All Forum Posts by: Paul Novak

Because I run my business myself my expenses are little to nothing above and beyond my mortgage and escrow payments.  We do the book keeping and self manage our properties.  The only monthly expense my business takes to run is my monthly cell phone bill for $27 per month.  With only having 5 properties and them all being long term buy and hold we have found this to be very manageable.  It might take 1-2 hours a month to manage the business.  Obviously when things break and we need to manage contractors or go over personally to do repairs that time goes up significantly.  That happens in spirts and to be honest it doesn't happen very often.

As for my loan they have been 30 year conventional financing, not DSCR loans.

I have been working with many people who are just trying to get started with real estate investing. I won’t pretend to be an expert by any means as I have only been at this for 4 years and have 5 properties, but I thought it could be helpful to share actual numbers and different ways to look at them. I find I learn best when I can see real examples vs. hypotheticals. The data below is from an actual rental I purchased March 2024 in Sheboygan, WI. At that point in time the market was still hot for properties at my price point in my buy box. This property was also an on-market deal.

The property was a 4 bed/1 bath single family house. When we purchased it, it was fully renovated and set up as a 5 bed/1 bath Airbnb. We decided to market it as a 4 bed/1 bath with an office.

Listing Price - $199,900

Property Taxes - $2,230.13

Assumptions

• Purchase Price $230,000
  • In this case I had seen similar properties selling for $225K - $250K so I felt the property was listed low to drive up interest. Also, at this time I had seen properties selling for 10 – 20% over ask regularly.
• Interest Rate 30 year conventional 7%
• Homeowners Insurance = $1,000 annually
• Rents = $1,800 per month

When I looked at those assumptions, I would need to put down $80,000 on this house to get it to hit my cashflow goal of $500 minimum per month which equates to 35% down.

• Total mortgage + escrow = $1,267.13 per month with rents at $1,800 my monthly cashflow is $532.87.
  • From my experience, after taking out vacancy and maintenance costs you are left with around 73% of that total cashflow number once the rental is established.

People have asked why a $500 per month cashflow goal. The answer is its personal preference. I want enough money coming in so the business can sustain itself when issues occur with maintenance or vacancy.

If you wanted to do this with only 20% down ($46,000), which is all you need for a conventional loan, here is how the calculations change.

• Total mortgage + escrow $1,493.33 per month with cashflow reduced to $306.67 per month.

I prefer to overestimate purchase price, interest rates, and homeowners’ insurance to be conservative. In the same token I go on the low end for rents to stay conservative. If the numbers work when I run them, I know reality should only be better.

Actuals

• Purchase Price $227,500
• Interest Rate 30 year conventional 6.375%
• Homeowners Insurance = $920.21
• Rents = $1,900 per month

Total mortgage + escrow = $1,182.58 per month with rents at $1,900 my actual cashflow is $717.42.

Additional numbers behind the deal

• Total cash to close = $87,475.55
• Down payment = $80,000
• Homeowners Insurance - $918.36
• Rate Buy Down 1.283% - $1,892.43
  • We paid to lower the interest rate by 1.283% over the course of the 30-year loan. This wasn’t a required expense.
• Property Taxes - $926.88
  • We put in the offer to pay the full years property taxes vs. split them at the time of the sale. Normally you are responsible for the portion of the year you own the house, and the previous owner is responsible for the time they owned it. We put this in our offers to differentiate ourselves from other offers and we can write off this expense as a tax deduction. This increased this cost at closing.
• Additional closing costs fees - $3,737.88

I share this to let beginners know that you need more than the down payment to close. Some of my costs above are optional but not all. I normally estimate an additional $5,000 to close.

Hopefully this information helps those who are wondering about costs and deal analysis just trying to get started. If you are looking for more details or need help getting started don’t hesitate to reach out. I have built calculators to tackle more of the heavy lifting for me at this point.

 Marcus, thanks for reaching out and providing your perspective.  For my wife and I who have involved full-time careers with a 8 and 12 year hold at home time is something that is more valuable to me then money right now.  That is why flipping, short term rentals, and other strategies aren't as appealing in the short term.  That may change with time but short term we are focused on buying quality properties and renting long term.

3 properties ago I purchased a really solid property but it was dated.  It had new water proofing done in the basement, a new roof, new windows, etc....  Solid bones to the property.  We redid the flooring in the entire house, paint, new light fixtures along with completing a full bathroom and kitchen gut.  We moved plumbing, adding electrical, and added new appliances in the kitchen.  I like to be busy and feel I am pretty handy so my wife and I did all the work ourselves for the exception of hiring out carpet install and dry wall for the bathroom.  I ended up working at the rental like 6 hours a day after work and 12 hour plus days on the weekends June through August of 2023.  My wife was very clear with me that we aren't going to give up our limited summers with our children to work on the rentals.  It was at that point that we decided to pay a bit more and put more money into our deals for properties that only needed cosmetic upgrades or maybe a few weekends of work vs. rehab projects.

Again everyone's situation is different and for those who have more time then money this strategy might not be best.  Lord knows our strategy has evolved overtime but this is where we are at today.

 Hey Matt, I actually don't invest in Milwaukee but it's the closest big market to my location.  I invest in Sheboygan County.  We have 3 properties in Sheboygan Falls and 2 properties in Sheboygan.  It's about an hour north of Milwaukee.

 Bryan, thanks for sharing.  I will have to check out that!

I wanted to share my strategy because it's working for us and it's not one that I hear talked about much.  It's boring and takes more capital so it's not as exciting but it has been effective and I feel its something everyone can do.  With this strategy we are getting traditional financing and buying on market deals.  I subscribe to the "Small and Mighty Investor Strategy" of Coach Carson.  I personally am not trying to build a portfolio of 100 doors, I am trying to build a portfolio big enough to support our ideal lifestyle.

 - We start with the property vs. the numbers.  The property needs to be one we are proud to own and preferably would be willing to rent out ourselves.  We have found that slightly higher end properties and ones that align with our likes attract tenants that we can relate to.

 - Once we like the property we run the numbers on rents.  We use rentometer.com and knowledge of the market to establish what we feel we could get for rents.

 - Next we run the numbers on cost.  We put together a purchase price, interest rate, insurance cost, and property taxes.  When I run my numbers I round my interest rate and insurance costs up to build in a small safety net.

 - Next I use a calculator to determine how much money to put down.  My goal per property is to generate a minimum of $500 cashflow per month.  This means I may put down 20%, 25%, 35% to hit my goal.  Yes this leaves more money in the deal but it reduces my risk and ensures I can remain profitable in a down market.  I have learned that any property can cashflow but not when you are looking to put the least amount of money in the deal.  Again not for everyone but works for us.

 - Last as long as I have the cash to hit my goal and I am comfortable with how much money we would need to stick into the deal we purchase it.  If not we wait till the next deal.

We have used this strategy to purchase 5 properties, 7 doors, since 2021 so I understand we are still new.  My ultimate goal is to generate $11K per month cashflow which I will be able to do with 7 properties provided they are all paid off.  Once we acquire the last 2 properties we will shift from acquisition to debt paydown.

Dan first off congratulations for taking the plunge and getting started.  To each their own but personally I recommend that you manage your own property.  With only having one property it shouldn't be too much work.  Yes you will save some money by self managing but more important you will learn what it takes to manage a property.  Not to say you can't get a property manager in the future but I think it's best to learn the ropes first.  While we aren't that big, I only have 5 properties, 7 doors, my wife and I have created SOP's for all of the steps in our process.  I would be happy to share if you think it would help once you get to the step of marketing for your first tenant.  We invest in Sheboygan, about a hour north of you.  Welcome to BP, you will find a ton of great resources to your questions on here.

A traditional bank will normally not fund a flip.  Some hard money lenders will fund the project but I agree with Nicholas L's response that it's harder when you are a first time investor without a track record.  Because there is more risk that generally comes with higher interest rates.  My cousin works for a hard money lender in Milwaukee and they fund projects like this.  You could reach out and see what they require to get a baseline for requirements.  This is their website https://thehardmoneyco.com/.

If you have an Aldi near you it was a game changer for us.  The food is great and it significantly lowered our food costs.  Early on into budgeting many years ago I tracked all of my spending for a month.  My wife and I don't go out to each much and we live relatively modestly.  We found that over 60% of our discretionary spending went to food costs.  So we decided to check out Aldi.  Because we live in Wisconsin where winter sucks and there isn't a ton to do we decided to take our receipts from Aldi into our local grocery store and compare costs.  We were shocked that Aldi was almost 50% cheaper.  From that point we haven't looked back.  Now each week we go to both stores because there are some things we just can't get at Aldi but this has lowered our food costs significantly.  If you have one by your location check them out.

Personally I like the personal finance aspect of investing and I feel more in tune with my business doing the books myself.  This is also easy to say when I only have 5 properties / 7 doors.  This also saves me money as my business is relatively small I use a property management software to help with bookkeeping called Stessa which is free to use.  Having said that I do use a CPA to help make sure I am doing everything correct and they prepare my taxes.  Not saying this the right approach for everyone but this is what has worked for me.