All Forum Posts by: Nick B.

You're comparing apples to oranges. Cap Rate has very little to do with Cash-on-Cash

There are two ways: get a paid service from one of MLS aggregators or become a non-paid, non-licensed assistant to a licensed agent. The later option requires that agent to fill some paperwork and grant you access to MLS. Of course, you should be able to provide some service for that agent in exchange for MLS access.

@Johnson T., take a look at Arlington, Mid-cities, Irving, North Fort Worth, White Settlement.

I'll give you an example on capEx.

Let's say you inspected a house and found that the water heater is 5 years old and is in good shape. The life expectancy of it is 10 years. Which means you will likely have to replace it in the next 5 years. The cost of a new one today is $2000 (just for the sake of this example). Assuming 5% inflation, it will cost $2552 in 5 years. You need to budget for that cost, so divide $2252 by 60 months and get $42.5/mo. You set this aside for a new water heater. Then you do the same exercise for other major items than may need to be replaced sooner or later. Add that all up and that's how much you need to set aside monthly. If you fix everything upfront, your expected capEx will be really low for the first 3-5 years.

R&M is similar. Let's say that your tenant would move out in 1 year and you would need to paint a few wall scratches and clean the carpets. Get the cost of that upfront (e.g. $720) and divide by 12. Then set that $60/mo aside for R&M. To minimize R&M, fix everything upfront and include a provision in the lease that first $250 of any repairs is paid by the tenant. Any repairs that were caused by tenant's actions or negligence are paid by the tenant entirely.
Of course, you are responsible for repairs that are the result of your actions or negligence. E.g., a sewer line got clogged. If it happened because a tree root grew into a sewer pipe, you pay for the repairs. However, if a tenant flushed inappropriate items down the toilet, they pay for the clean-up.

I assume you're asking about SFH.

Denton and Collin counties are great locations but won't cashow unless you buy for all cash.

Look to the South: Dallas and Tarrant counties. You have a better chance there. 

Do not base your capex and R&M numbers on percentage of rent. Use actual dollar for long term replacements.  

For the first year or two you may have no capex or R&M if you fix everything that needs to be fixed upfront and place a good renter who wouldn't move for at least two years and wouldn't damage the property. 

That's "normal". 

In a perfect world cap rates would be the same for a property class regardless of the value-add status and value-add properties would be selling at deep discounts. Just ask any real estate guru or read a book written 10+ years ago.

Unfortunately, we live in the unperfect world where humpty-dumpties are sold at a premium and cap rates for C class and A class are virtually the same.

Similar logic applies to capex. Look at the expected service life of major parts (e.g., roof). Find out how much the replacement cost is. Divide the cost of replacement by the number of years of useful life of the same item. That's the capex number for that item per year.

Maintenance is $300-400/year/unit but for a 4plex the variance may be big either way.

Vacancy is not an expense but it can be expressed as a percentage of rents. Assume than half of the units would be turned in a year. Then assume at least 2 weeks to complete the turnover. This is market specific though. So, for a 4plex you'll have 2 units vacant for 2 weeks in a year or 1 unit vacant for a month. That's 3% physical vacancy. Than you need add to add loss-to-lease, concessions, and bad debt. Each one has its own dynamics. 

Of course! Use dollar amounts that would be close to your operating numbers. E.g., for insurance call a few agents and get quotes. Use one of them in your analysis. 

How does insurance depend on the rents? If you double the rents, will insurance premiums also double? Same question about maintenance and capex.

Everyone says: "buy on actuals!" and "buy below market!". Yet nobody does. 

Every buyer stretches their expectations (AKA Proforma) and justifies paying not only the asking price but also outbidding other buyers to "win the deal". That is true for both "value add" and for performing properties.

I get monthly reports consisting of the following:

• Executive summary/property manager's narrative
• T-12 P&L statement
• Last month P&L statement with actual and budgeted numbers
• Cash flow statement
• Balance sheet
• Rent roll
• Delinquency report
• General ledger
• Make ready & Maintenance stats
• Actual bank statements