All Forum Posts by: Mike Day

Considering paying him to leave ("cash for keys").

With a conventional loan you can only cash out for 80% of the value, so that's $168k, if it does appraise at $210, meaning there's very little equity to take out. You can buy a residence for only 3% down. If I were you I might do that. Find one where the condition is good enough to get a conventional loan (it can have cosmetic issues but must have everything essential such as furnace, etc.), but still rough enough that you can use your skills to improve it while living in it. When you are finished, turn it into a rental, or house hack. You will definitely have to buy right to cashflow though. Cashflow is typically very tight with interest rates where they're at.

What I'm curious about is what their more passive and predictable strategy is. An STR is at least a reliable way to cashflow in current tough conditions. They don't seem to cashflow a lot better than LTRs though--it's a thin enough margin that I've wondered if the real nature of the business is selling the depreciation on your furnishings.

I've run the numbers and am convinced infinite banking/investing in real estate with a whole life policy is a good strategy. There are so many different whole life policies with so many different features that it seems like an agent's guidance is needed. So, anybody know a good agent who has access to multiple policies, is familiar with using them to invest in real estate and can give good advice?

It's very hard to find good value add opportunities in Indianapolis at this point. There were plenty before the pandemic, but there is no upside in anything I see on the market now, not even from wholesalers. It's most likely you haven't correctly estimated the repair costs, and trying to run a project like this from out of the country is gonna be a nightmare. If you get a good contractor, which is hard, you will at the very least need to make multiple trips to manage the project. All the traveling will not only be stressful but will add to the expense of the project. It's tough enough to establish relationships with a good management company and contractor when you don't live there. I would start with a vanilla turnkey rental.

It's going to be very difficult to cashflow right now on a DSCR loan with less than 20% down. If I were trying to scale under these conditions I'd probably save up enough of a down payment that the cashflow would hit $0 and then let it sit there for a few years until it becomes profitable. About all you can do with interest rates where they're at.

Are we talking properties that cost roughly $400k that would rent out for about $2300?
Assuming you're talking about selling the Compton house and putting that equity into the two places in Victorville, I think you're looking at $0 cash flow, best case scenario, and will probably be in the negative. You'd be better off not touching anything and staying with what you've got, unless you want to manage these places as short term rentals or invest out of state.

 Sure, well, we're at where we're at. I'm glad that we were able to dig into the details of these numbers some more and I could some perspectives based on my experience with this type of rental.

Looks like @Travis Biziorekbowed out. I would have been interested in hearing his viewpoint on these numbers since he seemed to have some pretty strong opinions and was laughing himself silly because my numbers were so ridiculous. But not a peep today. Oh well.

Well, hope everybody makes the best decisions based on the best info they've got.

Hey Dan I want to clarify that I don't absolutely 100% disagree with the general *concept* of what you're doing here, although the end result is too conservative and will prevent you from making profitable investments, at least if it's the kind of stuff I invest in.

To be really honest, I didn't know this discussion was going to get so involved and I was not thinking deeply about my initial 15% figure. I was discussing this with Travis and he used it for his own rentals so I just did the same and spat out an example. In retrospect, it's low. I don't have my actual maintenance and vacancy numbers in front of me right now. I have been running probably 90-95% occupancy for the past couple years on my rentals in the Midwest, off the top of my head. Maintenance is NOT 35% no matter what your model may say. I'd need to really dig down to get you the appropriate number for my own rentals, but I can tell you right now that 25% for maintenance and vacancy combined is not too far off. Fannie Mae uses it and I've always found it appropriate for back of the envelope stuff. I have not taken this to the granular level that you are doing here. I understand your attempt to predict costs more accurately, but in the end, there may be a reason Fannie Mae does it the way they do it. You are overestimating these numbers.

Speculations as to why: tenants in these particular rentals may be tolerating a lower standard of maintenance than you think and thus everything wears longer than you think it will, I may have a different relationship with my maintenance people than you do (actually I don't let my management company do anything and I'm very involved in maintenance, I know how to do practically every necessary task, I manage people directly and sometimes I'll do a few things), there may be an error in your calculations such as you're assuming two units in a duplex don't share as much as they really do (they still share roofs, yards, and many other things), or something else entirely.

Either way, your numbers are way too high and I will not be able to answer why in more detail or provide you with my exact numbers without spending a significant amount of time on this. 25% ain't too far off. No way do rentals such as these have close to 45% vacancy and maintenance unless very badly managed.

Now, I'd love to hear how @Travis Biziorek got his 15%.

@Dan H. @Travis Biziorek

Dan and Travis, I'd love to hear you guys hash out appropriate vacancy and maintenance numbers on low-cost rentals in the Midwest.

Travis owns rentals in the Midwest and uses 15%, Dan thinks it should be 45%+.