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All Forum Posts by: Greg E.

Greg E. has started 0 posts and replied 12 times.

Just noticed the age of this post. Hope you didn't buy it. lol

Sioux City is a dying dump. Never buy anything there. I've often wondered how often out of state investors get suckered into buying stuff there. The numbers look good on paper, but the reality is a nightmare. The illegal immigrants working at the slaughter houses along with bad local policy have turned the city into a cesspool full of ghettos and crime. I wouldn't bet a dollar on the future of that town and given how much commercial property and multifamily at high cap rates is always for sale there I would say most the locals agree with me. 

cash flow does not equal rents - PITI. Your missing vacancy,capex,maintenance and management cost.

Post: Credit card for business expenses

Greg E.Posted
  • Vermillion, SD
  • Posts 12
  • Votes 8
Originally posted by @Jason Hirko:

@Sung Park We use American Express Platinum Charge Card, as opposed to credit card. Fee is like $300/year but you make it all back almost immediately in rewards if you're running any volume through it at all

 The Platinum Card was just recently raised from 450 to 550 this year. 

Post: Credit card for business expenses

Greg E.Posted
  • Vermillion, SD
  • Posts 12
  • Votes 8

Best cash back card out there if your spending over 12k a year

http://www.alliantcreditunion.org/bank/visa-signat...

I spend right around 6 figures annually in the operation of my business and I love it. High CL (I got 15k right off the bat),Cash back rewards are amazing. I don't understand how they can even offer so much cash back. Typically CC companies only charge 2.3% in my experience with square and the likes. Best of all is they offer dirt low interest rates to go with it all. Like you I pay mine off every month,but it's a nice perk!

Along with the card you will automatically get a high yield savings account (about 1.11% right now). Great place to put emergency savings you need liquid and 100% guaranteed safe while still mitigating against inflation's erosive effects.

I can't see ever using a different Credit Card again.

10% management fees are standard on SFH. Then I add another 5% for 2 reasons

1.Property managers are not going to shop for the best price on work done and sometimes they even get kick backs for directing work to certain companies.

2.They typically charge 1/2 to 1 full months rent to place a tenant. This needs to be accounted for. 

Leaving management costs out of your calculations is not prudent IMO. Time is an extremely valuable resource. You must include property management costs for 2 reasons.

1.We all have some way we generate income that pays us for our time and talents. We have real opportunity costs when we devote time to the management of our investments. To subsidize an investment with valuable time is unacceptable and will prove an impossible model to maintain as you scale the size of your real estate portfolio. The investment must compensate one appropriately for their time or at least well enough to buy a competent managers time.

2.It comes down to working on your business vs in your business. If you have not factored management costs (either your time or someone else's) into the costs of running your business you are not going to reach financial freedom, but rather take a roundabout path to financial slavery. You won't be able to move away, You won't be able to take vacations and you will not reach financial freedom.

EX. A friend of mine owns 12 properties. He never factored the management costs into his analysis when he was buying them. He thought like you that he was going to manage the properties himself and the cost was irrelevant. He's in his 70's now and he has to do all the maintenance on these properties and deal with tenants because he can't afford to pay anyone to do it for him. He's sick of it, but he never factored in management costs so he has no choice.

Capex @ 10% assumes your starting with a new property. During your remodel you may not have touched the foundation or the roof. It's day will come and it will be a sad day if you can't afford it. When I analyze a property I judge life left in items and then I prorate it out of my purchase price.

By making the tenant responsible for repairs your just going to get poor work done that will likely cost more to fix later. When they move out they can easily leave far more damage than their deposit will provide for.

I admit I lean hard to the conservative side, but it's a fair bit easier to figure out what to do with too much money than to figure out how to survive with too little.

Post: Finding Off-Market Multifamily

Greg E.Posted
  • Vermillion, SD
  • Posts 12
  • Votes 8

Are you sure any such units even exist in the area? I'm not too far away from you and I travel through your area as well as all over Nebraska and South Dakota very frequently. I rarely see built to Purpose multi-family in the smaller communities around here. I do see converted older Victorian homes repurposed into multi-family quite often. I'm not quite sure how I feel about those opportunities just yet. 

If you do know of units in the area the first thing I would do is look up their inspection history if your area requires registration and inspection for rentals. 

This is an example of what it looks like in my town. 

http://www.vermillion.us/vertical/Sites/%7B8BD61E4...

Reading the inspection reports you can find out who owns/manages the property and their current address or at least the business address. Out of state owners can be great leads especially if they are managing the property as well that can be a difficult situation many will welcome relief from. A large list of violations can give you an idea of the owners financial position and how willing they might be to sell. 

Originally posted by @Nick B.:

@Greg E.

50% rule does not apply here. $400-500/mo assumes that the house is fully rehabbed, all appliances are new or almost new, A/C and boiler have another 10-15 years of useful life. In this case there should be no repair or maintenance expenses in the first 5 years or even longer. Also, no 3rd party management. Another thing to consider is a lease clause that makes tenant responsible for the first $250 of any repair except for those caused by landlord's negligence or not caused by tenant's negligence. Any repair caused by tenant is fully paid by tenant.

 I think your being overly optimistic to say the least. I would run my calculations as such. I tend to err on the conservative side though.

Originally posted by @Eric H.:

@Nick B.

Please forgive me for not recognizing that your analysis was for a buy/hold deal. Yes it is very possible that lender will roll points and fees into the back end of the loan but this will ultimately leave buy/hold investor no room for error. House will have to appraise at 130k in order to refinance at 75% LTV to get the 97k. Furthermore, lender will want at least some interest payments while rehab is going on, which goes to @John Tyler original question of how much does he need upfront. It goes without saying that real estate is local but I can’t get first month, last month, and security deposit in an area where home prices are 130k. I can get first month + security deposit. I can get 1300 month rent in those areas but I am not cash flowing at $300-$400 with a 97k mortgage at 5% interest. I’m talking about true cash flow. Rent minus vacancy, taxes, insurance, management, maintenance, and cap ex. I can get $100-$200 at best. Overall I think your example was just a little unrealistic and the 'hidden' costs are what we should help the community avoid if we are aware of them.

Happy investing!! Peace!!

You beat me to it. Well said.

Originally posted by @Nick B.:

@John Tyler,

$12K is plenty if you indeed find a good deal. 

For example, let's say that houses sell for $130K and rent for $1300/mo in a particular area. 

You find a fixer-upper in that area for $60K that needs another $30K of work and $5K for closing costs, etc. A hard money lender would loan you 70% of ARV or $91K. You need to come up with $4K out of pocket to do this deal.

Once you finished the rehab, refinance out of hard money loan into 30 yr fixed. If you manage to get 75% loan to value at refinance, you will receive $6K in loan proceeds after you've paid the hard money loan. 

Oh, and don't forget to rent this house for $1300/mo. This should make you $400-500/mo in net cash flow.

Nick

If you have a 91k loan on a 30 yr fixed loan @ 5% interest your going to be paying 500 per month in debt service. Follow the 50% rule and your going to be spending 650 per month on everything else. Your total costs on this property are now up to 1150. You rent it for 1300 and you cash flow 150 bucks a month. How do you get 400-500 a month in net cash flow on that deal?