All Forum Posts by: Aaron Montague

@Steve Smith

We need a few more pieces of information before we can figure this out with you.

https://www.biggerpockets.com/... <- try the rental calculator here and post the results back for more in depth help.  40k sounds like a good deal.  If it is only goin to rent for $350/month then it is not going to be a good deal.

@Syed Zafar

Initially this doesn't look like much of a deal, though it may be better than expected.  

Your line items and my questions:

Gas - $350/month is a LOT of money.  Can you get separate gas meters for each unit? Once that is done, make sure this expense is put on the tenants.  Almost every person is careful when the bills are in their name.

Maintenance and Cap Ex - I believe the combination of these numbers is too high. You have allocated more than $700/month. NOW if this place is old, beat up, huge, and you have no money I can see this being the right number.  You have already allocated 5k for repairs.  Does the place need significantly more than that? If no, I believe you'll be fine with $350/month for Maintenance + Cap Ex.

Electricity - Landlords are generally responsible for porch lights, stairway lights and the such. Do you have anything like that? Is there a 4th electric meter on the house?

Trash - You have $0.00 / month listed.  Is trash pickup handled by the town/city?

This deal, assuming the numbers are accurate, is a good/great house hack and should be a solid rental.  I believe you've over estimated the expenses in regards to Cap Ex + Maintenance.  You should be able to separate the gas bills.  I think there is at least $600 MORE in positive cash flow in this house than you have listed.

As a house hack this will be excellent.  I don't know how much you are paying now but I'll assume it is part of a place like this, so $500.  Using your numbers I believe this place will eliminate that $500 and put $500 into your pocket each month pre roommates.  Now add in 2 roommates at $400 each and I believe you should generate $1300 per month for yourself for living here.

Go Buy This House :)

@Thomas Phu

I'm looking forward to see what I can from my potential first deal, just need to get thru the entire process now! do you have any recommendations for rental management application? - I don't.  We use property managers at all of our places. BP will have a ton of resources on that. Go through some of the Podcasts as well. There we some guests talking about self managing everything.  I just listened to a woman in CT explain how she does everything through her phone.  It was somewhere around episode 370.

Also do you have any recommendations on which bank accounts to open and use for rentals or does it not matter? - We use:
- 1 Checking Account
- 1 Security Deposit account PER tenant
- 1 Last Month's rent account for everyone
- 1 Cap Ex/Repairs account PER property

any personal tips/advice on landlording you can give me? - Stay on top of your operations at all times :)

Hi @Doc Godfrey, welcome to BP.

Your Cash on Cash sounds high to me.

I get total expenses in excess of $1400/month (numbers below) and then cash flow of about $165/month.

I'm not 100% sure how you are financing this, so I can't give you an accurate CoC ROI. The expenses below assume you borrowed 150k after the refi.

Your 5% for repairs is WAY too low. That number should be at least $250/month, more if the place is larger, older, or beat up.

You also need to put 10% in for property management.  This needs to be there during the analysis phase, even if you plan on self managing because the numbers on a deal change dramatically over the ~$160/month management fee.  If you don't include it now, your ability to hand management over to someone else is removed.  If you self manage, enjoy paying yourself a bit each month, even if all you do is pour it back into the mortgage.  BUT get used to having the accounting deal with that 10%.

Expenses:

M and A Investing is looking for investors!

We have 2 products at the moment:

Our Foundation Fund
Long term partnerships

The Foundation Fund
6% interest only return
Personally guaranteed by Mike and I. We both have stable W-2 jobs.
Paid monthly
The pitch for the Foundation Fund is to replace part of your savings account which is paying in the neighborhood of 0.02%

Our partnership structure is essentially some fraction of:

Bring 100% of the money and take 50% of the equity (20% money = 10% of the equity, etc)

Also included in this is our 24 month back out clause. If the partnership isn't working for either party Mike and I will buy you out between month 24 and month 48.

Originally posted by @Thomas Phu:

so new variable expenses: 

Is this fair?

Congrats on the acceptance.  Now you need to get to closing :)

The numbers look good.  Honestly I think you'll be pleasantly surprise with your Cap Ex plus Maintenance number.  I believe it will be lower than the amount you've put away.  The hint here is to create an account of it and actually move the money into the account each month.  If there is money in there when you sell the place AWESOME!  And if you need a bit fix (Cap Ex) you'll be glad to have thousands in the purse.

The management fee is another nice bonus as you intend to pay yourself with it.  While the investment(the house over the long term) will always pay out 10% in management fees, you (Thomas) will have another $420 per month to do what you want.

I'm always happy to help.  Keep us updated on your progress with this deal!

@Thomas Phu

In my opinion 5% Cash on Cash return is too low for a real estate deal.  Honestly if you want to make 5% on your money, I'll borrow as much as you've got and pay you 5% :) Real estate should have a higher return to compensate for the additional work, headaches, and higher risk factor.  

There is something to be said about simply getting started. Honestly if you held this property for 10 years, you'll probably be glad you did, and you'll be making 15%, or at least more than 5%, CoC due to rent increases. I recommend making sure you are making at least SOME money if you are going to play the long game.

Managing the Property Yourself - Good thing to do.  Still take 10% out each month so the books make sense in the long run. This will allow you to know exactly how much your place is going to cash flow even if you decide to stop self managing.

House Hacking - Remember the goal of house hacking is to lower your monthly payments, preferably while buying a future rental. Keeping all the evaluation numbers the same, I envision this scenario for you:

You move into the 3bed side, and rent the other side out for $2100/month. Then grab 2 roommates at $800/month. This brings your total income to $3700/month less a bit for your part of the utilities. With the new PM fee, you'll be right around $4000/month to own this place.  So your new housing expense is $300/month.  I'm not sure what you pay now in rent but I'm guessing it is more than that.

If you are currently paying $1000/month in rent then do this deal, you should have an additional $700 in your checking account at the end of each month.

@Thomas Phu

What are your real estate investing goals?  Is a 5% Cash on Cash return part of those goals?

My initial thoughts:

You need 10% for Property Management

Your Maintenance plus Cap Ex costs are too high unless this is a giant, old place in need of tons of repairs. I'd probably set this number at 300-350/month.

Vacancy seems high. MA markets don't usually have too much trouble renting. I use 8.3% here which represents 1 vacant month per apartment per year.  This lets you get in and do longer term work occasionally.

Garbage seems low.  Only $10/month for a duplex strikes me as wishful thinking. More power to you if you can get that price however.

Do you actually have a lender that will give you a 15% loan on a non-owner occupied investment property? I certainly don't know all the lenders in MA though I do talk to 15-20 each month and no one that I know has this type of loan. Again, this is a good thing if you have access to it, it just seems strange to me.

HOWEVER, if you can afford 15% on this place, can you afford 20%? That would give you about $200 more in cash flow per month with the lower P&I plus lack of PMI.

@Helison Cabral Gomes

I don't wholesale deals in MA though I know what I'm looking for from them.

Easiest way to start wholesaling is to start door knocking. If I'm going to buy a deal from you, it looks like the SFH market in Brockton is hot between 300k and 350k. So if you want to sell me a property to flip, I expect to pay you between 210 and 245 minus renovation costs.

You don't have to find the nastiest place on the block just one that is going to make your buyer some money. Start building your network, tell everyone you know about your business, get a "Buying Homes for Cash" sign for your car, and get organized.  LOTS of real estate deals will come from persistence and thus being there when the seller finally realizes their places isn't worth the price they want for it.

Check out BP Podcast 346, https://www.biggerpockets.com/..., for some good incentive on wholesaling.  If you decide to listen, remember that the person on the Podcast IS NOT you, he should be inspiration, not competitioin.

And most importantly, once you find a good deal, send it my way :)

@Ely J Lara

Ah, that makes more sense.  Remember that the listed price has no bearing on the price you would pay as an investor.  It is a decent indicator of whether or not you are actually able to get the property for the price you want though I would put no value on it when making sense of a deal.

FHA loans generally, maybe always, require the borrower to live in the property. So it is not a viable loan for non-owner occupied investment properties.

I have 2 recommendations for you:

- Define what you want from real estate investing short and long term

- Look into house hacking your first deal. This is a great way to insert yourself into a deal, using something like an FHA loan, and drop your housing costs to zero, or preferably have your primary dwelling pay you.

There are lenders out there writing conventional loans with 5% down, so the FHA is not the only way to get a low down payment. Here are a few others I've written up over the years: https://www.biggerpockets.com/...