All Forum Posts by: Mike T.

@Yishi Garrard I beleive this meetup is a subgroup of AZREIA Tucson, great group of people! I'm a member of AZREIA and have attended several of the subgroup meetings.

@Account Closed Thanks for taking the time to set this up! I currently attend AZREIA and their subgroup once a month, but glad to meet new people away from the groups as well! I am a buy and hold guy; have 3 SFR and 2 Triplexes and am currently working on an 11plex (combined 3 plex and 2-4 plexes on same lot). I love crunching numbers, creative financing and am learning about property management.

Even if you can't get a group together, I'd be happy to meet up for coffee/dinner/drinks etc.

Keep me posted.

@Kyle Alberry 

Love the ambition! Don't ever lose that ambition but realize ambition without a well thought out plan is recipe for disaster; You NEED a better plan! In my humble opinion, a lot of smart people above have given you great advice; think long and hard before stepping away from your college education until you have a solid plan.

Just a couple points: On ditching your college education, I understand your issues with "institutional learning" as I studied for 26 years before finally finishing my "formal education".  I wrote a ton of 5 page, worthless papers and submitted them to professors pushing their own agendas.  What did it do for me? Landed me with a solid career with an income source that lenders love.  Now hopefully one day I will be successful enough with my passive income endeavors that I can leave that career, but for now, I have a boss as a stepping stone to becoming my own boss.  What is the point?  College isn't for everybody, but again, don't leave until you have a plan!

On Tucson: Tucson is a funny place and is still lagging behind the rest of the country in terms of recession recovery. The cost of living is relatively low, but so are the salaries.  There is a huge part of town that most would consider living in poverty.  The median income in Tucson for a high school grad is in the range of $18,000-24,000/yr and most of the jobs around the $24,000+ range go to college graduates. One of the better paying jobs in Tucson rewards COLLEGE GRADUATES with a starting salary/benefits in the range of $37,000.  What is the point? Tucson is not a friendly place to get a high paying job and this is exacerbated without some sort of degree.

On being a realtor in Tucson: My realtor has been done for 2 years, works for a broker by day and at home depot by night. She works really hard! In the last 2 years, she sold or was buyer's agent for 12 properties, 7 of which were from me or people I sent her. The average price of the houses she worked on were $100,000. Her broker has a pay system setup to where you get 75% of your commission on your first 5 houses, 80% commission on your next 5 and once you hit 10 houses/year you keep 85% of your commission. She makes 2.5-3% commission/property.  She was involved in 4 sales her first year and the other 8 this year.  Again, what is the point? She made about $25,000 for 2 years and worked really hard for that.  The income would be better if she didn't have to pay her broker, but again, she can't practice without a broker and she would need more education to become a broker herself.

Putting it all together: While college may not be the right educational vehicle for you, you will nonetheless be faced with choosing an educational path, whether that is realtor school, broker's school, property management school, school of hard knocks etc. You are doing the right thing by reaching out on Bigger Pockets! My advice would be to continue your college education and get involved with your local REIA. Get to know investing and find out what you are passionate about. Keep reading. Keep saving. Once you figure out what you like, make plans to make it happen. Once you start to show success, can support yourself without relying upon savings, and love what you are doing, step away from whatever education or job you are disillusioned with. Best of luck and if you end up moving to Tucson, I'll be happy to point you to the local REIA's.

@Anthony Gayden To answer your questions on maintenance, I think it is important to get an idea of what needs maintained?  Percentages give you a "ball park" idea and are a good "rule of thumb" but can be grossly underestimated.  For example, when I see 8 plex I immediately think about the 8 units individually.  That means 8 roofs, 8 foundations, 8 interior units that need painting, 8 exteriors that need painting, 8 units that might need carpet/vinyl/tile, 8 hot water heaters or a single boiler, 8 AC or evaporative coolers (if there are coolers, have there been leaks?), 8 sewer lines, 8 toilets, 8 kitchens (8 fridges, 8 stoves, 8 dishwashers, 8 microwaves etc), 16 bedrooms, 24+ doors, 16+ front door locks/deadbolts etc.  As you can see the list of items that might need maintenance can be endless!  As you start to break it down you realize how trivial a percentage can be and this why an inspection becomes your best friend and contingency with your offers.  I hope this helps.  You are well on your way though! Your math is solid, keep analyzing deals, make offers, inspect properties, keep asking questions.  Best of luck!

edit* typing from my phone, above typo= " how you reach an income of"

Hey Anthony,

Nice work on running the numbers. I see your GOI($43,200), expenses($18,918), NOI ($24,282) and calculated debt service ($16,332). I am not following hiwnyour reach an incomenof $12,468? Annual income would be NOI-DS=$24,282-$16,332=$7,950, so cash on cash= cash flow ($7,950/cash invested {dp=$68,750 + closing costs $10,000=$78,750})=10%. Is there another source of income not included in your analysis (laundry, late fees, application fees etc) to get income of $12,468? Otherwise, it looks like your analysis is solid.

On the listing/area, 85713 can be a pretty challenging zip code and for a 2bd1ba renting at $500, the tenant pool also quite difficult.  I suspect your vacancy rate will be higher than 10%, expenses from turnover will also be higher.  These 2 factors will also reduce your returns.

Thanks for sharing!

Mike

Kyle,

Unfortunately, there isn't a simple way to calculate the verified TIMMURV. But what you will encounter as you do more deals and what you will read about on bigger pockets is the "50% rule" which basically states expenses total 50% of your total Gross Operating Income (total rents brought in).

Now let's break down TIMMURV:

Taxes-can be found by searching the assessor website or by going to www.tarmls.com for Arizona. The TARMLS is a way to access the MLS without having an agent and you can search for properties that meet your criteria. When you find one, open it and look in the "detail" tab where you will find all the property details including taxes.

Insurance, again this comes from crunching numbers over and over and over, calling an insurance agent, looking at properties etc. From my Multi searches, you are probably safe budgeting $1000/yr for a 4 plex in your price range, but again, find the property, then call an insurance agent and have them run a quote for you.

Maintenance- I always budget at least 5% of purchase price, because things will break, especially in the first year and will likely exceed that 5%. If the property is older, budget 10%.

Management in Tucson is 10%, again you can save on this expense by doing it yourself (which I don't recommend long distance), but by budgeting for it, if you find a property with all these expenses and it generates the 8% cap rate you want then you know it is a good buy or at least worth taking a closer look at. Don't manipulate expenses to try to make a property fit, it will not work out in your favor.

Utilities-when I first started, I would actually call on a property I am interested in and I ask for the average monthly water usage. They can't tell you a dollar amount but they will tell you the Ccfs (consumption); 1 CCf=748 gallons. There is a graded payment based on the CCfs used. If you are under 10CCfs (I believe most residential units average around 7CCFs in Tucson) they bill $1.29/CCfs, plus cap charge, plus sewer etc. Basically I have a rental that is 2700 sq feet with pool and landscaping and right now is using $50/mo for water and sewer (higher in the summer) so I budget $50 for any rental smaller than this with less water usage just to make sure I am not undershooting the value.

Same for Electricity and same for gas: Call and ask or ask the owner/tenant what the average bill is.

Repairs- I budget 5-10% of purchase price, but only as personal preference, you will figure out what you need as you go along.

Vacancy-this is more than most would do, but I collected demographic data on all zip codes in Tucson so I knew the vacancies, employment sectors, house hold size, schools etc of my target areas. I still trend the rental data so I know how long rentals sit on the market in given zip codes so I can use an educated guess on the vacancy rate. Regardless, now every property gets at least a 10% vacancy rate. If it rents right away then the loss of "vacancy expense" stays in my pocket!

Do you have to do all this work? Not at all. Can you just jump into it? Absolutely! That's what I did when I was 23 and I bought 3 properties by the time I was 25 but had no idea what I was doing. Guess what happened next? I became rich!? I wish! The market crashed, and I got stuck with 2 VERY upside down properties! I was able to hold them and I still have them today, but it hurt! It wouldn't have been as bad if I spent the time learning how to buy correctly.

I'll talk to a couple agents and get you their contact information. Also, look into a few Real Estate Investor Associations (REIA) in Tucson. AZREIA has been great for me, but there are others and most allow you to attend for free for the first couple meetings. Find out when the meeting dates are and if your schedule allows, attend a couple when you are in town; they are a wealth of information and networking.

Hope this helps.

@Kyle Fritz Hello and welcome from Tucson! You have quite the plan and it sounds reasonable. Before I try to help you with your questions, know that I am not a lawyer, real estate agent, property manager, neurosurgeon, blah blah blah, nor do I play any of those on TV! The answers are just my personal opinion and experience with being a new investor in Tucson as well. I have been in Tucson since 2008.

First off, your enthusiasm is awesome but don't let it get you into trouble! You mention you don't have the "luxury" of learning the Tucson market. This is a great way to lose money and to set back your investing career. You MUST LEARN your market or use the skills of someone who already knows the market: realtor, other investors and wholesalers etc. Online research is great, but it is not complete! Tucson is a funny place. It has pockets of great neighborhoods interspersed within pockets of "war zones", new houses on the same streets as old houses, tiny track houses next to large custom houses, several schools have closed in the last couple years; just a lot of variables that you can only know by learning your market.

To your questions:

1)When do you need a RE attorney? Depends upon what you are doing and the type of deal you run into. I think most deals can be done with a real estate agent (an investor friendly realtor-I can recommend a few) and an attorney is overkill (just opinion). Obviously, the more complex the deal, the higher the need for legal services. I've closed one property with a realtor and another directly with the owner and the Title company (make sure you get Title insurance). I'm currently working on a deal directly with an owner to purchase 3 properties at once and my attorney is drafting the contract. So it depends. I would start with a real estate agent.

2)Hiring a friend? It sounds good on paper, but trust me, it is a sure way to strain a relationship and cause yourself a lot of headache. If you do use your friend, get everything in writing on what you expect of them and what they are exchanging for their service to you. Personally, I recommend using a management company. I have 2 out of state properties and my management companies take care of everything for 8% of rents (emergencies, repairs, tenants and if a toilet is overflowing, I don't get a phone call!). Also, when repairs are needed, they are usually much cheaper through the management company because of their "economy of scale" factor.

3) Where to search for property? Everywhere. BiggerPockets, Craigslist, Zillow, wholesalers, realtors, newspaper, local REIA etc.

4) About your purchase price of $150,000, I'm sure you already know multiplex is valued based on the income it produces and a market cap rate, but I want to break down your purchase price in reverse so you can see what type of property you might be able to purchase in Tucson for that amount. Also NEVER use the PROFORMA to calculate your numbers, use actual verified data so you don't get ripped off!

In order to find your Net Operating Income (NOI) you need to know your market cap rate (again this is easy to determine when you LEARN your market) or the cap rate you wish to achieve with your purchase. I looked at several multi's this week and the cap rates were 6-10% so let's use 8% for this example.

NOI=$150,000*0.08= $12000

For simplicity (and this always needs to be verified), assume your expenses (Taxes, Insurance, Management, Maintenance, Utilities, Repairs, Vacancy=TIMMURV) are 50% of your Gross Operating Income (GOI), so GOI= NOI/0.5

GOI=$12000/50%=$24000

So each unit of your quad generates $6000/yr ($24000/4) or $500/unit/mo. Out of the properties I looked at, depending on the location, $500/unit/mo were Quads with 4-1bd, 1ba units, and Quads with 4-2bd, 1ba units. The 1bd, 1ba units were in a great neighborhood, but the 2bd 1ba were in terrible neighborhoods. My point? $150,000 is a good price range, but by learning your market, you will have a better understanding of what a $150,000 price means in terms of the quality of property you can buy. This understanding helps mitigate the "luck" component of a first investment and helps set you up for more success on your next one.

Whoa! Sorry that got long! Best of luck in your search and if I can help in any way, please send me a message.

@Ann Bellamy Good information, nothing to be sorry about. Thanks for the clarification! Regardless of the negotiator, the discounts are still a testament to the power of numbers.

@Joshua Dorkin

Our small local REIA has negotiated a 2% rebate on all purchases at home depot, 30% discount on all paint and supplies at Sherwin Williams, 20% off rentals.com so it will be awesome to see what a group like Bigger Pockets can achieve!

@Sandy Uhlmann You are definitely onto something! I can at least verify the discounts we receive from Listsource. I originally setup up an account online last week, put together a list and checked my price per lead which came out to almost 0.18/lead. I had read a post on BP that quoted .08/lead, called them, told them I was a member of bigger pockets and they setup a new account for me which provided 0.08/lead, which also included the equity selection! I saved over $250! Thank you BP!