Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 16%
$32.50 /mo
$390 billed annualy
MONTHLY
$39 /mo
billed monthly
7 day free trial. Cancel anytime
×
Try Pro Features for Free
Start your 7 day free trial. Pick markets, find deals, analyze and manage properties.
All Forum Categories
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

All Forum Posts by: Mike Day

Mike Day has started 19 posts and replied 91 times.

Post: Renting by room: Tenant has turned sour

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40

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

Post: 1 rental under my belt. Now, what's next?

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40

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.

Post: Rec for a good whole life agent?

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40

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?

Post: Connecting with an Indianapolis Mentor

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40

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.

Post: Small investor wanting to scale- NEED ADVICE

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40

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.

Post: LA Property with lots of Equity

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40
Quote from @Anna Brown:

Hi all, I have not occupied the home since 2017. The property has been listed on my taxes using a Schedule E for the last two years. After speaking with some people, I do qualify for a 1031 and am being guided to buy 2 properties in the High Desert (Victorville) because it will have the highest ROI. Maybe he's telling me this because he can only sell in CA, but is this the best move?

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.

Post: LA Property with lots of Equity

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40
Quote from @Dan H.:
Quote from @Mike Day:
Quote from @Dan H.:
Quote from @Mike Day:

@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%+.


 I do not know how to say this clearer: maintenance/cap ex should not be based on a percentage of rent. I showed examples of why this is bad even if many rental calculators have it as a percentage.

The issue is a 3/2, 1000' unit that rents for $4k in San diego has very similar maintenance/cap ex as 3/2, 1000' in Peoria that may not rent for $1k. On this property in my market, I would have ~$450 allocated for maintenance/cap ex (varies depending on landscape, hardscape, flooring, fencing, HVAC vs furnace, roof type, and many other items). This is not a guess. I used to maintain a spreadsheet that calculated this based on lifetime and cost for each of my units. As my unit counts increased, I stopped the exercise but I know maintenance/cap ex is costly.. Here is an example that is more expensive in my market (so this one does not transfer well). A 40 gal water heater changed by licensed plumber in my market costs $1600. Unlike most parts, our water heater is more expensive because it is a different part than would be required in Midwest. $1600 / 12 years / 12 months is $11.11/month. A duplex has 2 kitchen (refrigerator, range, etc), water heaters, HVAC or furnace, 2x the bathrooms, etc. so a duplex has maintenance/cap ex much higher than a SFH. mintnnr/cap ex just on replacement is $22/month for a duplex. In reality there is likely to be a need to light the pilot a few times over 12 years. Occasionally an igniter goes, the TPR fails, the drain valve goes, or the thermal coupler. I had $18/month maintenance/cap ex for a water heater ($36 for 2 water heaters of a duplex).

Note using a percentage of rent would have the maintenance on a $1600 SFH the same as a duplex where each unit rents for $800 even though SFH has one kitchen, water heater, HVAC, etc but the duplex has 2 of each of those items.  

Mike thinks 15% of rent would cover vacancy, maintenance/cap ex, misc (missed payments, asset protection (actually I am not surehebelieves in asset protection), utilities from property failure such as slab leak).  So Mike has $120/month allocated.  At 45%, the allocation would be $360/month (which I think is too low).  Peoria Illinois vacancy rate is over 10% (10.4%) so $83 in this case. Mike would $37 for maintenance/cap ex etc.  I would have $277 which is not enough in small unit count.   So you would have an allocation in excess of 45% for this particular property (but maintenance/cap ex should not be based on a percentage of rent).

I am unsure how Mike has derived his maintenance/cap ex estimate, but I am curious.  I know I have derived mine with a process that can be described and justified.

Peoria vacancy 10.4%:
   https://www.rate.com/research/peoria-il#:~:text=Among%20Peor... recognize my underwriting many would consider conservative. I have yet to encounter an investor who has put forth the effort to determine a maintenance/cap ex that I have that thought my numbers are extremely conservative.  In addition, I desire my underwriting to be a little on the conservative side and suggest this for all investors.   It should take rare events such as Great Recession or Covid to under perform an underwriting.  

Good luck

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%.

> 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. 

It is important to understand how the 25% is used.  f/f provides 25% of rent to go to income and typically loans at 30% which equates to 7.5% on the loan.  So from the lenders perspective, they are covered if expenses are less than 92.5% but this includes more than vacancy, maintenance/cap ex.  It has to include all expenses.  

So the 25% does not mean what you seem to be implying and it certainly is not meant as an estimate of vacancy and maintenance/cap ex. 

>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.

in the one statement you indicate my number (which really was 45%, but I am assuming a typo) is wrong and my model is wrong.  Then you admit to not knowing the number and needing to “dig down to get the appropriate number”.    You certainly do not justify any number here but your comment below does provide some explanation.  

> 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.  

Active participation will reduce the costs.  Depending on the level of participation, the costs can be reduced significantly.  I can believe with an active role you may be able to get maintenance/cap ex to 25% (but not including vacancy where the rental vacancy is above 10% - no way maintenance/cap ex is $120/unit)  at that rent meaning $200/unit per month for maintenance/cap ex.  depends on how active you are but remember you likely strive to make more than the trades (even though plumbers are expensive, my time is worth much more).  When you do trade work, you are in effect earning trade wages.

 My numbers were explicitly for the condition of the OP.  OP is OOS investor.   They would be very challenged to have active role in maintenance/cap ex even if they had the desire. 

For the case of the typical OOS RE investor who would be hiring out work to contractors or using their PM’s maintenance staff for all repairs, I hold my estimate costs and process that derived it is fairly accurate and easier to justify then pulling numbers out of the air. 

I understand some duplexes are attached and share roofs, yards, etc   Note some are detached.  I own some of both. The items I listed are typically in each unit regardless of attached or detached units   

By the way I am way more active with my RE than I desire.  We have acted as GC for every rehab (dozens) so far (but maybe will not be going forward).  My numbers were not based on me doing the work even though I often do.  The numbers were a case like the OP as an OOS purchase.  

It does appear you have pondered some of my statements which I am glad.  I believe we can all be successful and that there is a lot of opportunity for those who educate, properly access risk/return, and take appropriate actions.  I will add work moderately hard at least when starting.  

Continued best wishes.  

 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.

Post: LA Property with lots of Equity

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40
Quote from @Dan H.:
Quote from @Mike Day:

@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%+.


 I do not know how to say this clearer: maintenance/cap ex should not be based on a percentage of rent. I showed examples of why this is bad even if many rental calculators have it as a percentage.

The issue is a 3/2, 1000' unit that rents for $4k in San diego has very similar maintenance/cap ex as 3/2, 1000' in Peoria that may not rent for $1k. On this property in my market, I would have ~$450 allocated for maintenance/cap ex (varies depending on landscape, hardscape, flooring, fencing, HVAC vs furnace, roof type, and many other items). This is not a guess. I used to maintain a spreadsheet that calculated this based on lifetime and cost for each of my units. As my unit counts increased, I stopped the exercise but I know maintenance/cap ex is costly.. Here is an example that is more expensive in my market (so this one does not transfer well). A 40 gal water heater changed by licensed plumber in my market costs $1600. Unlike most parts, our water heater is more expensive because it is a different part than would be required in Midwest. $1600 / 12 years / 12 months is $11.11/month. A duplex has 2 kitchen (refrigerator, range, etc), water heaters, HVAC or furnace, 2x the bathrooms, etc. so a duplex has maintenance/cap ex much higher than a SFH. mintnnr/cap ex just on replacement is $22/month for a duplex. In reality there is likely to be a need to light the pilot a few times over 12 years. Occasionally an igniter goes, the TPR fails, the drain valve goes, or the thermal coupler. I had $18/month maintenance/cap ex for a water heater ($36 for 2 water heaters of a duplex).

Note using a percentage of rent would have the maintenance on a $1600 SFH the same as a duplex where each unit rents for $800 even though SFH has one kitchen, water heater, HVAC, etc but the duplex has 2 of each of those items.  

Mike thinks 15% of rent would cover vacancy, maintenance/cap ex, misc (missed payments, asset protection (actually I am not surehebelieves in asset protection), utilities from property failure such as slab leak).  So Mike has $120/month allocated.  At 45%, the allocation would be $360/month (which I think is too low).  Peoria Illinois vacancy rate is over 10% (10.4%) so $83 in this case. Mike would $37 for maintenance/cap ex etc.  I would have $277 which is not enough in small unit count.   So you would have an allocation in excess of 45% for this particular property (but maintenance/cap ex should not be based on a percentage of rent).

I am unsure how Mike has derived his maintenance/cap ex estimate, but I am curious.  I know I have derived mine with a process that can be described and justified.

Peoria vacancy 10.4%:
   https://www.rate.com/research/peoria-il#:~:text=Among%20Peoria%20residents%2C%20there%20is%20a%20homeowner%20vacancy,of%2010.4%25%20from%20a%20total%20of%2053%2C325%20units.

I recognize my underwriting many would consider conservative. I have yet to encounter an investor who has put forth the effort to determine a maintenance/cap ex that I have that thought my numbers are extremely conservative.  In addition, I desire my underwriting to be a little on the conservative side and suggest this for all investors.   It should take rare events such as Great Recession or Covid to under perform an underwriting.  

Good luck

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%.

Post: LA Property with lots of Equity

Mike DayPosted
  • Investor
  • Indianapolis, IN
  • Posts 94
  • Votes 40

@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%+.