All Forum Posts by: Roger Pokorny

@Tony Cookundefined

Here are my numbers. 

Purchase price - $105,000

Downpayment -  $3,675

Renovations - $20,000

Closing costs - $3,000

Rent - $1600

Vacancy - $160

PITI - $753

Property Management - $192

Maintenance - $120

CapEx - $100

CoC - 12.4%

Cap Rate - 8.3%

DSCR - 1.6

I included CapEx as things will break in the next 10 years. And if they don't, you will need to be putting money away even though the roof, furnace, etc. are new. There are many other things included in CapEx that will need to be replaced (carpet, appliances, paint, etc.). $12,000 in 10 years will go fast. Not to mention you are half way to a needing a new roof. @James Gilpin since you did not include property management, I assumed you will be managing the property yourself. As I stated earlier, you need to include this in your calculations, to have a true comparison. The money is still yours as you are paying yourself to manage the property.

I don't see a property management fee in your numbers.  I am assuming you are doing the property management yourself. Even if that is true, you still need to include it in your calculations. Otherwise, you are working for free. My numbers may be slightly different but I am calculating the following:

CoC = 12.4%

Cap Rate = 8.3%

I invest in the Midwest and those would still be good numbers. 

@Bill Devola,@Richard Recuset,@Roy N.

Thanks for the comments. You have given me some things to think about. I have been clear with the applicant about the demand. That is part of the reason they agreed to put a downpayment on the properties. 

@Bill Devola

To answer your questions.  The property is very popular.  Although, I had three very solid applications, I had many more people wanting to view the property.  The applicant that was approved is a retired teacher that is moving closer to children.  They are an excellent candidate who has no desire to own a home.  At this time, they intend on renting into the foreseeable future.  They have been given rave reviews from everyone i have spoken to.  

My original question was more about the legality of starting rent on June 1st with the lease not being signed until later in the month.  Can the commencement date state June 1st even though it is not signed until later.  

@Roy N, I considered a long distance lease signing.  However, there are several other things I want to cover with the tenant prior to them taking possesion (i.e. property walk through, maintenance repair requests, etc.).  Since the future tenant will not be in the state until later in the month and will not take possession until then, it makes sense to do it all at the same time.  Are there any legal issues with doing this?

Thanks for both of your comments.

I have an out of state applicant that was approved for renting a SFH. In my interviews, I told the applicant that I wanted the rental agreement to begin June 1st. They informed me they wanted the house but would not be in town until mid-June. They agreed to put a deposit of one month's rent down, to hold the property and have it taken off the market.

In the document I had them sign, I informed them the deposit would be applied to the first month's rent.  Since the applicant is approved in early May and of no fault of mine, they cannot schedule a lease signing prior to June 1st, can I still have the agreement start June 1st and apply the deposit to June's rent?  The other option is to pro-rate the month of June to lease signing, but I would loose over a half month's rent.

Yes, the financing between a flip and new build are completely different.  Many banks will not lend on property that requires major work.  The banks I have worked with will state you have to have a functioning bathroom and kitchen.  In other words , they will lend on property with minor repairs, but nothing major.  

There are some banks that will lend on a property with major repairs and they will run their numbers on the after repair value (ARV) and require the investor to put down 25% of their own money. This type of loan is far less common than the typical mortgage.

A new build will require a construction loan with draws at certain milestones.  Once construction is complete the loan will roll over into a conventional mortgage.

The scenarios can be very similar, but in reality are very different.

I am in the process of developing my first rental agreement and am wondering about requiring renters insurance.  Do you require rental insurance from your tenants?  If so, do you specify the minimum limits they have to carry?

@Brock B.

Your mortgage most likely has a clause that states the entire note is due upon the sale of the property. It is called a "due on sale" clause. To move your property to an LLC will require filing a quitclaim deed. The bank can consider this a sale of the property and call the note.

It can get even more complicated, depending on how your LLC is organized. There are many factors involved with this decision and you will get a lot of different opinions on how to do it.

You need to consult an attorney.

I am not an attorney and and cannot provide legal advice on your situation. 

@David Hedges,

Thanks for the comment. Sounds like I'm on the right track. 

@Account Closed,

Thanks for the reply.  I will keep you in mind.  Unfortunately, the deal I was working on did not materialize.  The seller would not negotiate on a carryback loan.

I haven't given up on the sellers as they have several properties up for sale.  I may come back with another offer for all of there property.  They are way over priced and it will depend on how motivated they are.

I am also looking for a house to flip, which is why I did not want to use my money for the down payment.

If I have a need, I will certainly contact you.  Thanks