All Forum Posts by: O'brian R.

Sorry to hear about your experience. I had one of my loans handled by Cenlar for just under a year before it got transferred. Luckily I didn't have any real issues with Cenlar. Though I do remember their online portal and general UI being very outdated and clunky. I'm glad my loan is now getting serviced by a different company.

For financed deals, I think between 30 and 45 days is to be expected. If you're talking financed deals with more red tape (e.g. HomeStyle loan) then it's a more like 45 to 60 days. This has been my experience with single family at least.

I believe you're referring to the popular BRRRR strategy that Brandon has talked a lot about. Basically it involves the following steps.

B = Buy a property all cash
R = Rehab it with some more cash.
R = Rent it out to a tenant
R = Refinance (generally after 6 months) so that you get all your cash back out
R = Repeat the process

When it comes to the 3rd R, the Refinance stage, ideally you want to get 100% of your invested cash back out (cash purchase + rehab cost). With Fannie Mae, you can do a cash-out refinance up to 75% of the ARV on a single family home for loans 1-4. Delayed financing is when you refinance before 6 months and I believe you can only cashout 75% of the purchase. Maybe someone can check this.

The goal here is that you have to pick up a property at a discount so that the total cash (purchase + rehab) that you put into the deal is 75% or less than the ARV. That way, you can pull all of your invested cash back out and repeat the process.

@Lionel Daniels Are you planning to buy all cash? 

$1100 rent with 50% expenses, leaves $550 NOI. This is your cash flow if you buy that property all cash. So it looks possible in terms of cash flow, but your're looking at a 4% cash-on-cash return with those numbers.

On the other hand, if you get a mortgage though, say putting 20% down at 5% interest over 30 years on a 150k property, then you've got an additional $644 debt payment. This leaves you with negative cash flow (-$94) each month. 

You may want to search for properties that rent for higher and/or can acquire at a lower cost to hit your cash flow goal if you plan on financing. 

For interest sake, I ran a cash flow analysis on a range of property prices and Rent-to-Price ratios. I wanted to see why some investors indiscriminately shoot for 2% or 1% and how that translates to cash flow for a given property price. I thought I'd share these results with the BP community and hopefully shed some light as to when 1% or 2% Rules make sense. 

I made the following assumptions: 

1) Properties purchased with a 30 year loan, 5% fixed annual interest, and 20% down payment.
2) Expenses estimated using the 50% Rule.

Sorry if it's hard to read, but it gets larger if you open the image in a new tab. 

I color coded the Cash Flow based on the following criteria. 

Red: Cash Flow < 0. Yellow: 0 < Cash Flow < $100. Light Green: $100 < Cash Flow < $200. Dark Green: Cash Flow > $200

Each cell shows the calculated monthly Cash Flow for a given purchase price and Rent-to-Price ratio. For example, at 1% Rent-to-Price, the Cash Flow for a home purchased for $100,000 comes out to $71 per month. Here's the quick math: $100,000 x 1% x 50% - $429 monthly debt payment equals $71 of Cash Flow.

Major Takeaways from this table:

1) There's a minimum Rent-to-Price ratio that must be achieved in order to cash flow positive. That Rent-to-Price ratio is between 0.85% and 0.90%. The exact percent will vary on the loan assumptions, but for this case (30 year loan, 5% interest, 80% LTV) we begin to cash flow positive at a 0.86% Rent-to-Price ratio.

2) If you're goal is $100 Cash Flow per month, the 1% Rule will only work if you are buying homes that cost about $150,000 or more. So if your price point is below $150,000, then your target Rent-to-Price ratio needs to increase in order to achieve that $100 Cash Flow goal.

3) If you're goal is $200 Cash Flow per month, then the 1% Rule will only get you there at price points that are much higher. It's actually off the chart, but at around $280,000 the 1% Rule will generate about $200 in Cash Flow per month.

Here's what it takes to hit $200 Cash Flow for varying purchase prices. 

• $100,000 home will need to rent for more than $1250 (1.25% Rent-to-Price) a month.
• $60,000 home will need to rent for about $900 (1.5% Rent-to-Price) a month.
• $30,000 home will need to rent for about $645 (2.15% Rent-to-Price) a month.

From looking at the table, obviously a 2% property is generating > $200 cash flow nearly across the board. On paper, these numbers look great. Though in reality, these properties generally tend to be high risk investments. They are often located in higher crime areas and marketed to a less qualified tenants. 

Ultimately, I think it's more important to focus on hitting your Cash Flow and cash-on-cash returns criteria rather than fixate on hitting the 2% or 1% Rule. Whatever % you end up getting is more of a byproduct of your investment. It shouldn't define it and it definitely shouldn't be the basis for your purchase. 

Prioritize that cash flow and your returns because isn't that what it all comes down to anyways? 

I wouldn't fixate on the 2% Rule, 1% Rule or any rule for that matter. 

From a numbers perspective, focus instead on the Cash Flow and Cash-on-Cash Return. Stick to these metrics and prioritize them over general rules. Use the Rent-to-Price ratio only as a guideline. I certainly wouldn't base a decision to buy a property on the fact that it meets the 2% Rule.

@Patrick Liska is right. Your property is taxed by a few jurisdictions (generally the county, city/town, school districts, and utility districts) where your property is located. It doesn't matter whether the owner lives in that house or is an absentee owner living in another state. The paid taxes will go to benefit the county, city, schools, etc of that property. 

Welcome @Jeremy Hicks. You're doing the right thing by dedicating much of this year to your real estate education before you leap into anything. The bay area has quite a few RE groups that you should look into. I believe @J. Martin runs a popular BP group up there that you should try to get connected with. A lot of smart folks to learn from there as well as here on BP. 

Good luck!

Good call @Rob Brown Those numbers don't work and it didn't seem like the seller was interested in entertaining your reasons for a lower price point. If you're set on finding a 2, 3, or 4-unit, try to find one where the utilities are separate. The long term cost of owning a rental without separate meters will cost you thousands and it's not worth the up-front cost to separate the meters yourself IMO.

Check out National Real Estate Insurance Group. They're administered under Affinity and are licensed in all 50 states. They specialize in insurance for real estate investors and don't have a problem with whatever stage your rental is in (rehab, vacant, occupied). I've had my rentals with them for 2 years. While I haven't had any major issue to attest to how making a claim goes, so far I've been pleased with their pricing.