All Forum Posts by: Robert Silvernagel

Thanks Seth for pointing that out. Where in Spokane were you living? And how many people were occupying the house? I'm wondering if you are including electricity in that figure, because that would seem about right for a household of 4-5 people.

The property I'm looking at is a 2 bedroom, 1 bath, and I will be having the tenant pay for electricity. 

I based my numbers off of the cost breakdown directly from the Spokane utilities billing rates:

32 gal trash bin - $16.62

Wastewater - $29.71

Water Service - $15.80

Stormwater - $4.18

Integrated Capital - $27.89

Water consumption - $25

Which actually totals out to $120/mo (for some reason I forgot to include the integrated capital expense in my previous calculations, and I had water usage at $15 which may not have been realistic.

I also looked at this Spokane cost of living breakdown which lists the average utilities at $110 including electricity, which I figured would be about half of the overall utility bill. From that figure I thought that $100/mo for just W/S/G was a good estimate, but I think for the sake of being conservative I should bump that up to $150. 

So that brings me to my updated calculator with an adjusted rent increase of 2% annually, a beefed up utilities allocation of $150/mo, as well as upping the maintenance to $1200 annually up from $1000.

So if those numbers prove to be correct, then that brings my initial cash flow down under $50/mo for the first year which is territory I don't necessarily want to be in. If I am somehow able to get the purchase price down closer to $80k then I would be in better shape, and that might be possible considering I'm making a cash offer. Going to start there and see how the seller responds. Thanks guys!

Thanks David for your response. I have heard about self managed IRAs, from of the recent biggerpockets podcasts actually. So I actually have two 401k plans right now, one of which has about a 20k balance from a previous employer. I should talk with someone about rolling that over into a self-managed IRA and using that for my investment property down payment. There are still a lot of unknowns to me regarding what that would actually mean in the overall scheme of things. Would that mean that all of the profits from that property would need to go into that IRA? I was hoping to use the additional income from the rental property to ultimately finance another rental property in the next couple of years.

Also the interesting thing about Spokane, and one of the reasons I'm considering investing there, is that the vacancy rates are extremely low. In fact according to this site, they are at 1.3% which is considerably lower than the national average of about 5%. I know that figure is referring to the number of unrented properties in general, it does show that the rental market is really hot. My 10% vacancy rate is essentially covering that ~1 month a year that I might need to find my next tenant, as I think it is unrealistic to assume I'll always find my next tenant prior to the existing lease ending.

Spokane rental atmosphere

And as for the utilities, I based those on the actual rates that the Spokane utilities company would charge. By my calculations they came to $78/mo including water/garbage/sewer. I budgeted $100 a month since I wanted to give myself a 20% fudge factor in case they do go up in the future.

So I found a site that tracks rental trends in the Spokane area: Spokane rental trends

It looks to me like 3% is not an unreasonable rent increase over the past 3 years, in fact it appears to be closer to 4% per year. But to be on the conservative side I think 2-3% is reasonable. I'm on my ipad now and it won't let me paste the chart I created in excel, but the rent has gone from about $720 to $860 over the past 3 years which would be about 3.9%. I'd rather err on the side of estimating low, so I went with 3% in my calculations

Thanks for the feedback William. The property would actually rent for closer to $900/mo which is 1% of the purchase price, a rough target I have been looking for in every property that I've been considering. 

The area I'm primarily focused on is West Central, which I believe will be a good neighborhood to be in given the gentrification efforts that are currently underway.

Not being very familiar with the rental market in spokane, what would you say is a reasonable annual rent increase? Depending on the term of the lease, I was thinking 3% was reasonable, but maybe 2% is a more conservative estimate? The property is pretty much turnkey and I wasn't planning on doing a lot of renovations, but do plan to maintain it so that its competitive with other homes in the area. I definitely don't want to be a slumlord and will do whatever I can to keep the home in a condition that I would want to live in myself. But I also don't want to renovate beyond what I can recoup in increased rent rates in an area that is still undergoing gentrification. Maybe somewhere down the road it would pay off, but probably not in the next five years.

Hi guys, I'm new to the forums but have been listening to the BiggerPockets podcasts for the past few months in preparation for making my first investment property purchase. I'm really excited to get started with my first investment purchase, but also know how important it is to get the numbers right on the first go around, or else I set myself up for a long road ahead.

First, my backstory. I am from Seattle, WA but went to Gonzaga University for undergrad. I am a software developer by trade and am blessed to have an excellent career with a decent salary that leaves me with some disposable income that I'm hoping to put into some smart investments to generate passive income. I've also recently started investing in the stock market, and while I really enjoy that, the returns can vary greatly depending on the overall market atmosphere. I plan to continue investing in stocks but would like to diversify my investments by adding some passive real estate to the mix.

I got my first taste of the lucrative nature of real estate when the landlord I was renting my downtown Seattle condo from decided to sell, and I was able to purchase directly from him without it ever being listed on the MLS. For whatever reason he was just looking for a quick sale and sold me the condo for what he paid for it 7 years prior. I had about 50k of instant equity, and am happy to say that it has almost doubled in value in the five years since I bought it. I have been looking for an investment property (or two) primarily for cash flow, with equity being a secondary factor. Unfortunately the greater Seattle area prices are so high that I can't really find a good cash flow property, and I feel like I would be over-leveraging myself if I tried to invest in the local market. So I decided to look at the Spokane market because its drivable from Seattle and I have ties from my college days there.

My plan is to use the equity in my current property in the form of a home equity line of credit to make a cash offer on a single family home in Spokane for the purpose of generating cash flow. I'm planning to come in about 10-15% under the asking price with my cash offer. I only plan to hold the balance on the HELOC for about 6 months before getting a traditional 30 year mortgage at 80% LTV. The property is turnkey and has two tenants renting it for the next year. I'm hoping someone can take a look at these numbers to see if they make sense from a cash flow perspective. Is there anything I'm missing?

Rental Property Calculator

I'm assuming 3k for closing costs when I do decide to finance. I've also set aside $100/month for sewer/garbage/water and plan to have the tenant cover electricity. I'm allocating $900/year in repairs, although that estimate might be a little low since the home is about 100 years old. I will definitely do an inspection and adjust the offer based on any major issues identified. 

What do you guys think? Thanks in advance for any advice for a first time investor!