All Forum Posts by: Joe H.

Thanks Edwin. By 10% do you mean purchase price, ARV, what?

BTW, your company sounds interesting.

Joe

Jon,

Thanks for the feedback. I do plan on managing the properties I acquire myself but I believe I should stick with 50% for now as 1) I am new to this and calculating a higher % for expenses should leave me a little wiggle room when things go wrong and 2) if I understand what I am reading about the healthcare legislation, non-earned income will have a tax of ~3.8% before depreciation can offset it, so adding a few % points for that should help keep me in the black.

Have you heard otherwise about point #2?

Thanks,
Joe

Hello All,

Since I am a newbie I wanted to run my "first pass" deal analysis methodolgy using the "rules" that I have come across in the forums past the more experienced users. I have seen some of the discussions in the forums regarding the "rules" and do not wish to provoke any more heated arguments. I understand that they are just general guidelines and I want to make sure I am on the right track here.

I have not bought any properties yet but my plan is to focus on acquiring SFH's for rehab purposes in the Houston area, keeping them for 1yr + for rental and then selling so I can capture the tax advantages for properties held longer than 1 year. So, I believe my analysis should be broken into at least two parts.

First, determine if the target property is a suitable candidate for rehab and flipping. For that I would need to know the ARV for the property post rehab based on the comparable properites sold in the area. My offer price would then be 70% ( 70% "rule") of ARV minus estimated rehab costs, correct?

Second, determine if the property will cash flow for the year that it is a rental. For this, I will need to determine rents for this property post rehab using comparable property rental data from the area. Once a conservative rental price for the property can be estimated, then I will need to subtract for expenses and P&I. Using the "50% Rule" the formula would look something like this: Rents - 50% - P&I = Monthly Cash Flow. From here I can calculate COC and Total ROI, correct? From J. Scott's blog on deal analysis I really shouldn't consider any deal where the COC is less than 10%. However, would it be acceptable to shave 1-2% off of this since I should theoretically be capturing a bigger % when I sell? I have not seen a "Rule" for the minimum COC return that would be acceptable.

From here, if the property looks like a "deal" then I can make an offer to lock the property up, get the inspection done and do the real due diligence.

Anyway, this is how my thought process is working right now on deal analysis. I welcome anyones thoughts and insights on this. I'm ready to get started and want to get this area of education knocked out ASAP!

Thanks to all!
Joe

Hello Everyone from The Woodlands, TX! What a great site. I am new to REI and hope to buy my first rental property in the next several months. What I am mainly interested in is rehabbing single family homes, holding them for a year or two as rentals and then selling or refi'ing to pull my money out to start the process over again. My main concern is that I do not get too far in over my head (skill level) and bite off more than I can chew in a rehab the first time, which makes me think I may want to buy a rental property that needs no repairs strictly for the cash flow and the learning experience of being a landlord.

My second interest is buying tax foreclosed pieces of land to owner finance to the buyer to generate notes for either cash flow or to sell.

I've been to several of the LifeStyles Unlimited and RICH club meetings here in Houston and got a good idea of the big picture of REI. Now I need the specifics. So, off to the Forums for my education.

If there are any mentoring groups in the Houston area that I should look into please let me know.

Good luck to everyone,
Joe