All Forum Posts by: Roger Pokorny

No, cash flow is key. Do you have enough set aside for CapEx? Have you estimated maintenance accurately? Can you cover vacancies? Without any cash flow you have no room for anything to go wrong. And something will go wrong. Murphys Law.

Counting on appreciation is nothing but speculation. Ask those who lost their shorts in the recession. Even with 4-5% appreciation, the stock market would be a better place to invest your money. There are better deals out there. You just have to be patient and look harder. 

I will not look at anything that will not cash flow for $150 unit or $200 for SFH.

My hunch when I posted the discussion was that a SFH would always appreciate more than a college rental, given all other variables being the same. My thought is that college rentals, as a whole, are not as well maintained. @Roy N.  brings up a good point where a market driver outside normal logic can affect market price.

Thanks for the reply.

I am curious how appreciation affects college rental property vs. SFH. Does a house that is in an area traditionally rented to college students appreciate at the same rate as SFH in the same town?

I am analyzing a house historically has been rented to college students.  If I was to purchase the property, I would continue to do the same.  I believe this paticular town has the potential for appreciation in future years, which is what has attracted me to buy and hold property in this market.  No, I am not banking on appreciation and it does not even factor into my analysis.  Current cashflow is the deciding factor in whether I buy a property or not.  That being said, if I can buy property with good cash flow, appreciation becomes the icing on the cake.

Back to my orginal question, I am investing in this area because I think there is potential for future appreciation. If the cashflow is equal on a SFH and a college rental, which has the potential to appreciate more. I know different neighborhoods will appreciate differently, but to keep things simple, let's ignore this factor.

here's the numbers as I see them:

Rent. $2200

Uncollectable rent. $220

Net rent $1980

Maint $110

CapEx $220

Operating income $1650

Mort payment (assumes taxes & insurance included) $1960

Monthly cash flow -$310

So every month you rent the property you will lose $310. You would have to have 1.3% appreciation just to break even. I would sell and take the almost $40,000 and reinvest in a property that will return 15% or more.  You will be far better off. 

Everything and anything you need to know about REI is here on Biggerpockets. Good lick!

I agree with @Will Barnard use the cheap financing of 3% and invest the $10,000 in a real estate deal that makes 10%+.  You will not get any better financing rates than this.  The key is to have discipline to not take the money and spend it on another liability.  If you do that, the advantage of the cheap financing goes out the window.

By converting from a 15 yr to a 30 yr mortgage you state you would generate $200 cash flow.  I think you are under estimating the cost of repair, capex and vacancy.  A vacancy set aside of 10% ($185), maintenance of 5% ($93), and capex of $100 minimum totals $378 and a negative cash flow.  At this point the principle pay down is the only positive you have. 

Depending on how long you plan on holding the property and what kind of shape it currently is in, you could avoid some of the capex by selling in the short term.  A long term rental will need every bit of the figures I presented above.

I am in the process of getting my business organized. So far I have been investing on transactions as they present themselves on the MLS. As many of you know the MLS deals are few and far between. I am now focusing on building a pipeline of leads. Before I aggressively pursue building my pipeline I need to put the systems in place to handle the phone calls. I have seen a lot of posts about how to generate leads but have not seen a lot about how to handle the leads as they come in. Here is a list of things I am developing. I thought I would post what I am working on and ask the experts who have an active system to comment on what else I need to put in place before the calls start coming.

Here is my list:

1.  Business Identity - create a name, address, phone number, business cards, etc.

2.  Building my team - attorney, accountant, financing options, etc

3.  Incoming call template - list of questions and information to ask the homeowner about the property and their problem so I can determine if this a lead worth pursuing. 

4.  Who/how will calls be answered - I work full time and invest in my spare time. I need to determine how calls will be answered any time of the day. Suggestions?  I know a call center is an option but it is difficult to putting in a lot of overhead costs when money is limited starting out.

5.  Once leads are logged, how will they be evaluated?  I am confident with this step as I am anticipating the leads will come in slow and build momentum as more effort is put onto the pipeline. 

6.  Build website - which comes first the chicken or the egg?  I am struggling with when to put effort into this as this creates overhead costs. I would like to flip a couple properties and get some cash in the bank before putting too much cost into overhead expenses. 

Have I missed anything?  How would you build the back office if you were starting over?

I am investing in the Midwest but have done a lot of research on this subject. From what I have researched maintenance expense needs to be 5-10% of gross rents. CapEx should be 10-20% of the gross rents with minimum of $100 month. In CA you should not have to worry about the minimum for CapEx. I know there are far more experienced investors on BP I will be interested to see what they have to say.

Has anyone negotiated a pre-forclosure deal where you were able to get the homeowner and the lienholder to agree to allow you to assume the homeowners mortgage at a significantly reduced rate?  What steps would you recommend in pursuing this deal?

I have a lead on a property that is scheduled for foreclosure in a couple months that I am interested in buying.  I have not contacted the homeowner yet and wanted to have a good understanding of how to approach a pre-forclosure, as I have not done one of these deals. 

Here are some of the numbers:

Estimated ARV: $150,000

Judgement against homeowner:  $116,000

Estimated repairs (based on drive by):  $50,000

Target purchase price:  $55-$60,000

My first preference would be to get the lienholder to agree to allow me to assume the mortgage at $.50 on the dollar.  I also know there is a clause in almost all mortgage contracts that will call the note, if the property is sold.  I have read where some investors have been able to work around this and convince the lienholder to allow the mortgage to be assumed.  The second option would be to line up a private lender and make a cash offer, on a short sale.  I only have $40,000 to invest in the deal.

There is a lot of due dilegence that still needs to be done on this deal, but I like to have a game plan in place before I start the process.  I would definitely need to get inside the house and do a detailed repair estimate.  I have not contacted the homeowner yet.

I am looking for the steps necessary to pull off one of these deals.  I have an attorney that I can use to work up an necessary paperwork.