All Forum Posts by: Keith John

Thanks for posting this question. I've been using a percentage for all my expense (cap ex, repairs, management etc.) but seeing more experienced investors using a dollar amount based on the property makes MUCH more sense. I don't have any input just wanted to say thanks.

Your welcome Nathan, and it certainly cleared things up for me as well and introduced some financial aspects I hadn't considered.

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Thanks Raymond, but I don't have a shift key on my mobile device...it works just fine on my pc. :)

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Thank you @Ken Martinez! I really love the calculators Bigger Pockets has put together because it calculates your cash on cash after you plug in all of the variables. It really opened my eyes being a newb and seeing just how poorly some of the properties I thought were great deals had poor cashflow.

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Thank you for taking the time to explain the difference @Lesley Resnick! Very helpful and something my wife and I have been pondering.

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Originally posted by @Sandy RL:

Welcome! Always great to see someone so close to home. I am currently working on a rehab in Michigan City. My main focus is LaPorte and Porter Counties. I am a real estate broker. I keep an eye out on MLS for deals. I am just getting started too. But I am more than happy to help in any way that I can.

Sandy

Great Sandy! Glad to see you are not only a realtor, but also looking to invest! I am interested in having access to deals on the MLS and finding partners. I am very familiar with LaPorte and Porter counties. I'll send you a colleague request.

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Originally posted by @Cody Kauzlarich:

Well, insurance costs me $68 more per year on the truck than it does on my 10 year old Nissan Sentra and I average about right at 19.5 mpg. So, far better than any $3000 truck. And it starts, runs and requires nothing other then routine upkeep.

My student loans are subsidized stafford loans and are differed interest free for another 8 months. Two months left to complete my BSN and then six months post-grad. I intend to pay them off before a cent of interest has accrued.

Cody...I'm going to get some flack for this, I'm sure, but I'll say it anyway...

1) Read the book 'Rich Dad Poor Dad'...it will put things into perspective and you will start to question if you are working for money or if money is working for you...oh; and about that education...it is great that you are getting your education...I got mine also (MBA), but the degree won't do much for you in real estate, although it can help you to have a better understanding of finance.

2) You are contributing to a 401k for retirement in a job you don't intend to keep...although you are probably getting a nice contribution from your employer and you are saving tax free, you are also freezing money in a device you can't touch until you reach retirement age, or else you get heavily penalized. Think about how you could be putting that money to work for you in your RE investments, which will start paying you right away allowing you to acquire more and more properties.

3) I get what many on this forum are saying about your truck...it is an anchor, but it is also a nice bargaining chip to keep your wife in the game of RE! I say pay it off to free up that truck payment so you can keep investing. It would be difficult to get a property that will cash flow the amount of your truck payment.

Just my opinion...grain of salt!

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Originally posted by @Lesley Resnick:

Yes, especially if i am going to be doing any reno work. I want to limit my tax liability as much as possible. There is a difference between repair and improvement. Repair can be taken in the year of acquisition and everything else must be depreciated on the correct schedule.

Since my day job is real estate I can take depreciation against any of my income. If you are not an IRS termed "real estate professional", there are limitations to passive income topping out at $25k. I am not an accountant but, have learned a little along the way.

Wow! There is yet another benefit of becoming a real estate agent! @Brandon Turner... It leads to more questions Lesley...what income do you file as passive? Is it rental income or flip profit? Just to clarify; are you depreciating both the property and any renovations after the initial repairs are claimed in the first year, or just the property? Thanks!

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Originally posted by @Lesley Resnick:

The other part of the equation that no one has mentioned is depreciation. It is going to make the difference in weather you pay taxes on the income or not.

Depending on your income level and other passive/active income sources, it could be the most profitable part of the property. i.e. breaking out the property in to its individual core components for depreciation, which allows shorter schedules than the standard 27.5 years.

Hi Lesley! So, do you use depreciation in your evaluation of potential properties before purchase?

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Originally posted by @Frank B.:

Originally posted by @Keith John:

Originally posted by @Frank B.:

Originally posted by @Keith John:

For all of the successful Buy and Hold investors:

What percentages do you use for the following when evaluating a potential buy and hold income property:

1) Cap Ex

2) Management

3) Vacancy

4) Repairs

Thanks in advance!

Out of all of those items, really vacancy and management are the only ones related to rent.

This is especially true of CAPEX -- trying to calculated as a % of rent can yield some wacky results.

Calculate CAPEX based on size of house, roof type and area, size of condenser, flooring, amount of wood/siding, etc.

Thanks for the insight Frank B! Curious why you wouldn't consider repairs into that figure for rent?

Same reason as for the CAPEX--repairs are based on the property, not the rent.

Say you have a 500 square foot house in city X that rents for $1,000/mo, and you also have a 30,000 square foot mansion in Detroit that also rents for $1,000/mo (sorry Detroit).

Which property do you think will have a higher expense for repairs? With an extreme example like this you can easily see that it really doesn't make sense to estimate some of these costs based on a percentage of monthly rent. They should be based on the characteristics of the property.

Well, that makes a great deal of sense. I hadn't considered that approach. So do you always use square footage/quality when doing your evaluation for repairs? Lol on Detroit comment! You and @Josh Dorkin must be talking!

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Originally posted by @Bryan C.:

I have to hire out repairs & management which is why i go with 10%....I do stay actively engaged on the condition and decisions

Good to know. Thank you Bryan!

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All Forum Posts by: Keith John

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