All Forum Posts by: Kirk B

He is writing bad checks. This is a crime. See if you can get Protest Papers from the bank and then file a report with the appropriate law enforcement agency.

You can still send Jose, but in the case he will have a badge!

You have to upload pictures to a third party hosting site then put the url for the image(s) in between the tags [ url ] image url [ /url ] (without the spaces)

Originally posted by Thai Tang:

Thanks for the advice guys, I don't know how "solid" my plans are but I do have short term goals and a 5 year goal, but thanks for pointing out the tax benefits/penalties, I need to look more into that. My short term goals are to make money via Speculation and my 5 year long term goal is to have many rental properties for steady income for my parents and siblings, my original approach was to start off with SFHs, recycle the profits to buy additional SFHs to fund the rental investments later down the road. My biggest challenge about the goal planning is to decide how much I want to make, haha but I do expect at least 30 cents return for every dollar I put out.

Thanks again for the kind advice guys

-Thai Tang

Thai-

I do not invest in Real Estate for speculation. However, I think speculation is more of a "gamble" then the cash flow model. There is no way to be sure that your house will be more valuable (particularly within 5 years). Speculation is really for those with a lot of experience, deep pockets, and patience.

For me, the cash flow model of buy and hold landlording is the best choice. Part of my model is to ignore the listing prices of a property and focus on the relationship between gross rents and purchase price. This way I know with reasonable certainty that I will make money every month on the property. Read the section "Rental Property Questions & Landlording Issues."

I completely ignore tax implications with my business model. I ignore Cap Rates. These, along with many other "approaches" I feel are designed to make unattractive properties look good on paper.

I once read a book that said the best way to determine the purchase price of a rental is to look at the listing price and then offer 10% less. I actually bought a property based on this advice. I was fortunate. The property I bought actually has some cash flow. Most often this isnt the case.

For me if I were to look at the two choices in your first post for purchasing:

SFH
Gross Rent (GR): $1,100/m
Cash Flow (CF): $150/m ( for sfh. this is my personal goal)

Calculation of max
payment:
Max. Debt Service = 1/2 Goss Rents - Cash Flow
Max DS = $550 - $150
Max DS = $400

So the maximum monthly payment is $400/month.
Using YOUR financing options find your maximum purchase price. For me thats 7% for 30 years $400/m = $60,123.03


Duplex
Gross Rent (GR): $1,600/m
Cash Flow (CF): $200/m ($100/door in multi family is my personal goal)

Calculation of max
payment:
Max. Debt Service = 1/2 Goss Rents - Cash Flow
Max DS = $800 - $200
Max DS = $600

So the maximum monthly payment is $600/month.
Using YOUR financing options find your maximum purchase price. For me thats 7% for 30 years $600/m = $90,184.54.

To summarize:

SFH: $60,123.03
Duplex: $90,184.54

It will probably be easier to find a 2 family for 90k than a SFH for 60k. There are a lot of details to this as well. The max price must include fix-up and closing costs. The utilities must be tenant paid (except for water/sewer). And other rules. This is what works for me.

Good luck!


P.S. You are thinking to yourself, "I cannot find properties this cheap!" I bet you can, and this is part of the hard work that goes into successful landlording.

I don't know whether you are obligated to repair the icemaker/water line.

I will say that I would not suggest that type of refrigerator in a rental. Many of the supply lines can leak easily which wil cause a lot of damage. Plus the icemakers can be prone to fialure based on problems with different water pressure and so on.

Unless your rental agreement stipulates you will provide an icemaker, one possible solution would be to remove the refridgerator and save it. Install a new one without an incemaker. Install the saved fridge in another apartment without the icemaker hooked up.

Self-interest is what makes this country strong.

I would evict the pregnant mother. I would be sad for the circumstances she put herself in and the child. I cannot bear the financial responsibility for her decision making.

Mike,

Great story! Your story shows how you are at your properties a lot to keep them running according to plan. All of the successful small businesses I see have active hard working ownership that constantly monitors and improves the business. Your business is a terrific model to follow.

One thing I might do differently (for myself) is accept a partial payment in some circumstances. I have read that after you receive a partial payment you have to repost the Pay Rent or Quit notice. So if a tenant has 75% of the rent and its the first week it is due, it might be worth it to accept that 75% and repost the notice (extend the eviction process a week).

If in your state a partial rent payment will extend the eviction a month, then I would not accept a partial payment like you don't.

Kirk

UPDATE:

Received check in mail for rent amount plus late fee. Will take to bank the check is issued on tomorrow and cash it.

Thai,

To play devil's advocate, some will tell you (my father told me) that its better to start with 2 families. He thought that if you had a problem with one tenant, at least the other tenant would still be helping with the bills. I think everyone agrees that you get better tenants in SFH's though.

I think you need to develop a solid plan of how you intend to make money on your investment property. There is so much info out there and so many different ways of evaluating and making money on property it is difficult to choose a directed path without getting muddled in tax benefits, dickering prices, etc...

The main question here is are you planning on making money via Speculation or Cash Flow? If Speculation the SFH will likely better (but there is no way to know for sure). If Cash Flow the duplex is far better.

I suggest you evaluate your goals as an investor based on how you intend to make money and how much. Then develop a plan to reach that goal.

After you have a plan: look at 100 houses before you buy 1

Norm here is my response:

http://www.biggerpockets.com/forums/52-rental-property-questions-landlording-issues/topics/36842-kirk-s-rules-much-better-than-the-5-rule-

Mike and Norm,

I think you are 100% correct that my communication was poor in those posts. Please know, however, that I was and am well aware that debt servicing is not an operating expense because you both have clearly stated it before.

My whole argument is that one can use the 50% rule to determine more that just Operating Expenses. If you subscribe to the notion that the expenses of a property will be 50% of GR you must know your financing postion if you are to know your true Cash Flow. This was my point.

I hope you look at the link above.

I understand to never engage in a "self help" eviction.

I got my pay rent or quit notice from another investor. He has used it before.

TBH, I was hoping the posting would act as a scare tactic and that I would not have to evict the tenant. I think if by Monday there is no money I will have my lawyer verify the posting. Thanks for the advice!

Dave-

I highly doubt that you read my post. If you read my post and came to the conclusion that I do not understand how to calculate the 50% rule then either I'm a terrible communicator or you have trouble with reading comprehension.

I am specifically referring to the APPLICATION of the rule as it applies to making a PURCHASING decision. The fact of the matter is when you APPLY the rule you have a set of variables that include the following:

VARIABLES:
(1)Financing (rate, length of loan)
(2)Purchase Price
(3)Desired cash flow per month
(4)Total Rents
(5)Number of units

NOT A VARIABLE:
expenses (50% of gross rent)

When you APPLY the 50% rule to evaluate a property you must input any 4 variables listed above to determine the 5th variable.

Why would you plug in Cash Flow/Rents/Units/Pruchase Price as variables, but not the Financing????

In every single post where Jon or Mike have APPLIED the 50% rule I see something like this:

"The way I see this deal

Pruchase Price: $50,000
Rents: $1200
OE:$600
NOI:$600
DEBT SERVICE (7% 30 yrs) $332.65

CF: $134/month

This is a great deal NICE find!!!"

So its ok to plug in 4 variables, but the 5th variable (financing terms) is completely ignored! Yet in each and every post they use some magical 7% @ 30 yrs.

I'm saying that you should use a REAL WORLD financing terms, if in fact, your goal is to have $100 per door.

Hope this helps you Dave. By the way, did you notice that you wrote EXACTLY what I wrote in my post?? The whole line of 50% rule simply states 50% of rents is OE....

Mike,

When did I ever suggest that the length of the loan would effect your OE or NOI. When did I ever state that the debt service was part of the OE??? Please point me to where I stated anything resembling that. I beg you to re-evaluate your stance on this because I feel like you are being short sided when it come to the APPLICATION of the 50% rule.

Keep up the good work.

Kirk