All Forum Posts by: Rafael Ro

Quote from @Ken M.:

Quote from @Rafael Ro:

Quote from @Ken M.:

Quote from @Rafael Ro:

Quote from @Ken M.:

Quote from @Rafael Ro:

Hello all,

I'm about to purchase a condo at 240k, with 20% down, and $400 HOA.

This will rent at $1800, and my mortgage, insurance, property tax and HOA will be about $2000.

If I can own this property and lose roughly $300 per month for the first couple of years then I'll be happy (because I'll save some taxes, rents should keep going up, and I'm aiming for some appreciation too). 

This is a condo - the setup is like a 4plex, where they all share a laundry room and each 2 units share a 2 car garage - I'd only own the 1 unit.

Now - **** can happen anytime and with anything - but realistically, what would you say is the expected performance? I've never been a landlord but I used to be a tenant and I barely had any repairs needed... I took care of the occasional small things. But what should I expect as a landlord? 

Is it realistic to estimate maybe 2k in repairs on average per year? I'd also estimate 4-6 weeks turnover, every 2-3 years... but the rent I'm sharing is slightly under market so I should be able to rent quick and choose good tenants. 

Anything else I should consider? 

I take it you haven't read about what has happened with Condos in Florida? Why do you think California is immune? Maybe profit and expense mean nothing to you?

I did not - what are you referring to?

Nothing to worry about. If you are not involved in Condos

https://www.youtube com/watch?v=r2lb8Bc4rxw

Insert a . so it's .com 

That's fair. I can totally see that happening in CA too. It has definitely started. But the way I look at it (and please tell me if you disagree) is that I should be able to get this type of condo at a small discount - possibly at $220k or so - because it's been sitting for a while. 

Can the market go lower? Sure. But how much lower? If it drops to $200k or $190k then it wouldn't be a game changer.

Obviously I would love the savings, but the monthly would be similar, and I believe in the area so I would expect that it will eventually go back up and then some, as long as I'm able to hold long term (which is my plan).

And of course there is a chance that it won't dip further and it will bounce up - there really is so much happening in this area, they're zoned for the best elementary in the area, and would make one of the cheapest 2bd condos too. Those units were selling for $250-275k within the last 6-12 months), and now you can see a few for $240k. 

What do you think? 

I would spend some time on Redfin.com looking at DOM (Days on Market) and reduced "asking to closing prices" to get an idea of what is going on in the area. If you are using a real estate agent, they can get that information for you. But, if prices are actually going up on closing amounts, you have to look at that too. These things can be market specific, and change quickly.

They're dropping. And they're sitting on the market for a while too, most for 50+ days (these used to sell at 250k within a weekend 2 years ago). 

But how bad could it get? If I could lock one in at 225k or so, then would a further drop really make a big difference in my situation (a long term hold)?

I've been holding back for a couple of years, finding excuses.. and the truth is that my business is not doing as well this year so I would feel the potential loses harder... So I can name a few reasons why I shouldn't pull the trigger... But the reality of it is that I can afford this mortgage (unless if my income changes substantially) and in my local market this seems to be both a more affordable option and also a property where the costs are are close as I could find to the rent (without renovations and such). That's the reason I feel like it's a good opportunity for me. 

"Lower risk" (because I can afford the payment, even though I'm of course hoping/expecting that my tenants will cover 80% of it), best return locally, without risky renovations (it's my first investment property so I would rather avoid doing too much), and finally a start as a landlord... 

Quote from @Ken M.:

Quote from @Rafael Ro:

Quote from @Ken M.:

Quote from @Rafael Ro:

Hello all,

I'm about to purchase a condo at 240k, with 20% down, and $400 HOA.

This will rent at $1800, and my mortgage, insurance, property tax and HOA will be about $2000.

If I can own this property and lose roughly $300 per month for the first couple of years then I'll be happy (because I'll save some taxes, rents should keep going up, and I'm aiming for some appreciation too). 

This is a condo - the setup is like a 4plex, where they all share a laundry room and each 2 units share a 2 car garage - I'd only own the 1 unit.

Now - **** can happen anytime and with anything - but realistically, what would you say is the expected performance? I've never been a landlord but I used to be a tenant and I barely had any repairs needed... I took care of the occasional small things. But what should I expect as a landlord? 

Is it realistic to estimate maybe 2k in repairs on average per year? I'd also estimate 4-6 weeks turnover, every 2-3 years... but the rent I'm sharing is slightly under market so I should be able to rent quick and choose good tenants. 

Anything else I should consider? 

I take it you haven't read about what has happened with Condos in Florida? Why do you think California is immune? Maybe profit and expense mean nothing to you?

I did not - what are you referring to?

Nothing to worry about. If you are not involved in Condos

https://www.youtube com/watch?v=r2lb8Bc4rxw

Insert a . so it's .com 

That's fair. I can totally see that happening in CA too. It has definitely started. But the way I look at it (and please tell me if you disagree) is that I should be able to get this type of condo at a small discount - possibly at $220k or so - because it's been sitting for a while. 

Can the market go lower? Sure. But how much lower? If it drops to $200k or $190k then it wouldn't be a game changer.

Obviously I would love the savings, but the monthly would be similar, and I believe in the area so I would expect that it will eventually go back up and then some, as long as I'm able to hold long term (which is my plan).

And of course there is a chance that it won't dip further and it will bounce up - there really is so much happening in this area, they're zoned for the best elementary in the area, and would make one of the cheapest 2bd condos too. Those units were selling for $250-275k within the last 6-12 months), and now you can see a few for $240k. 

What do you think? 

Quote from @Ken M.:

Quote from @Rafael Ro:

Hello all,

I'm about to purchase a condo at 240k, with 20% down, and $400 HOA.

This will rent at $1800, and my mortgage, insurance, property tax and HOA will be about $2000.

If I can own this property and lose roughly $300 per month for the first couple of years then I'll be happy (because I'll save some taxes, rents should keep going up, and I'm aiming for some appreciation too). 

This is a condo - the setup is like a 4plex, where they all share a laundry room and each 2 units share a 2 car garage - I'd only own the 1 unit.

Now - **** can happen anytime and with anything - but realistically, what would you say is the expected performance? I've never been a landlord but I used to be a tenant and I barely had any repairs needed... I took care of the occasional small things. But what should I expect as a landlord? 

Is it realistic to estimate maybe 2k in repairs on average per year? I'd also estimate 4-6 weeks turnover, every 2-3 years... but the rent I'm sharing is slightly under market so I should be able to rent quick and choose good tenants. 

Anything else I should consider? 

I take it you haven't read about what has happened with Condos in Florida? Why do you think California is immune? Maybe profit and expense mean nothing to you?

I did not - what are you referring to?

Hello all,

I'm about to purchase a condo at 240k, with 20% down, and $400 HOA.

This will rent at $1800, and my mortgage, insurance, property tax and HOA will be about $2000.

If I can own this property and lose roughly $300 per month for the first couple of years then I'll be happy (because I'll save some taxes, rents should keep going up, and I'm aiming for some appreciation too). 

This is a condo - the setup is like a 4plex, where they all share a laundry room and each 2 units share a 2 car garage - I'd only own the 1 unit.

Now - **** can happen anytime and with anything - but realistically, what would you say is the expected performance? I've never been a landlord but I used to be a tenant and I barely had any repairs needed... I took care of the occasional small things. But what should I expect as a landlord? 

Is it realistic to estimate maybe 2k in repairs on average per year? I'd also estimate 4-6 weeks turnover, every 2-3 years... but the rent I'm sharing is slightly under market so I should be able to rent quick and choose good tenants. 

Anything else I should consider? 

Quote from @Arman Ahmed:

@Rafael Ro

Rafael — the condo seems like the most stable play since you’re local, it’s in a good school district, and you’ll likely see appreciation even if cash flow is slightly negative. Big Bear can work but STRs are riskier with seasonality and regulation. The turnkey in Memphis looks good on paper, but from my investing experience in the Midwest, tenant quality and management can make or break you. If you can get in with low reserves and break even, the condo looks like a smart first step.

Thank you! That's how I feel about it too. My only small concern is that I've never done it before and I don't know what to expect. Plus we're in CA which is so very tenant friendly... Any advice?

Quote from @Jules Aton:

1. I'm unclear why you would want a condo that would cost you money and is near your home so I'm guessing no perks of using as a vacation property for yourself? It sounds super cheap for CA and great school districts always grab my attention. Condos can come with negatives including fees, restrictions, supply/demand when you attempt to sell and only 1 bathroom is a negative. 

2. The house might be a good investment but you would need to vet the actual numbers. 

3. I'm generally not a fan of long distance investment rentals although I understand I'm the minority here. That said a class C property anywhere isn't what I would consider investing in but again that is a personal thing. 

1) There are more details here, but the main thing is that these condos are the best cost vs rent I've found in the area, and even if I'm out a couple of hundred per month, I'd still (in theory) have a tenant paying off my property. I'd be able to screen the tenants myself, and keep an eye on the property too. Then I'd save money from taxes and mayyyybe one or both of my kids could go to the school too. 

2) I love the idea of having a vacation home, and I could get a better rate for that too. My concern is that I wouldn't be able to see it, and that I don't fully understand Airbnb... Regulations and such are scary. I don't think the Big Bear house would rent long term easily. Plus there is a ton of competition. In other words I see a lot of uncertainty with that plan, compared to the condo.

3) This one I think pencils out the best, and would let me scale the fastest too... But too many variables. 

I've been trying to make a move for a few years, and I'm finally getting ready to pull the trigger. 

I'm based in CA (Palm Desert area) and I've considered 3 options. 

1) A condo in Palm Desert (10min drive) -- I have my eyes set to a community of 2bd/1bath townhomes, where they sell for about 240k, with about $400 HOA. With 20% down, my monthly costs for the loan, insurance, and tax for the condo would be about $1900.

I would manage a long term tenant. 

These should rent fairly easily for $1800 - they're typically listed for $1800-2000, and they're in a great location, one of the cheapest options around, and zoned for a great school. 

2) A small house in Big Bear (2.5hr drive). This would be at around 350k. With 20% down my monthly costs for loan, tax, insurance would be about $2,250. 

I would use a PM company to do Airbnb. I could be wrong on this one, but I believe this could rent for an average of $2000 per month, after PM commission. 

3) Out of state C Class house (ie. Memphis). This would be through a turnkey company for about 110k, renting at 950/month, so the numbers are so much better, but way less appreciation and potentially bad tenants. 

I'm looking for stability and long term growth. I'm leaning towards buying the condo. 

I would love to hear your thoughts on the above and specifically to share any advice for me in terms of saving as much money upfront (ie. it would be great if I could buy with a smaller downpayment), or also things to consider as a first time landlord. 

If I can buy that condo and come close to breaking even (or have a negative cashflow of 100-200$ per month) then I'll be a very happy man. But is that realistic?

Quote from @Nicholas L.:

@Rafael Ro

if you are getting numbers from a turnkey provider, they are likely going to be best case scenarios.  and to be clear, that doesn't make them "wrong," or provided in bad faith, it just means - best case. like, no dishwashers breaking over and over for no reason (ask me how i know about that.)

 if you look through the forums, you'll see posts from other folks who bought turnkey properties, and then got crushed by a long vacancy period or a rough turnover...

not trying to be discouraging, just realistic.

Thank you Nicholas. I think the issue here is that my post is way too long and people just don't have that type of time to read through it.. I'll have to keep that in mind moving forward when seeking advice. 

Big picture - I'm definitely trying to "simplify" it, and for sure there is more to it. But I'm only doing that in order to get a basis for a comparison. 

In terms of the numbers, if I used the numbers that the (very reputable and established) turnkey company gave me in their analysis then the Turnkey strategy would have looked so much better. Based on their numbers, for the type of property I'm using, they are coming up with positive cashflow of about $300 per month (for the first couple of years) and they are claiming a 3.8yr average tenancy. I adjusted everything they said. More maintenance reverses, higher cut for tenancy, used 2yr average tenancy, and I didn't include their suggested rent increases either. As a result that strategy came out to roughly -$100 per month (for the first couple of years). 

I did the same with the broker. The broker is suggesting that they're sending properties based on the 1% rule -- $140k property would rent for $1400. Instead I used $150k. To make this more accurate I should probably increase the maintenance costs compared to the turnkey company because this would not be completely remodeled. 

The reason I am analyzing with slightly different types of properties for those 2 scenarios is so that my initial investment is similar. 

It's a little different with BRRR because it does require more cash upfront, but then in theory part of it would come back so it balances things out. For BRRR I'm padding also -- in my analysis I'm using 100k purchase price + 35k in remodel to get us to ARV of 150k. The broker is proposing a property at 75k with 35k remodel for 150k ARV. 

The idea behind this analysis is that I would follow these strategies for a long time, and scale.. but as far as I can tell, I used realistic numbers as far as the income goes... unless if I'm wrong and that could change everything. That's what I'm trying to figure out.   

Quote from @Drew Sygit:

Quote from @Rafael Ro:

Quote from @Drew Sygit:

Quote from @Rafael Ro:

There is actually a big difference.

The reason is that you cut out the middleman and their margin. So if you buy a turnkey property (they buy, fix up, rent and sell) for 150k you're looking at 1200/month rent, versus 150k directly through a broker can get you 1400/month. 

 There will be no difference in the rent - unless the TurnKey provider threw in a desparate/bad tenant to get the higher rental amount.

With a TurnKey provider, you'll pay more for a property that they have rehabbed, versus hiring your own crews to rehab something.

Yes correct. So in the analysis I put the purchase price the same for 1st and 2nd strategy but the ratio of purchase price to rent is different since the turnkey is rehabbed and tenanted, and so you're paying for their premium. That's why the rent is different.

In other words, if the turnkey provider is selling the rehabbed property for 150k, they're giving it to you tenanted at $1200/month (they price them based on rent), but if you buy a property for 150k direct then you can most likely rent it for $1400/month (since you would likely get a more attractive property [bigger, slightly better location, etc] since there is no middle man). Of course that's assuming you do your research and get a good deal, in all cases. 

With that in mind, are you seeing any assumptions that look off to you, with any of those strategies?

 Market rent is market rent!

So, how is a TurnKey provider going to get higher rent than the market?

What's really wrong with your #1 & #2 comparisons is you assume you'll pay the same price for a property via broker or TurnKey.
- How will the Turnkey provider profit from doing this?
Reality is TurnKey providers price at the top of the market - often even higher. They try to get investors to focus on the ROI numbers they promote, not comparable sales.

I am not assuming I would pay the same price for the same property. That's what I explained in my previous reply. The properties are not the same and that's why the rent is different. 

I'll give you a specific example of 2 properties to illustrate. 

Property #1 is a turnkey, fully rehabbed 2/1 1000sq ft house in a location that will rent for $1200. The turnkey company will sell this for 150k.

Property #2 is a 3/1 1200sq ft house in the same location that I would buy through a broker. I would buy it also for roughly the same price (it will be in good condition but may require some small fixes for a tenant), but it's bigger and has an extra bedroom so it will rent for $1400.

I could have also ran this model by assuming that I would get the same type of property as the turnkey, but for $125k and would rent for $1200 as the turnkey would. Same idea. 

With that in mind, do you feel that the rest of the numbers make sense?

Quote from @Obed Calixte:

Have you run numbers on actual properties that align to each of the strategies that you've mentioned? If so, if you share those figures it will help the forum give you more insightful feedback.

Also Why are you analyzing to year 15 specifically?

I did. So the turnkey company has a fairly "fixed" formula for pricing. Using that formula (with them, specifically) would get us this kind of numbers. 

The broker shares various deals, but one type of deal is a house that's ready to rent and needs a little bit of work to prep for a new tenant - that's the type I'm focusing on. 

In all 3 strategies it's typically a 3/1 property around 1100sq ft. There are a handful of similar zip codes, specific all in Memphis. 

So these are all based on "this type of property", using various strategies to acquire it - fully remodeled/tenanted/turnkey, decent condition/vacant/direct through broker, fixer/vacant/direct through broker. 

The difference would be in the purchase price, time to get a tenant in and start collecting rent, and maintenance (which would likely be less on the remodeled properties, at least at the beginning). 

The reason I used 15 years is that I wanted to see how it plays out on a "longer" term horizon.. I also personally feel like I may take a step back from my main biz in about 15yrs.. But if all goes as expected then there would be no reason to stop doing this.