All Forum Posts by: Kirk B

Thanks for all the input!

The title of this thread is misleading because it was never my intent to discuss the validity of the 50% rule. I just used those words as an attention grabber. I would rather this debate be focused on how to correctly apply the 50% rule to help me make better decisions as a newbie investor.

I disagree with your third point (bolded). The 50% rule does NOT simply dictate operating expenses. If you follow the rule to its logical conclusion, then you realize it dictates purchase price. There are countless threads where you have replied saying a property costs too much or is a good deal based on the 50% rule. Therefore, the most important aspect of the 50% rule in my view, is what to pay for a property.

Using my example from my original post, which property would you choose (assume all other things not specifically discussed like appreciation etc.. are equal)?

My prospect areas are very similar to my example, I could buy a house in the "hood" that is in decent shape and meets the 50% rule or one in bad shape that is in a better area. Lets factor in that the house in the hood is at 85-90% ARV and the crappy house in the better area is at 60-70% ARV at 50% prices.

house 1:
hood, good shape
50% rule: $49k
ARV: $57k

house 2:
blue collar area, crappy shape
50% rule: $49k
ARV: $75k

Does this information help you make the decision (again please assume all other things being equal please)?

Or is it just incomplete?

House 1:
Units: 2
Gross Rents: $1,000
NOI: $500
CF: $100*2 units = $200/m
P+i=$300/m
Max Offer @ 7% i = $45,092.27

House 2:
Units: 2
Gross Rents: $1,000
NOI: $500
CF: $100*2 units = $200/m
P+i=$300/m
Max Offer @ 7% i = $45,092.27

They are both fully rented/rentable.

House 1 is a much larger house in a worse neighborhood (think "hood" not "warzone"), and in decent shape. Painted wood or vinyl siding, hardwood floors, decent kitchen and bath, decent moldings, sound structure, and seperate utilities.

House 2 is ugly and in bad shape but in a very nice blue collar area. Crappy asphalt or abestos siding, crooked uneven floors with old hardwoods, baths with 12x12 self adhesive vinyl flooring and claw foot tubs, kitchens with about 5 SF of total countertop space, ok moulding, some walls are paneled over, ceiling height may be low in some areas.

Which house is better?



Long story short: The 50% rule does not adequately address property condition and location. Here is an example: two houses with equal rent, one is in bad neighborhood but good condition, while the other is in a better neighborhood but bad condition. Which house is a better deal? Which would you buy?


I hope that this thread stimulates debate over how to properly incorporate property condition into the 50% rule.

I made this as a quick reference for myself. If you find this useful/errors please let me know.

My insurance agent told me the choices for deductibles are $500, $1000, and $2500. He didn't base it off of percentage as far as i can tell.

I want to use the highest deducible as possible. In this day and age of getting dropped, mold, lead, etc... I plan on taking care of the small claims out of pocket and reserve insurance for the catastrophic things. Maybe my tactic is wrong? Worst case scenerio you can get some high bids for the repair and then do it yourself. That would cover the deductible. I do not think this is fraud as long as the bids are real.

I am not an expert at this, but I hope my post helps you.

My rental property has an old barn with three garage bays. I was thinking of dividing the space with plywood sheathed partitions and charging $50/month (10'x20') for each. These would be offered to tenants first, but if tenats do not want I would try to rent to outsiders.

Are you familiar with additional liability or issues that develop from renting garages?

Ryan,

Thanks for your reply. I am just concerned about your approach because I think I would exhaust the supply of "For Sale" 1-4 unit investment properties in my target areas in 2 weeks.

Also, I am new, and less confident in my decision/offer making ability. Therefore, I feel strongly that I should proceed with more caution until I gain confidence and experience.

But I will tkae your advice and start throwing more offers out there at a faster pace.

I support the wizard in the movie The Wizard of Oz.

Bottom line is he got Dorothy Home and that was the point of the movie.

An unregulated Free Market creates far too large boom and bust business cycles which causes employment instability among renter types and therefore harms landlords.

The economy is in the shitter right now becuase the free market was supposed to regulate greed and disproportionate risk, when in fact, it encouraged it.

In other news, GEitner is not resigning and Obama is still the best President we have had in the 21st century,

Update:

Latest bump in the road is I had a verbal agreement after several rounds of negotiation go by the wayside when out of the blue "other offers were coming in." Now they want me to renegotiate "highest and best."

Yeah my best is the middle one and its also the highest.

I suppose I shouldn't get angry because emotion will only impede my ability to make sound business decisions. However, it is a time consuming process to find a 50% deal and I thought I had reached my goal.

I had a similar situation. Tell him that the tree is dead in writing. Then he responsible henceforth.

My tree owned my neighbors hood. It cost me $2,700 to take out two trees. Their landlord called me. My insurance agent told me to have her call her insurance agent and then the insuarance companies would work it out. Further, he said that once you know the tree is dead, you ar responsible. They had a diameter of ~42" each (huge/old).

In any event, I wouldn't park under a dead tree because I would not want to deal with fixing my car. If he doesnt cut the tree down in a timely fashion then move.

Good luck!

Trying to contribute to this thread. This info is just spewing from my head. Please independently verify everything below.

The new lead safety protocols stem from the federal government trying to dodge litigation from lead liability on HUD homes.

There is a lead-safe practices class for landlords that you can take. Often, its free or cheap. It takes 1 day. It will tech you how to safely work with lead, the hazards, permanent repairs, temporary repairs ( less than 20 years), what abatement is, etc. I just took this class for contractors because there is going to be new lead practices from the EPA in a year supposedly. There is already a new lead disclosure packet for contractors (the tenant disclosures have not changed).

I think investors should be most wary about two things: (1)Any project funded by the federal governemnt on a residence that costs over $25k is considered abatement which is a whole new animal in terms of regulations (dramatically more expensive). (2)Peeling paint/dirty window sills in children under 6 bedrooms is really bad. Causes developmental problems. Clean it up and paint it.

All children under 2 years of age must be tested for safe lead levels by the county. If the county gets a high reading, they will be in the childs house to determine the source.

Jon, I don't think you need a "remediation guy" if its only 10k. I would get a painter and a buy a HEPA vac for $200 and take the landlord/remodeler class. You might be able to save yourself $5k. With all of the lead paint laws coming out soon, it will probably be worth your time.

Good luck!