All Forum Posts by: Michael Garofalo

@Jordan Liles, I strive for 1% rent/purchase price, and at least $100 cash flow per door each month. This means you will be pocketing $100 each month after all expenses, debt service, Capex savings etc. When we say "per door" we are referring to each unit (not each individual bedroom). So if you are looking at buying a Duplex, you are looking at 2 doors. A triplex would be 3 doors, etc.

A good resource to determine how much you might be able to collect is rentometer.com. I have found that the average prices listed on that website (which lets you plug in an exact address) are very close to what I can command in my market. So that could give you a conservative estimate on how much you might be able to bring in (assuming the property is in good condition).

Also, please take my advice with a grain of salt. I live in Washington, DC where prices are much higher and cashflow is harder to come by. So my criteria might look very different than someone like yourself as real estate is extremely regional. Whatever financial rules you decide to set for yourself, just be sure to stick by them no matter what as you are evaluating potential deals. It's very easy to get caught up in emotions and bend those rules if the desire to do a deal is strong and you are just starting out.

@Rich Rodman, putting the equity/appreciation piece a side, then in a nutshell, yes. However in times of economic downturn, your pool of potential renters may actually increase because less people can qualify for purchasing homes, and there are more foreclosures (but people still need a place to live). Depending on the market, rental prices may drop if people fall on hard times, so if you do not adjust accordingly, you would definitely experience an increased vacancy rate. 

If you plan on holding your properties for the long-term and you have adequate cash reserves to handle any unexpected vacancies that may arise, then you'll make it through a short-term economic downturn just fine. People get into trouble when they over-leverage and don't have enough cash on hand to float those expenses.

Does all that make sense? If you have more specific questions or want to dive into more logistics feel free to PM me 

@Monica Litster, are you using conventional financing or commercial? The sales comp approach by price/sq ft only works if you have similar properties to evaluate, and is typically used for conventional financing. The income-based approach is typically used for commercial properties, whereby you calculate the annual NOI and divide by the prevailing cap rate in your market to get at the value. Even though this property isn't considered commercial real estate, you may be able use this approach for determining its overall value if you'll be using a local bank and obtaining commercial financing. I am no appraiser though so please take all of this with a grain of salt.

@Rich Rodman, one risk is tenant loses their job and can't pay rent. I'd argue the bigger downside is potentially wiping out large amounts of equity built up in your portfolio. If you purchased right from the beginning then this risk should be mitigated. But if you over-paid and also were banking on appreciation, this is where things could hurt you, particularly if you are looking to sell any of your properties and trade up for something bigger. If that scenario played out, you might be underwater (in the sense that the property is now worth less than what is remaining on the note)

Welcome to BP, @Ray Jones!

@Laura Srocki, yes if you could be all in for $52k, that would turn out to be a great deal. You should also factor closing costs into your equation as well (I am overly-conservative and always factor that in) but even then, this would still be a great buy assuming you could get it rented for $550 or more per month

@Laura Srocki, I view properties that have been sitting on the MLS for a while as great opportunities. Of course if this house is distressed, the average person is going to walk away. If comps are going from 70k-135k, I would use the 70k figure as your base and then work backwards to see what the total rehab cost would be. Mold remediation is not cheap and I'm sure there is at least one hidden surprise you would uncover if you did this deal, so be sure to add a 10% overage factor for whatever your contractor friend estimates.

For the average flipper this deal probably wouldn't command a high enough profit margin to justify the work involved, but if your goal is to buy-and-hold, this could be a real winner.

Todd,

There's no right or wrong answer here. I think people have a variety of opinions on this, but in my mind the deciding factor for hiring out a property manager should depend on how much value you place on your time. I have a rental property that is only 25-30 minutes away, and I've hired out a property manager simply because I realized that paying for one would cut out a majority of the work that needed to be done after the property was acquired and rehabbed. I now pay $100/month for peace of mind, having someone on call 24/7 that can take care of stuff if anything ever pops up and also collect and distribute the rent to me. Finally, I like having a true buffer between myself and my tenants. I do travel a lot for both work and pleasure, so my situation might be a little different, so take this for what it's worth. 

@Scott Holmes, thanks for that info and for the referral. @Charan K. I'll be on the lookout for your PM

@Tony Nguyen, if the numbers you have presented are in fact accurate and I'm understanding everything correctly, then this is an incredible deal. If it's truly cash-flowing $73/month off of one unit and both units are rent-ready,  then that would mean the other side would provide 100% pure cash flow and you'd have to put nothing else into this deal other than a down payment. In your calculation did you factor in vacancy, property mgmt, and capex reserves?  

All that being said, what looks good on paper often times might not be what it seems if you have issues finding quality tenants or are dealing with an extremely old building that requires a lot of maintenance/upkeep. Make sure you understand the property and your market well before deploying any capital, and best of luck!