All Forum Posts by: Sylvia B.

Sylvia B. has started 74 posts and replied 1314 times.

If anyone has any comments or advice, I would love to hear from you. Thank you.

I think you're doing great! As others have said, you can't expect your first deal to be a home run. But since you asked, I do have a little advice.

You wrote, "Now, I have a Mortgage, Personal Loan, Car Loan, and Student Loans. My debt to income ratio is about 43% (or 35% with my tenant)."

You need to get rid of that consumer debt. It will eat you alive.

Here is my suggestion. You said your housing costs you $200/month. What would you expect to pay in rent for your unit if you weren't the owner? Take the difference and pay off those loans!

It won't be easy. It will take focus and determination, but you can do it!

2 Votes

Originally posted by @Dan H.:

That may make sense but I am uncertain. I do not think it is gushing cash in the negative direction either but Merritt may have meant it the way you think he meant it (i.e. large negative cash flow) versus the way I thought he meant it (large positive cash flow).

Not quite. Merritt's "gushing cash" isn't referring to cash flow at all. He simply means that leaving the rents so far below market - $200-300 per unit - is gushing cash (losing out on potential rents).

2 Votes

Originally posted by @Dan H.:

Originally posted by @Account Closed:

Originally posted by @Dan H.:

Originally posted by @Account Closed:

Originally posted by @Dan H.:

Originally posted by @Account Closed:

Everyone has their own strategy, and of course what you have in reserves to cover expenses through a vacancy is a critical consideration...that said...

You are gushing cash if your numbers are right, nearly $1000 a month. I would first verify your numbers are right. One comp does not a market make. There are lots of resources out there, a great one is simply to go find your local for-rent advertising sites that will publish what other housing is currently being offered and for what price. Once you look at enough of those, you should have a credible idea of what your rents could be. And in that vein, you bring everyone down when you rent below market!!! (You will discover this every time you go to re-rent, and get annoyed the guy down the street is giving their place away when you are trying to get a fair price!)

How you get it done is up to you, but a measly $20 a year or whatever like many have suggested is not going to get the job done my friend - you are way too far away from where you could be. I might suggest you work to up your reserves and then pull the band-aid off. Joe suggested you do it to all 3 at the same time which I would tend to agree with, but another option is to do one at a time so you don't over-step your reserves for vacancy. You live there, so re-renting is not an issue as far as time and effort and all that.

My strategy is to keep rent just a touch lower than the highest possible. Some say that's dumb, and I can't really argue that point of view!!! My feeling is giving a slightly better deal helps keep my peeps where I want them, which is a bit on the appreciative side - I am too small to afford too many vacancies. I think the larger outfits don't have the same concerns, and therefore are in a better position to charge top of market.

Gushing, gushing, gushing

I do not know how you did your calculation but I figure this to be tight on cash flow. I start with the belief that the 50% rule is too aggressive at low rent markets, about right in most markets, and a bit conservative in high rent markets. This rent point, I place in the middle category as 1 BR in my area goes for more than double that price (high rent market) but I know markets that 2 BR go for that price (low rent market).

So $800*3+$1K (extra BR) = $3400. $3400/2 - $1750 = -$50 but 1) he is self managing 2) his mortgage may have escrow holding.

So subtract 10% off the 50% for self management (but he is earning this 10% by doing the PM duties).

$3400*0.6-$1750=$290. $290/4 = $72.5/unit cash flow with him doing the PM duties. Hopefully he has escrow included in the mortgage payment and is cash flowing more than that per unit.

Gushing cash? Not in my opinion. Doing OK? Probably. He likely would make more (with the rents I used) than the $72.50/unit depicted because hopefully the mortgage includes taxes and/or insurance (I hope he is making more than that). He of course also gets any equity paydown and appreciation.

LOL. Well, I dunno about all that analysis, mine is much more simple. But, I sure can appreciate a thought-out and long-winded post, seeing as I'm the king of long-winded posts.

My analysis and math goes like this, based on the information we have been provided by the OP - unless I misread or missed something.

Top rent for similar units is $908. Bottom rent for similar units is $725.

Current rents are $550, $600 and $600 for a monthly total of $1750.

Potential rents are $908, $908 and $908 for a monthly total of $2724.

Low-end rents are $725, $725 and $725 for a monthly total of $2175.

Monthly differences reflect a range from $974 to $425.

Annual differences assuming no vacancy range from $11688 to $5100.

I would like to point out as well, that all expenses are fixed despite a variable possible rent, and therefore this is a direct loss to potential cash flow.

I suppose if that aint gushing cash to you, then it isn't. Me? $5k is a lot of money worth going after and $10k is just crazy to let go.

You admit not including vacancy but you also are not including maintenance/cap ex and other misc charges (including potentially property tax and insurance if not escrowed) on that cash flow analysis. Small unit count has shown the 50% rule to be ball park accurate for a rough estimate. My calculations reflected the 4th unit being rented for a total cash flow of less than $4K/year (hopefully more because hopefully there is some escrow in the mortgage). $4k for four units = $1K/unit per year (not including equity pay down and appreciation). With only 3 units rented, this place is negative cash flow but that is not fair because there is value in the owner living in the unit so I tried to place fair market value on the owner occupied unit.

Your calculations are missing a lot of expenses. The numbers I use in my pro forma for maintenance/cap expenses many would think is high but virtually none of those people have taken the time to calculate what the maintenance/cap ex should be when level averaged per year or per month. I did not use my maintenance/cap ex numbers but the 50% rule which is easy and an ok (not as good as an in depth pro forma) way to do a rough calculation.

$4k/year on one unit is good cash flow (over $300/month). $4K on 4 units is poor cash flow (less than $100/month per unit). $10K for 4 units is OK cash flow (just over $200/month per unit). None of those, not even the one I called good cash flow, would I call gushing cash.

Again, I don't know what the relevance is of what you're talking about. The OP is currently renting the units for what they are renting them for. All the expenses and calculations you are considering are currently coming from the rents he is currently charging so...? Everything in the OP's world gets better, all the points you are bringing up, when the rents increase. You are analyzing it retroactively when things are already in place, and there is no where to go but forward.

My analysis is not a complete rental analysis. All my analysis is, is a potential gain/loss analysis. IMO, you are going to unnecessary places, just like I feel this post is starting to go - lol!!! All good.

I agree it is in the past and the OP posted about what sort of rent increase he should do and not about his expected cash flow.

However, many newbies read these posts. If they read this is gushing in cash, they may believe it. It is remarkable how many newbies believe that rent > PITI implies positive cash flow. Therefore, I use commonly accepted expense predictors (in this case the 50% rule) to show this certainly is not gushing in cash. I would not even refer to it as good cash flow. I also would not refer to it as a mistake. It is probably OK cash flow that may out perform because it is self managed and the owner is local which may allow him to do better than the 50% rule.

My intent is to hopefully educate those that need it on what is the rough cash flow of this property. I fear they see someone indicate gushing cash flow that they may think an RE with a little worse numbers would be OK. A little worse numbers could easily result in negative cash flow.

I hope everyone who invests in RE uses well established pro forma work sheets (such as the BP calculators) but it is not the case. Many purchase RE without doing any pro forma calculations. Then they sometimes get more educated and sometimes realize that they have made a mistake. I do not desire those that read this thread to make a mistake based on "gushing" cash that is likely just OK cash flow.

You two are talking past each other. Merritt is using "gushing cash" to mean the OP is losing a lot of money, and Dan thinks he is saying the OP is making a lot of money.

1 Vote

We supply a stove and usually a dishwasher. That's it.

0 Votes

Originally posted by @Nicholas L.:

@Sylvia B. did you see the latest update? The owner of the house agreed to sell the house to a non-profit, which to me doesn't seem like the worst possible outcome. I saw in one article that the company has done "160 flips in 9 years" - which might seem like a lot, until you realize Oakland has 170,000+ housing units.

No, I didn't. Sounds like that may be good PR for the company, and perhaps good for the neighborhood as well.

0 Votes

Originally posted by @Michelle Montilla:

@Judy Parker One does not have to be licensed to wholesale.

In Missouri, one does.

0 Votes

Originally posted by @Michelle Montilla:

@Sylvia B. From my understanding one doesn’t have to have use their own money or have money to put a property under a purchase agreement.

Ernest Money will be passed on with the investor.

No, you don't. But if you say you are a cash buyer and you don't have the cash, you have lied.

4 Votes

Originally posted by @Koki Agata:

I am not sure where exactly in Springfield the property you are talking about is located, but my wife went to a uni in Springfield, and I visited couple of times, and I am under the impressions that it is more or less a college town? So although the rent seems low, and does not meet 1% rule even after you rent out both units, perhaps you can rent it out to students per room basis, and maybe then it might cash flow?

Springfield has several colleges, but no, it is not a "college town". Springfield is rather spread out, and student rentals are pretty area specific.

0 Votes

Originally posted by @Michelle Montilla:

My plan is to assign the contract to a prospective buyer.
I have not let the buyer know I am a wholesaler and will be assigning this contract. I was told you don’t have to tell the seller you are Wholesaling only that you are an investor that is offering a cash offer.

If you do not have the cash to close this deal yourself, you have lied to the seller. Do not be surprised if he is angry when he finds out the truth. I would be.

5 Votes

Thanks guys. It's becoming clearer.

0 Votes

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All Forum Posts by: Sylvia B.

Sylvia B. has started 74 posts and replied 1314 times.

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