All Forum Posts by: Larry K.

Ulrich Burke
2% rule: gross rent should be at least 2% of purchase+renovation. Put another way, purchase+renovation should be no more than 50x gross rent. Higher rent properties should be able to go over 2%. Lower rent properties might be able to go less than 2%.

50% rule: half of your gross rent will be paid out for taxes, insurance, repairs, maintenance, vacancy, marketing, capital improvements/replacements over time. So if your gross rent is $1,000 per month you can really only count on $500 per month. This would mean you'd have $500 Net Income. With this number you can figure the Cap Rate. You have $500 with which to pay your mortgage. With what is left after paying your mortgage you can figure your Cash on Cash Return which is like the Yield or APR in other investments.

The best way to go about this is make your own chart of income and expenses. Use the "rules" as guides to keep you in line. Meaning if your calculations show your expenses are just 30% of gross rents then you are probably too low somewhere and are forgetting something.

Lots of good posts on BP about this. Put it in the search bar and read on.

In "Pacific Heights", Michael Keaton's character rolled out wads of cash for up front rent. Should give you pause.....

There are quite a few out there, browse the internet and you'll see.

I use one called "Landlord Cashflow Analyzer".

I suggest you work it from the "bottom up" though by building it on excel on your own. You'll learn so much more this way.

The software makes it look neat and glossy for banks and investors though.

For Retail and Industrial, the developer usually lines up the tenant very early in the process (maybe not as much for office). This means having capable, trustworthy commercial brokers on your side during preparation. It is less of a "build it and they will come" like you get with apartments. If you come from this commercial world then you'll have much better chances of this working out.

Also, the cost of entry.

It might be hard for the numbers to work in a condo in NYC. Checks some basic rules of thumb like 50% rule and 2%rule for starters.

In other areas of the country condos might be just fine.

I'd go with the 2nd family. Credit is important but the ability to pay you (having jobs) is more important.

For me it is two zip codes. The smaller the better so long as you are still finding deals.

You can glue engineered wood flooring right to the concrete.

A better/slightly more resilient installation though is to put down a plywood subfloor first then install as you normally would in a framed house.

Bought in Sept 2011 for about 130k, Rehabbed by end of Dec 2011.
Rehab costs were about 45k
Holding costs from Sept-Dec were about 7k (monthly loan payments, utilities, taxes, insurance)
182k rehabbed. The place is done and ready for tenants by Jan 1.

Takes a few months to get leased up. So my question is where do you put those carrying costs from Jan 1 to lease-up? The carrying costs from Jan 1 to lease up were about 8k. I had realtor fees involved here as well.

So would you use 182k all in to determine cap rate and categorize the 8k as 1st year expenses having started in January?

Or would you tack-on the 8k to the 182k and say its 190k all-in and start calculating income and expenses since lease-up?

As an add-on to this, where would you categorize lender fees to refi?

Mark YuschakWill Barnard thanks for the clarification.

@KJ (your name does not pop so I hope you read back to get this. There is a good post on here that describes this pretty well so much of what I am saying here I got from there. I think Will B was pretty involved in that post. Since this is a private lender and not a HML it would be 10%, no points, interest only, monthly payments, penalty if principal not paid back in 12 months, no prepayment penalty.

I am not sure how to handle the late penalty or if it would be customary for me to provide a personal guarantee. Any guidance out there on these points???