All Forum Posts by: Ryan D.

I (generally) disagree with those who use a percentage for this number - the amount of rent has little to do with how much maintenance items cost. Age & condition are far better indicators of maintenance costs than is market rent. Ex. A new hot water heater in a 2/2 renting for $1300/m costs the same as one going into a 2/2 that rents for $700/m, etc. Same applies for a clogged pipes, new paint, etc. Perhaps, with a high-end property there is an argument to be made for some things being more expensive to replace (nicer appliances, etc), but that's more capex than regular maintenance. I typically budget $100-120/unit/month for general maintenance (depending upon age & condition of the structure), and 8% for vacancy (which I find to be on the conservative side).

Forgot to add, much of this info can be found on http://www.city-data.com/

Look at crime rates, avg household income of the area, & quality of schools.

I've noticed a steady increase in the frequency of unsolicited mailers I receive offering my buy my house ("why worry about repairs, we'll buy you house as is, all cash, quick close" etc., etc.). I take this as a sign we are nearing market peak. I've seen other peak market indicators, such as the number of friends approaching me for advice on how to get into RE investments, and the number of kids (teenagers) posting on BP about getting rich in RE. As Joe Kennedy said, when the shoe-shine boys start giving you stock tips, you know the market is saturated. What are some of the indicators that you have seen that the market is nearing its peak?

You need to calculate the NOI to determine the CAP rate. Cap rate = NOI/purchase price.

Closing costs on a residential property are typically ~$5k in my experience, with SFH being lower than MF.

I've never seen commercial financing at longer than 25 years, 15 or 20 being the standard (with 5-10yr balloon). This is what makes the smaller apartment buildings hard to work. If the same capital can buy you two quads or one 8-unit all other things being equal), due to financing terms you're better off with the two quads. In my experience, finding a 2% deal (in a non D minus area) is like finding a unicorn, so if you've really found one then congrats!

With the credit card debt (and there is more to the story there I suspect - just having a $300 balance on a credit card does not cause bad credit) and car debt, she has dug herself a hole. The first step to climb the mountain is to get out of the hole. Focus on paying off the CC and car loan (both sources of bad debt), and eliminating bad money habits - this is absolutely fundamental to long term financial success. Then it certainly sounds like she needs to invest in her own skill set & find a better job. Don't be distracted about buying a house before the fundamentals are established.

Thanks for the insights. I'm looking out of state for the time being, at least until the California market comes back down to reality. So do you guys have a quick first-pass method you use for evaluating smaller commercial multi-family - something along the lines of the 1% rule used in evaluating residential multifamily?

In many places, you can not evict for a tenants not having paid late fees, utilities, etc - you can only evict for failure to pay RENT. 

In our leases we state that ALL money paid by tenants are FIRST applied to any fees, utilities, etc., that are owed, and applied lastly to rent. So if your tenant owes a $50 late fee on $1k rent, and gives you a check for $1k, you apply the money so that FIRST the $50 fee is paid, then the other $950 is applied to rent, thus leaving them in the position of having not paid their rent in full. 

Its also important to identify this upfront with any prospective tenants, as it will weed out those people who have a habit of just not paying fees & utilities b/c they know they can get away with it.