All Forum Posts by: Frank B.

Hey all, bit of a hypothetical question here, but would you be worried if Carson's 15% flat tax would be adopted at some point? He said there would be no deductions...which would obviously have a huge negative impact on your cash flow if you couldn't deduct depreciation, mortgage interest, insurance, operating expenses, repairs, amortize capex costs, etc.

Am I missing something, or would a 15% flat tax with no deductions be as bad for landlords as I think it would?

Taxes apply to income, which is revenues minus expenses. So the expenses would still be included to calculate income, and the income would just be taxed at a different rate.

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Originally posted by @Mike Arias:

Is it common practice to add depreciation taken on multi family properties as an operating expense? I spoke to a bank recently and this topic was brought up.

Example:

Asset depreciated amount 400k

25 yr depreciation schedule= 16000 yr

NOI 72,000/34,067(debt service)= 2.11 debt coverage ratio

NOI 72,000-16,000 (depreciation)= 56,000/ 34,067(debt service)= 1.64 debt coverage ratio

Debt service coverage ratio is calculated based on cash flow available to make debt service payments. Since depreciation is not a cash expense, it is not considered in the DSC calculation.

CAPEX may or may not be subtracted from the calculation.

1 Vote

I'm in.

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Originally posted by @Joe Villeneuve:

Best strategy: Move onto a different market...that does have good cash flow.

Well said.

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If someone wants that property they will buy it from HUD. If you are a wholesaler and you buy it, it means no one wanted to pay as much for the property as you did. So that might make it hard to sell and make a profit.

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Originally posted by @Troy Kannegieter:

Would it ever be prudent to pay close to the ARV of a property that you plan on holding as a long term rental?

Thanks for any tips or experience with this matter.

Troy K

If you are financing the property it will determine the amount you are able to borrow.

1 Vote

Originally posted by @Minh Lai:

I'm taking @Brandon Turner advice to heart and I plan to analyze at least 3 deals a day or 90 deals a month. I have a spread sheet that I use to plug and chug. This book gave me the knowledge and background to understand and trust my numbers. (Sorry Brandon, but I'm not upgrading to Pro just yet.) I believe all my assumptions are within bounds and I have safety margins in place. The only issue I have is estimating insurance.

I live in Norman, Oklahoma. I am looking at properties in Norman, Moore and OKC. We are notorious for our tornadoes, thus our insurance is higher than the national average. My only reference point is the house that I'm house hacking.

I know insurance can vary a lot base on many different factors. In fact I got quotes from 3 different companies with different options. The annual rate was from $3,434 to $1483. (My house is 1,400 sq ft and was made in 1974 in case you're wondering.)

With the option that I went with, what I'm paying for my insurance is about the same as my tax. Is this a ballpark estimate?

I would love to know how you all estimate insurance when you run your numbers.

Would it be annoying if I called my insurance agent and have him run quotes for me if I promise to use him when I purchase a property?

First decide what coverage you want (eg Form 1 vs Form 3, cash value vs replacement cost, low deductible vs high deductible, etc). A broker should be able to give you an idea of what these will cost in terms of a rate that you can apply to the cost/value you are insuring.

eg you might find the coverage you want can be had at a rate of $.60 / $100 plus $50 for liability coverage. Then just plug that into your spreadsheet.

Flood insurance would be case-by-case.

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Originally posted by @Jerod Smith:

Thanks @Kevin Trumbull

What Capex percentage should I be figuring into deals?

Calculating CAPEX as a % of rent is a terrible idea. CAPEX is a function of the physical property and has nothing to do with market rent.

Say you have a 1000sf house in some random city that rents for $1,000/mo. Say you also have a 20,000sf mansion in Detroit that also rents for $1,000/mo (sorry Detroit).

Calculating CAPEX as % of rent indicates that your CAPEX will be the same on those two properties.

Just let that one sink in for a bit.

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Sometimes a majority of the addresses fall into the "unknown" category for equity. So by specifying 30-100% equity, you could be reducing the list more than you mean to.

1 Vote

Originally posted by @Account Closed:

@Ned Carey I like your honesty the school comment made me laugh! @Jerry W. thanks for pitching in I appreciate your comments.

I didn't put this in my original post, but looks like it should cash flow a tad over $300.00/month. Cash on cash 8% purchase cap rate 22%

Am I just trying to convince myself?

Fred

Your CAPEX is too low--should represent the long-term average cost of crap breaking and you replacing it.

So say you put in a higher CAPEX and update your mortgage pmt and you still cash flow $200/mo.

That's fine, but if I understood your numbers right you are only financing $25k, and coming out of pocket 40k.

$200/mo is a 6% cash on cash return. Not to say that's good or bad--it is what it is.

For me, 6% is pretty thin, so it would not be the kind of deal I'm looking for.

Also your cap rate looks wrong, although I don't think that metric is used much for single-family.

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All Forum Posts by: Frank B.

Frank B. has started 4 posts and replied 117 times.

Post: What Would Ben Carson's 15% Flat Tax Mean for Landlords?

Post: Depreciation effect on your debt coverage ratio and income

Post: Oklahoma City November BP Meet Up

Post: High appreciation but low or no cashflow

Post: How to Acquire a HUD Owned House

Post: Buying a rental property should you ever pay close to ARV

Post: Calculating Insurance

Post: Looking at another BRRRR, Your thoughts?

Post: ListSource Strategy

Post: Should I make this investment?