that are the same size and expect the same $ of maintenance, but the properties have different rents, it seems like that would throw off the % numbers.

I'll start out by saying I'm not trying to debate the merits of the "50% guideline." For various reasons, that guideline will not work for me. I don't know what is included/excluded in that value, and every time it is used, it is immediately followed by "but you should calculate the actual expenses for the individual property." Having searched the site, I have not been able to find any information on how to actually do that.

I want to do some buy and hold properties, but need to estimate the cash requirements to know if they are a good idea.

Some expenses seem easy to estimate (insurance, prop tax, vacancy, management, etc). But the "maintenancy" stuff seems pretty nebulous... So I made up a method that makes sense to me, but I need some help and feedback for if it is realistic at all.

I was thinking the "maintenancy" expenses could be broken into 3 pieces:

A. CAPEX -- stuff breaks and has to be replaced
B. Regular Maintenance -- preventative maintenance, consumables, etc.
C. Turnover Maintenance -- "make-ready" costs for a new tenant

The idea is to estimate the capital expenditures based on their expected cost and how often the purchase happens. eg if you buy a roof every 20 years, on average your annual expense is 1/20th of the future roof cost.

So I put together a list of some stuff that I thought might need to be replaced in a SFR along with how often it would need to be replaced:

Roof: 20 yrs
Water Heater: 10 yrs
A/C: 15 yrs
Heater: 15 yrs
Blower: 20 yrs
Ductwork: 45 yrs
Siding (if applicable): 30 yrs
Oven/range: 10 yrs
Dishwasher: 5 yrs
Countertops: 20 yrs
Wood flooring: 30 yrs

So if I know how many of each of these there are in a property, and estimate the remaining life on each of them, I can get a good feel for what the annual average cash requirements will be to replace stuff.

So I guess my questions are:

1. Does this approach make sense?
2. If so, do the lifespans I listed make sense? What else should be added to the list?
3. How can I estimate "regular maintenance" for the small stuff?
4. How can I estimate "turnover maintenance"/ make-ready cost?

Thanks in advance for any feedback, and sorry for the long post!


P.S. I am trying to invest for cash flow. I know that depending on what accounting you use, CAPEX stuff might not technically be "expenses" but I'm just trying to figure out cash obligations.