All Forum Posts by: Mark K.

@Ben Leybovich can you explain why the 50% rule is "garbage"?

xxx

My friend put me in touch w/his friend who is an investor (and trying to raise money).  We talked on the phone yesterday and he sounded like a knowledgeable guy.  He then emailed me an "Investment Summary".  I can't figure out if it's a deal he's already done or something he prepared for other potential investors.  There is a lot of missing info and I had to try to piece some of the puzzle together for myself.  It was actually great practice b/c I'm a newbie and this is helping me a lot.  

Anyways, either something just seems very off about this "deal" or my calculations are way off.  Below is a portion of an email I am sending him asking him to confirm/verify my numbers.  Will be interested in hearing his response vs. what you all have to say.

• Not sure if this is a buy and hold or a flip
• What does Cash on Cash 1.43x mean? I typically seen it expressed as a %, does it mean 143%, probably not b/c that's astronomical
• I see the going in Cap Rate but do not see NOI
  • Based off Property Price ($1.07MM) and 4.54% going in CR, this means NOI is roughly $48.8K, is this correct?
  • I will just assume NOI is correct, based off the $1.39MM loan, that would mean $80K in debt services ($6,665 x 12), leaving a $-31.2K cash flow a year, that makes no sense haha
• Now we have cash flow for year three, we get a -6.7% cash on cash return, again makes no sense
• Using year 3 sale price as an example ($2.48MM) and the 5% cap rate listed, this means annual NOI is $124K
  • Debt service is $80K, leaving $44K in cash flow, can you confirm this?

Thanks everyone so far. Would still love more feedback. Is what I'm doing right? How does it compare to your quick analysis for rental properties?

Hello,

I am a newbie and have appreciated the great feedback I have received thus far from previous questions. Right now I am focusing on doing quick 5-minute rental property analysis to see if it meets my criteria. When I am ready to invest, I am probably going to go the 20% down w/traditional 30-year mortgage route on a SFH or multi-unit.

Below is my current routine.  I want to know if this is the right methodology b/c if it isn't I don't want to waste my time doing the wrong thing. 

• Go to realtor.com and see what has sold in my area (DC Metro area is where I will invest even though I live in NYC)
• I'll take the price of a listing and put 20% down and plug it into my spreadsheet
• I will go to rentometer.com and *try* to get a realistic rent for the property
• I use the 50% rule for expenses
• I look at cash flow, cap rate and cash-on-cash as a barometer

I've done this about 10 times so far and maybe 1 came out w/roughly a $250+ monthly cash flow.  Questions I have...

• How accurate is rentometer.com?  I'm usually taking 1% of the purchase price to give me a gauge and then end up adjusting it based off rentometer.com.  Is there a way to get a more accurate number for rent?  People say Craigslist, but it has too much spam on it.
• I know there are many schools of thought on the 50% rule but it seems like this is the main thing that's bringing cash flow down.  I want to conservative but this rule seems to rule out many properties even before doing any analysis.  Maybe that's a good thing?
• The two main variables I just mentioned, rent and expenses, seem to be very hard predict. Yet they have a direct impact on my ROI metrics and therefore leaving me unsure about my analysis.

Would appreciate your thoughts...

Thanks, so you are saying, it makes more sense to buy a more expensive property with $80-120K down so I could cash flow $1K/month on one property?  As opposed to buying smaller properties with lower down payments and therefore smaller cash flow?

I don't have enough saved up for reserves to put down $80-120K right now. =(

How do I "@" people in a reply?

Yes, I have $80-120K, but I will be leveraging and putting 20% down w/traditional 30-year loan.  

@jscott I'm a little confused w/what I should be doing with that $80-120K.  Buying all cash (as you know in MD you can't get much for that) or putting money down for deposit.

Thank you everyone for your responses.

@ncarey
@jmwaters1

Assuming $200/monthly net positive cash flow that would mean I would need 5 SFH to get to $1K and 15 to quit my job. To me as a newbie, that is an incredibly daunting task with a lot of risk involved.

I guess it is what it is but the reality of those numbers is a little discouraging. I was thinking more along the lines of $500 per SFH but what do I know.

Hello,

I’d like to get an idea of what it takes for you to cash flow $1K/month. I am a newbie and in the midst of ironing out my short and long term plan/goals. I believe that if I can cash flow $3K/month I can quit my job and get by (barely). That is assuming I am living off my cash flow.  I will have reserves already lined up for my properties if I quit my job.

While I understand there are so many variables in real estate, I just want to get real world examples of what $1K/month cash flow looks like. Is it from SFH, multi-family, commercial? I would appreciate if you could follow the template below. It will give me and I'm sure many others a benchmark in which to start.

Location:
Type of property:
Monthly rent:
Expenses:
Mortgage:

PS - I understand you might have to combine several properties to get $1K/month cash flow, please write that down too!

Hello,

I don’t know if there’s any sort of ethical issues with this but since I’m just starting out, I want start looking at properties in person. I wouldn’t have any intention to buy at the moment even though I will only look at properties which I could actually put a down payment right now (if that makes sense).

I’m trying to ramp up for when I actually am ready to buy. I’m focusing on doing the up front analysis and number crunching and now want to see properties. Should I disclose I don’t have any intention to buy or that I’m a newbie (they can probably tell)? What happens after I see the property, will the agent keep following up with me asking if I want it (I don’t want to deal with that)?

I don’t think there’s anything wrong with asking to see the properties b/c I will build a rapport with the agents who may very well get my money one day. Would love to get your thoughts…