All Forum Posts by: Ken Maddis

Question for you experienced folks who use PM's: I understand adding in 10% (or whatever it is) for monthly management fees when running cash flows. However there are also leasing fees that go on top of those, which seems to be anywhere from 50% to 100% of one months rent. Is everyone running those #'s into their cash flow calculations? Just want to make sure I'm not missing something.

That's why a lot of investors and newbies are looking out of state, self included. Denver area seemed too expensive for my budget to get into and it looks difficult to make rents work for the asking price of the properties here. So a lot of folks are looking at the midwest and southeast. Do enough searching here on BP and you'll find some areas where you are likely to find some deals. There's also a book on BP on out of state investing. But you're going to have to do it more than casually. It does take effort and determination.

Great topic Mindy, because I see #'s that are all over the place. I often wonder when I hear someone claiming to cash flow $400 or $500 per month, is that after setting aside money for capex and repairs and vacancies, or is that before figuring those in? So it's hard for a newbie to gauge.

Also, when looking at places like Roofstock or some turnkey companies, it seems like they are only projecting 5 or 6% for capex. Maybe I'm ultra conservative, but $600 or $700/year on a $1000/mo rent seems way too low. 

For our first property we're setting aside 8% for vacancy, 8% for repairs, and 12% for capex on a $1350 rent. This is considering that we just installed new flooring, new fridge, new dishwasher, new AC unit and new hot water. We anticipate a new roof in the next 10 years, and a furnace in the next 5, windows in the next 10. Then there are the unknowns. So between the 8% for repairs and 12% for capex, that's $3240 per year, and $32,400 over a 10 year period for paint, repairs, capex, which I hope is more than sufficient to handle most of the major fixes we may run into. If we've underestimated, we'll adjust our #'s. If we've overestimated, then that's money left for the next property. 

Yes, you are probably correct, but it doesn't mean you can't find something that'll work for you. Just a few months ago I spent hours and hours scouring the MLS running dozens and dozens of calculations on dozens and dozens of properties and making some offers along the way. I finally ran across a B class property in a B class neighborhood that sat on the market for months...asking price was dropped from $120k to $110k, and and we won an offer of $101K. Turned out it was a VA foreclosure that needed a face lift (floors, paint, fridge, AC, etc). Put in $19k, it appraised with an after-repair value at $148k and it's rented at $1350/month. If I made any mistake on the property, it might be that I was $50 to $100 too low on the rent.

My realtor said on numerous occasions that he couldn't believe it was still on the market. Compared to some of the more experienced and savvy investors on this site, it might be considered an 'okay' deal, or perhaps a bad deal they would have passed on, but as a brand spanking newbie I'm not at all unhappy. I have equity in the property and a cash flowing rent, and my realtor asked me if he could turn around and sell it after the face lift (we said no).

My 2nd deal we just closed on was similar.

So yes, they're out there, you've just gotta put some time and effort into it.

^^^^^^^This!^^^^^^^

If it were me, I'd pay off the entire credit card then turn around and build up my savings. That's $1820 to $3220 that could be in your bank account but by not paying it all off, your choosing to put that money it into the credit card company's bank account instead of your own! 

Pay off the entire credit card debt and put that saved interest into your own account to hasten your savings.

I spent a lot of time on Roofstock last year looking for properties and it seems like a good platform and I like the idea of what they're doing, but I too thought their prices were too high. It's perhaps great for investors who want to see if some unwary newbie will come along and pay the inflated price. Every once in a while a really great deal comes by but it seems those are few and far between. 

I  joined Roofstock last August as a newbie looking for my first property. 

I saw a property in Jackson Ms that they rated as a 4/5 star neighborhood priced at $80,000. When I researched that property I found another next door on the MLS, called a realtor and made an offer on it for $32,000 and won.

Through my conversations with the realtor, inspector, and PM (I called the Roofstock preferred PM), they all were all calling it more of a C class property with low property values, poor schools, and low rents, compared to some other better neighborhoods. I subsequently bailed out of it for those reasons, and also after the inspection revealed far more tenant and owner damage and neglect than I was willing to deal with on my first property. Though it was not a Roofstock property, it supported what the realtor, etc was telling me.

Based on what I learned from my own research, I would give the Roofstock rated 4/5 star neighborhood no more than a 2-1/2 star rating.

The other thing that I wasn't comfortable with is their quoted insurance rates were quite substantially different than what I found from my own research. My guess is they are quoting actual cash value policies (ACV) and I was looking for replacement cost, which is always higher. And lastly, it seemed the capex rates they use is 6%, which for me is low. I use 12% for all of my own projections.

I think Roofstock is doing a great job overall and if I found the right property I would no doubt use their platform, but my point is be sure to do your own research and vetting on the homes and neighborhoods, and try to use your own #'s when determining cash flows, etc.

I had a similar experience as @Alex Mao. I just closed on my first two properties this year, both unseen. After closing on the first property in January, I did fly out there to meet the realtor and contractor and put eyes on the house, then spent a few hours with the realtor driving around the area I bought in and other adjacent areas, both good and bad, so I would have an idea of where I wanted to go for my 2nd purchase.

My realtor was indispensable for being my eyes and ears on the ground, and he traveled to the property quite a bit for things that required someone to be there (inspection, turning on gas, letting contractor get in, etc). I also picked the brains of the PM I intended to work with, the inspector, the contractor, etc to get some other opinions on both the house and areas I was looking at.

As for the rest of it, such as closing on the loan and property, that's all done via email/fax/phone/notary. Pretty easy. 

If you're preapproved for the first loan, talk to the bank and ask them if you were to purchase the 2nd home at such and such price, would they approve the 2nd loan.

I've looked at them but as mentioned, HOA fees can be killer. You also don't know if the HOA itself could become anti-investor.