All Forum Posts by: Albert Hasson

Mike, IMHO there is no difference between the "forced savings" you mention and cash flow especially if you intend to buy another property with your "forced savings"
Again, the point of my post is that I don't think the 50% rule applies in all situations and applying it strictly can lead to missing out on outstanding opportunities.
I agree the 50%rule likely applies to older, less expensive, lower rent properties. When the rent on a 50 year old house is 600/mo then yes I bet your expenses other that P and I are 50%.
But let's look at a couple different scenarios. What if you bought a new build for 150k that would rent for$1500/mo. I would argue all day long that the 50% rule doesn't apply because you can expect very, very minimal repair expenses for years and years. It's silly to budget money every month for a roof replacement 30 years down the road. Chances are you will have sold the house or died long before the roof needs replaced.
Another scenario. You buy a luxury home for 500k and rent it for 4k/mo. You will have a tough time convincing me that repairs will be 2k every month.
I think the 50% rule is useful but should be taken with a grain of salt in many situations.
It is probably useful for novice investors but if a large expense like a roof replacement is going to jeapordize ones financial situation then real estate investing might not be the best business to be in. BTW, I do this as a hobby.

Steve and J Scott,
First, I have used my home warranties many, many times. A few examples, new water heater, $600 gift card to Sears to buy new dishwasher, countless visits by plumbers to unclog drains, new springs on garage doors, multiple visits by HVAC companies to fix broken AC's in the middle of summer (when it's like 110 degrees), etc. Best part is lease states the tenant pays $55 service fee. You are correct in that everything is not covered, I just had tenant call about sprinkler system not working, i had to spend $30 for a new valve.
I definitely hedge my repair expenses by having home warranties.
J Scott, I don't purposefully ignore repair expenses so don't be too disturbed. I have invested here in Phoenix for the past 8 years and accumulated 18 SFH's. I buy newer homes, built 2000 or newer, and screen my tenants well. My experience is that with a home warranty, quality tenants and newer homes my expenses are negligible. I doubt I spend even 2k a year on repairs for all my houses combined.
Of course, when a tenant moves out there are possible carpet and painting expenses which I don't consider repair expenses rather a routine maintenance expense. Even these are minimal. I put in new carpet and paint when I purchase a home. With quality tenants, all that is normally needed is carpet cleaning and paint touch up. BTW, I charge a $300 non-refundable cleaning fee for all tenants that usually covers these items.
The point of my post was that budgeting 50% of rent for repairs, maintenance, taxes and insurance does not apply in all situations.

Good luck with that. It will have to go back to the bank for approval which could take weeks or months. You probably signed something when you made the offer acknowledging that the house came in "as is" condition. If they do another BPO you could even lose he deal.

I never really agreed with the 50% rule in my local (Phoenix) market. Yesterday I closed on a 160k SFR built in 2005 that will rent for $1350 which is about .8% of sales price. I put 25% down leaving a 120k mortgage at 4% 30 yr fixed which is $572/mo, add taxes and insurance and my monthly payment will be around 700/mo. I buy a home warranty for $335/yr and self manage. Take off $30/mo for the HOA and I am left with cash flow of 620/mo or $7800/yr.
7800/40000 (down payment) = 19.5% return.
Yes, I understand about replacing roofs, AC's, water heaters, etc. However, the home warranty covers AC, plumbing, electrical, etc and the roof life is probably 25-30 years, nothing to worry about in a house built in 2005.
I am happy with these returns.
You might be able to find a house for 30k that rents for 600/mo but that's nothing I am interested in.
I own many rentals, none have ever had expenses excluding P and I that have remotely come close to 50%

Lisa, bottom line is you are buying a 3/2 1400 sq ft home in a good area for 100k. Yes, you could find better returns elsewhere in metro Phoenix (ghetto, slums, hood, etc) but not in Surprise. I say go for it, you will be happy with your investment 10 years from now. Word of advice, use an agent to find a quality tenant. Get credit report, bank statements, work history, etc. and wait for someone good. The rental market is very strong here now and you shouldn't have to settle for a marginal tenant.

It's the same here in AZ. I looked at a short sale yesterday listed for 85k, on the market two days with multiple cash offers "north of 100k" per the agent. It's discouraging but I feel like people may be paying too much now so I am happy to make offers that make sense to me and bide my time.

Lisa, congratulations on your first accepted offer. I am closing on a short sale in Surprise this week. It is 2200 sq ft built around 2004 in Royal Ranch. I expect to get 1300-1400/mo. I am paying 160k.
If you could share more details r.e. size and age of home, amenities, etc I could give you an idea of rents in the area.
I can also get you in contact with an excellent handy man that does paint, flooring, repairs, etc.

Can't speak for other markets but I think they are very late to the party, won't find many decent homes here in the Phoenix area.

Definitely both. If I had invested equal amounts in real estate and stocks here in Phoenix (probably anywhere) 5 years ago I would be much happier with my stock investments right now. Quality blue chip stocks are yielding north of 4% and stocks are extremely liquid.
Like any investment opportunity, it pays to bet against the herd. There were serious posts here on BP 4 years ago when the Dow was flirting with 6k that predicted the stock market would go to zero! For those of us who continued to invest and dollar cost average we were rewarded handsomely.
Likewise, anyone who invested in a foreclosure in the past two years has been or will be very happy with their investment 5-10 years from now.
Just my two cents.

I use north valley mechanical, ask for kirk