All Forum Posts by: Jessica Uresti

https://www.steadily.com/

A couple of thoughts: 

- Factor in more contingencies for the unknowns (this has been mentioned above). Construction time and budget rarely stay as planned, especially with a remodel. 

- I'm OK with 5th ward. The area is rapidly changing/appreciating and will continue to do so. 

- You can absolutely manage 2 units yourself. Do the research and stay compliant, but this is completely doable when you set yourself up for success with knowledge and systems. 

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

Thank you. Yes I did calculate at 9%. So I want to be the property manager is that possible? 

In the calculator snapshot above, it shows a "Management Fee" of 0%.

You don't want to be the property manager, but property management is an unavoidable cost of operating a rental business. You should hire a great PM. And, you'll need to account for that expense in your financials.

 I DO want to be the property manager. But I guess your saying I will need to hire one.

I'm saying whether you do it yourself or not, the expense doesn't go away.

Also, property management is its own profession, just like real estate investing. You can't be great at both simultaneously!

Do the PM if you really want, but recognize that doing so won't save you a penny and will distract from your investing efforts.

Again, ask me how I know this...

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

Thank you. Yes I did calculate at 9%. So I want to be the property manager is that possible? 

You don't want to be the property manager, but property management is an unavoidable cost of operating a rental business. You should hire a great PM. And, you'll need to account for that expense in your financials.

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

@Jessica Uresti construction is NOT a linear process and rarely goes as planned!

So, you should have at least 10% contingency factor built into your numbers plus add at least 25% time to the timeline.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.