All Forum Posts by: Joe Hines

(1) That I wouldn't have been so afraid and worried about making my first deal.  I had sleepless nights before I closed on it, wondering if I was insane for buying a house and renting it.  That's crazy, right?  I was focusing too much on the horror stories of renting homes.  This was before Bigger Pockets and before it was so easy to find good information from people about buying and managing real estate investments.   

(2) That I had set aside 3% of the purchase price for reserves in a separate account, not simply budgeted for it.  And to that account I should have added the 10% of rent I had budgeted for capital costs.  It hasn't been a massive problem, but it would have made cash flow a little easier.  

Hey Tonya,

Just by eyeballing it, I'd say it was okay.  I'd recommend using the Bigger Pockets Calculator:  https://www.biggerpockets.com/buy-and-hold-calcula...

It does a decent job of breaking down the cost and income variables and calculating the key performance measures for real estate investment.  When using the calculator, be realistic with your costs as there are a lot of things newbies tend to overlook or underweight and then they find themselves with an underperforming property.

So some advice about calculating the financials:

Initial Costs: Even though you don't have any repair costs, include maybe $1K for paint or incidentals.  I also set aside 3% of the purchase price into a Capital Expense account.  For your property, that means about $4K of initial costs.  You might be able to get away with far less than $1K depending on the condition of the property, but I've seen few bank or finance company owned properties that didn't need something such as a big yard cleanup, trees removed, paint, carpet, etc.    

Vacancy:  Depends on your market, but I usually go with 5% vacancy.  Using this number, the calculator will subtract 5% of your rent as lost revenue due to vacancy.

Capital Repairs: I set aside 10% of rent into a savings account (which I put the 3% of purchase price mentioned above) to cover capital costs, such as roofs, refrigerators, etc.  I know it sounds like a lot, especially when you are starting out.  Trust me.  You'll use it.  

Other costs:  You'll need to decide if you'll take care of yard work or if you're going to let the tenants do it (they'll expect a rent discount).  Opinions will vary on this question, but I cover the costs and build it into the rent.  It keeps the property looking good and tenants are just like anybody else:  Nobody wants to mow grass on the weekend, especially if it isn't your grass.  

Rent increases:  The calculator lets you factor in increases in rent.  Be realistic about this and follow-through when you include a number.  Depending on the property, I use a figure like 2% annual increases for the model.  

Other cost increases:  Inflation effects all things and that means your costs will gradually rise every hear.  Like the other inputs, be realistic.  I use 1% or 2% to account for inflationary increases.  

With these inputs, the calculator will generate some important metrics, including Cash-on-Cash Return, Net Operating Income (NOI) and Monthly Cash Flow and Cap Rate. These numbers will help give you a sense of the feasibility of your investment.

I grew up in North Florida so I have a lot of family, friends and business contacts in that area.  That makes the investing and property management a LOT easier.  My spouse went to school at UT and the rental there is a hold over from graduate school.  The South Florida will eventually be a retirement home and I got real lucky there so far.  I'd like to invest more in that area, but it's much more expensive and harder to find deals.  

If it wasn't for those connections, I'm not sure I'd invest remotely.  If I did, I'd find a place I really like to visit and be prepared to spend a lot of time there making connections.  

Good luck, Angel!

Hello Angel!

I have a rental in Ft Lauderdale Wilton Manors neighborhood that is being managed by Icon Realty.  I work with two other PMs in North Florida and in Austin, TX and I have to say there is no comparison.  They are prompt, proactive and understand property management from an investment perspective.  I highly recommend them.  

https://www.iconrealty.com

Hi Stephen,

I'm sure you'll get a broad spectrum of opinions on this question, but I've gone with the lowest grade of solid wood cabinets.  

To give you a little background on my why I use solid wood cabinets: My business strategy revolves around finding mid-century brick ranch style homes in decent neighborhoods, which are common in North Florida (where I grew up and invest).  I rehab these, often with new kitchens and bathrooms, and hold them for long term rental.  If a business could have a mantra, mine would be "we provide good, safe homes to good people."  I want the stuff in the rental to be solid, but obviously not appointed with the most luxurious furnishings.  This is rural North Florida, not Manhattan, after all.     

I haven't held any of my buy-and-hold rehab rentals long enough to say the solid wood definitely lasts longer and is therefore worth the extra money.  However, I've seen hundreds of older homes and it does appear the solid wood is more sturdy and last longer than the cheap stuff.   Many of the rentals I have now didn't require a remodel and have the original, 30, 40 or 50 year old solid wood cabinets in them and they still look good, though maybe a little dated.   They may have plenty of dings from brooms, mops, toys, etc, but they generally aren't wobbly or warped.  A little putty and painting, maybe new countertops, and they look great.  Further, when I do rehab and price new cabinets, I've found a local cabinet suppliers than can give decent prices on the solid wood stuff.     

I'd also add that when I look at a potential purchase that has already seen some updating, I check out the cabinets.  That can be a good indicator about the sort of quality they've put into the remodel.  I've seen some horror stories that have great curb appeal.     

Hey @Michael Frease

I live in California and do a good bit of SFH investing in Lake City, where I grew up. I'm happy to share what I've learned and give you feedback on your numbers. I'm looking to diversify the SFH strategy outside Lake City and into other communities in North Central Florida. Also looking to get into MF, so I'd be interested in hearing about what you're hearing in that area.

Message me if you are interested!

Joe

Good idea, @Kyle J.

This is a very important topic and bears input from professionals.  There is a massive number of people on this forum that would be effected by a change in this deduction.  When I checked in with my accountant a few months ago, she was confident that property tax on what was clearly identified as an investment property could be deducted on a schedule E.  In saying that, she was also clear that I had built up substantial history that indisputably puts the property in an investment class, not a vacation home masquerading as a rental.  

Hey Doug!  

Congratulations!  Not a bad deal!  

Hey Travis!  I'm sure everybody does things their own way, but I'll describe what I've found successful.  

I've segmented my rentals into three different groups aligned with various business strategies (SFH, apartments and farm land) and these groups are aligned with three different LLCs. Each LLC has its own bank account and CapEx savings account. I do this so I can treat each as a completely separate business. One day, I may seek to sell these as independent businesses or just sell the properties separately. I generally reinvest the proceeds from these businesses, but if I wanted to take some out for living expenses, I'd probably just structure it as a salary or bonus taken from these entities and passed onto me (I have a 'day job', so I don't depend on this money for my living expenses). Don't be impressed, it isn't that much anyway.

This is just an example.  The idea here is that I want my personal finances separate from these businesses.  I may want one of them to borrow money or have some other need where it would be useful to have them appear independent, self-sustaining business entities.  I'm sure you could see an array of ways to structure this for your own needs and goals.

Overall, I'm a big believer in good financial and recordkeeping hygiene.  Keep things separate and the transfers to your personal finances transparent and trackable.     

Agree with @Max T..  Scan it and keep on a cloud drive.  You will have it forever (if you want) and you don’t have to back it up.  You also don’t have to deal with physical copies.