All Forum Posts by: Austin Fruechting

You did great on the interior, but the outside doesn't match the inside at all.Take it off the market. Put sod and a little landscaping in, paint the exterior something other than stark white, and then put it back on the market maybe at $299k. 

Expenses as a percentage of rent is not a good metric, unless you're using a sliding scale and know what percentage is accurate for different property types and rental rates. That HVAC and roof replacement is a lot higher percentage of a $600 per month rental and a lot lower percentage of a $2400 rental. 

 Thanks for understanding I wasn't trying to be an a$$ and was just trying to be as helpful to as many as possible.

My method was pretty simple. Just a spreadsheet with 4 columns: A) everything that needs replacing B) approximate cost C) expected lifetime D) monthly amount (B/C/12). It varies every property by property, and still has a margin of error. But that's how I did it in the beginning for every property I looked at and I would get accurate numbers for every other expense category. After doing that hundreds of times, now I know which overall expense factor to apply for different types of properties (in my market) and I'll be within the same margin of error as if I did the full calculations.

I've also done a lot of rehabs, from general improvements/remodels to down to studs on a historic building, so I'm pretty accurate with all costs at this point.

@Justin R. - My posts may lead to the assumption that I haven't done the calculations for my stuff, but I have. I am a numbers nerd, 3 years of mechanical/nuclear engineering before dropping because I didn't like that future. 

To be honest I was simply asking my question in order to show other BP-ers not to blindly trust statements made, even ones that seem authoritative and quantitative. That when people come in claiming that when you actually project Capex that's what the numbers on paper say, may not have actually costed out that expense themselves.

FWIW: even with an investor(s) putting up the cash, there are ways to maintain (near) full control with an LLC that is set up as a partnership and keep you from crossing into syndication.

I am not a lawyer, but have an awesome one. I recommend you find an awesome one too if you end up heading that direction. 

 This.

When you said the numbers on the paper were saying X for capex that's what I thought you were referring to, not a depreciable to zero total cost of a house. My personal house was built 110 years ago, which is exactly 4 complete depreciable cycles. It's not actually worth only the land at each of those. And It  hasn't gone to zero 4 times unless the full amount to rebuild it was reinvested, but that's what your numbers on the paper would show. 

The best way to calculate a real number for CapEx would be to do something like:

Roof - Cost: $6,000 - Life: 30 years = $200 per year

HVAC - Cost: $4000 - Life: 20 years = $200 per year

Refrigerator, Kitchen, Bath Remodel, etc, etc.... cost of each of those will vary per property. That $3000 a month rental gets a lot nicer refrigerator and kitchen cabinets than a $700 a month rental.

@Justin R. - could you line out or show your numbers on paper tell you for that CapEx number of $108k in 20 years on a $90k property?... because if I'm that far off on my numbers I am screwed with my 141, soon to be 150+ rentals!

Yeah, if it's knob and tube I won't touch it. OR I will have it in the budget to do that right away and get an appropriate price reduction for that. The outliers such as that will make for a very different story. All the older rentals I own and have looked at updated electrical at some point along the lines. They are all structurally sound with wiring that passes code and insurance standards. But all the other systems such as HVACs, roofs, etc are all of various ages. I replace an HVAC system about every other month. 

I will buy $975 rentals for $50k all day long if I could!... Assuming performing assets not in need of an immediate gut, structurally sound, & not knob and tube. 

Which I didn't hear any of that yet so I'm assuming that's the hypothetical going into his calculations. If it does need an immediate gut that's a different story... then a value add that would increase rents and increase value... AND it was already $975 for $50k in that condition... I will buy all of those too!

$5400 a year for CapEx is crazy. I have no idea how you'd spend $108,000 in CapEx over a 20 year period.

Typically that 50% expense ratio is including CapEx. Obviously that fluctuates based on the property and area though. On my old rentals that are in the $600-700 per unit range I average 55% expenses, including CapEx.