All Forum Posts by: Nick G.

@Ben G. The moron can't even spell the word "sign." I wouldn't be worried. Lol.

Hey @Ethan S., fuel efficiency, utility, and reliability are my top two! Your vehicle doesn't sound like a bad choice at all, but if your monthly is too high for comfort, you could try going for an older and less expensive model. If you never use the utility of a truck, I'd spring for an early-mid 2000''s Honda/Toyota or the like and get 50% more fuel efficiency.

Just study your vehicle expenses and know your utility needs, and you'll know what direction to go. Cheers!

Hey @Daniel Cedre. Not enough info here to give you a firm answer, but here are some quick thoughts.

1. Trust but verify. Whatever the listing agent tells you, you may be able to trust... but you need to verify 100% of it, just to make sure. That goes for Section 8 eligibility and anything else you're told.

2. Your numbers should be taken with a grain of salt until you've personally inspected each and every unit in the purchase thoroughly.

3. 1-bedrooms usually have much higher turnover than any other bedroom count, so make sure your area has enough population growth to sustain that demand for many years to come.

4. Dovetailing on the prior point, whatever your expense numbers are that you're using, you should double them - especially vacancy. See if the property still performs without hemorrhaging you money. If it looks okay, you can probably feel good about what might happen in a downturn. At a minimum, you should probably be very generous with your estimates for vacancy and repairs - your CapEx allotment will of course depend on the property's condition.

On the surface, the numbers don't look bad, but I don't know your area, the crime rate, the neighborhood quality, the economic trends of the area, etc.

However, I can tell you this - assuming you're buying it with 20% down, there are worse ways to risk $10,000-$30,000. In my area, what you're buying would likely cost me nearly $1,000,000 and 10-20x more out of pocket!

Update after reading your later posts - Remember how I talked about population growth? Well you should really look into that explosion you're having - look up North Dakota's oil industry from a few years back to know what I mean. Sometimes, what comes quickly can leave just as quickly.

I'd also probably be replacing all of the current tenants with your own, unless they're willing to stay on at the new higher rents - but even then, I never trust other people's tenant screening.

@Dorothy Pruitt-Smith Search the podcasts (or forums) for episodes on tenant screening, it'll be the best thing you ever did! (Plus, you'll probably want to listen to all 230+ episodes at that point which will then be REALLY the best thing you ever did.)

As for a lease agreement, ask your agent for one - if you're not buying through your agent, find a local agent you're willing to build a relationship with (meaning not just getting stuff from them and then never sending them business) and ask them. It's very important to get a lease agreement that is most pertinent to your state, obviously, but not-so-obvious is to get one that is pertinent to your specific area. Local ordinances and laws can differ wildly, so you don't want to use a lease agreement that is typical of a city even just 50 miles away.

Hope that helps, good luck to you and congrats on your purchase!

@Pablo Pinasco I have a friend who owns an company down there and should give you a great price if you mention my name. Please PM me if you still need that referral.

@Candace Majedi "I believe Sherman Oaks, Encino, Studio City, Valley Village, NoHo are solid markets that will not depreciate."

Careful with statements like that! Those areas, like any other, have always appreciated/depreciated cyclically and will continue to. :)

Simi Valley, on average, typically is priced higher than the SFV. People often look to Simi as a way to live near the SFV for work/commute but not in it. 

In my opinion, prices right now are more sustainable than they appear at first glance - the thing that is unsustainable are the rates of appreciation/prices month over month and year over year. In my opinion, the prices for this area's real estate right now aren't actually the issue, so much as people's ability to afford those prices (incomes) and the rates that prices are continuing to increase compared with income growth. That may seem like a bit of semantics, but the prices of homes right now are actually very logical when taking into account replacement value, location, demand, and constrained supply.

The part where we start having issues is in affordability, which then relies heavily upon income growth. We're actually far better off right now in terms of affordability than we were in 2006/7 (30-35% now compared with 15-25% in '06/'07.) For that reason, I think we still have at least a year or two left of a seller's market before we see a natural correction, but honestly, who the heck really knows.

Hey @Robert Scaife. Yes, it is possible that the property you evaluated was overpriced. It is also perfectly possible that it was underpriced, or that your rent estimate was off. In other words, it sounds like you may be using the 2% rule of thumb a little incorrectly (and I used to do the same,) because the 2% rule should never be used to form hard and fast opinions on property performance.

To answer your first question, you don't ever ever want to try to calculate a "good" rent based on a mortgage amount, simply because there is absolutely no connection between the two numbers at all for that purpose. So don't do that. You might personally like to see $1,000 in rent for every $100,000 of mortgage you carry, but that's up to you, there is no connection between the two otherwise - what if one mortgage is at 4%, and another is interest-only at 8%? What if one mortgage is on an 8-unit and the other is on a condo? Way too much disconnect for any reliable or accurate figures.

The 2% rule is not used to determine how well a property is priced, nor is it to be used to determine whether a property's rents are "good" or not. 1.15% is not a strange number at all, properties in my area are lucky to hit 0.6% - all it is, is a super-basic and quick calculation that can help give you an idea of if the property may be able to cashflow or not. That is all, nothing more, and it hardly has any serious value to begin compared to a proper analysis since it is just a rule of thumb.

The 2% rule, at its finest, goes like this - you have three homes in the same city/area.

House A - $100,000 - rents for $2,000/mo. Rent:Price ratio% is 2%.

House B - $280,000 - rents for $3,000/mo. Rent:Price ratio% is 1.07%.

House C - $190,000 - rents for $1,500/mo. Rent:Price ratio% is 0.78%.

House A, according to the 2% rule of thumb, has the greatest chance of cashflowing compared to the others. It doesn't mean it's a good property, it doesn't mean it's priced well, and it doesn't mean the rent is accurate. All it means is that at those pro-forma numbers, that house *seems* to have a higher likelihood of cashflowing than the other houses since the rent numbers are relatively higher than the expense numbers comapred to the other properties, which can be useful for determining what properties are worth your time to put in a full analysis on, or running super-basic numbers in your head while driving around to get a vague idea of a property's potential.

The 2% rule of thumb is often believed to really start losing effectiveness/accuracy after roughly $150,000-$200,000 price points. Bottom line is, it's a very rough 

@Kevin Lefeuvre

In my experience, people who want to live in LA (around and past the 405,) live in LA. People who want to live in Calabasas/AGH/CV, live in Calabasas/AGH/CV.

People who can't afford to live in one of those aforementioned areas, often then settle into the SFV. Thus, the SFV is one of the last to appreciate, and one of the first to experience price drops, simply because of where the SFV falls on people's preference list. 

The reason this trend tends to happen, from what I've seen, is because there is massive industry (jobs) in LA, and in the greater CV area there outstanding schools, safety, weather, and general quality of life.

The SFV, however, has neither incredible industry/jobs nor incredible safety/schools/weather/QoL. By all means, it's not a bad area to live, and I'm not bashing on the beloved SFV, there are really awesome parts of SFV that are great - it's just a compromise of an area. Same as Oxnard, Fillmore, Simi Valley (and to a greater extreme, Fresno, Bakersfield, etc.) and other outlying areas that often tend to fall lower on people's preference lists. It doesn't mean they're not fine areas to live in, it just means that migration forces tend to see these areas appreciate slower or later than other nearby areas that experience greater demand from homebuyers. Demand and supply are always the great equalizers.

@Matt R and some other guys made some great points to consider too.

@Ellis San Jose is the real deal, he runs at least one of the For Investors By Investors groups out in my Los Angeles/Ventura County area, if my memory serves.

@Jamie Garcia I have an institutional HML here in SoCal I can refer you to if you need. They have some pretty neat products, some are even in the 7% range.