All Forum Posts by: Jim Goebel

You know the Chicago prop tax situation better than me, but I do recall quite a bit of room to get a huge percentage of your tax bill slashed by appealing with a good attorney with experience with those matters.

Other than that, yes those numbers do not get my attention and unless you have very very good reason to believe there may be substantial appreciation of the property over time, I'd pass.

What is the 'proper' way to calculate Debt to Income, and what is its importance as one moves along with a buy and hold portfolio?

I'm trying to be prepared with a framework that would give us an 'exit' strategy, or at least a more quantitative analysis that would lead us to sit on the sidelines (beyond traditional ROI) metrics, and drive me to do something else with my time.

Intuitively I feel that the debt to income and what happens to it over time (ie: does it plateau as we increase in scale) seems important, I just haven't been able to put my finger on how to think about this.

Please, any and all 

And more specifically, if we were to think about debt to income, do we calculate income AFTER accounting for mortgage (debt servicing) payments, or before?  In other words should we be looking at debt to income based on NET income, in which case we'd kind of be 'double counting' the debt servicing, it seems?

Perspective specifically by commercial lenders might be helpful.  But please anyone that has something useful to share....

Consider not setting a goal tied to volume

Instead consider setting a goal tied to increasing financial benchmarks.....  Net worth, cash flow/income, etc.

BOOM

LOL

ask my wife

That's the process

From my personal experience, as intuition and common sense would support, working 'around the system' comes with heavy risks.

I had one guy (1099 type worker) in working that said he was renting somewhere in DSM where the owner told him that they were without a certificate.

The painter said he separately had someone come by that said they were with the city and told him to stop paying rent.

Obviously this was impossible for me to verify - but served as a good warning.  We try our best to do things the right way and run everything through the process.

Hi Greg

I'm also an engineer and have some first hand experience with tying into drain tile and working down next to a foundation, however this is mostly with single family homes.

From my experience a drain tile is a nice to have, however the most important thing of all is to try to achieve positive grade away from the house's foundation in the first place.  Avoiding a large volume of water getting down to that area in the first place is critical.  I don't think tying into drain tile (for instance with a window well project) is needed AS LONG AS you control the water flow above how the water would get down to the drain tile in the first place.

My view on that drain tile is that it's kind of a last line of defense - with the idea being that if water does make it down to sit next to the lower levels of the foundation, it can percolate through (below/out away from foundation).  It just shouldn't be sitting there or putting pressure against the foundation.  There's lots of approaches that will work and the drain tile is a prescriptive that I was told came up in the mid 20th century - however one of the rental properties we own actually has a wooden foundation, with extensive weather wrapping around it, and then about 2 feet of pebbles/river rock out from the foundation in each direction.

I've found finding and tying into existing drain tile to be extremely problematic - (how deep is it, where is it?) etc.

When doing window wells most inspectors around here just want to see that you're making a real effort to get down to a level at or below the basement slab, and setting river rock etc allows a place to run off/down below there and again not sit and put pressure against the foundation.

Long story short, it will depend on your situation and if you have an opportunity to get the water out/away from the foundation in the first place at ground level, but in general I'd definitely be looking at options to do that because its likely going to a much bigger bang for your buck!!!

Caveat here though that I can't speak to what your local inspectors etc may require in terms of building projects.  And I don't have experience with row homes.

Hi Meshael

This will depend on a lot of factors but the first and foremost is likely to be your market.  I'd also say that how much capital you are looking to invest would be another consideration.

For most folks, earning 6% on their investment is not very appealing, but for those with extremely deep pockets/institutional investors, they'd be happy to earn a safe 6% all day long.

We shoot for 25%+ cash on cash return and 30% + return on equity.

I doubt you would achieve that in your market.

@Robert Gilstrap

Thanks for the perspective, Robert.  You got this by being a property manager.  I would think there'd be some redundant/competing offerings between a property manager and a home warranty company.

Also to speak to your previous response - you as well as others on here are essentially implying that the 'make vs. buy' decision is largely informed by whether you are buying from a company that's in the black.  I think this is really misguided - personally.  I assume you are not using an iPhone, or any other well made phone from a profitable company if this was the case.  I think the 'make vs. buy' decision is a bit more complex than that.  I don't think you're framing this as much as a 'make vs. buy' decision as much as a 'hire a property manager vs. buy a warranty' but please consider... For us, this is a 'make vs. buy' type decision.  We are either going to self manage, or we are going to utilize some combination of a la carte service offerings including home warranties.  We own 10 properties currently and honestly property manager rates at market (6-8% of rents plus first month rent for tenant procurement) are simply too high and we're giving up too much.

There are plenty of cases where another company has specific capabilities, scaling effects, etc where it makes plenty of sense to pay a profitable company (insurance companies included) for value they have figured out how to provide.

Just out of curiosity - do you not use health insurance then, either?

Car insurance?

Because the providers are making profit?

@Eric James

(in my opinion)...

Much of the value is created in the building or renovation of a project

The cap rates you see DO NOT reflect the costs associated with building the apartment complex.

I've seen CBRE advertising 100+ unit apartments that were already built at 5% cap rates.

Of course they aren't going to mention in many cases there's a 40% + margin that the builder is making on their multi million apartment complex.

Take it to the bank (and of course this depends on the economy) that the builder is well financed and making a killing if they are selling it for anywhere close to asking.

For large institutional investors of course a 5-8% cap rate is great.  They have a lot of money to invest.

The take away for you and me is to get ready to roll up your sleeves and put yourself in a position to get the thing built.

If that means start with the rehabs (and more and more aggressive as you go) then go for it.

@Robert Gilstrap

That's helpful to understand your perspective.

The take away for me is that we'd use that as a data point to avoid using BOTH a home warranty company and a property management company.

From our vantage point, that doesn't make sense because of some of the logistical items you're pointing out, but also because it seems the homeowner would then be double paying and there are some redundant services.

@Cara Lonsdale

It seems Cara has had a good experience with warranty companies and from what I recall she is employing a more active management approach.  That would be our approach although we would possibly back-fill specific tenant facing and management services separately (as we continue to look for ways to free up our time and step away) from the maintenance items.  That's the current plan, anyways.

Our outlook for remote management is to hire specifically the services that are required, not to work with a turnkey kind of prop management company.  We've found their rates and value proposition(s) to be pretty squalid, to be honest.