All Forum Posts by: Scott Steffek

When cash flow on a rental property is calculated, several "expenses" are factored in every month. You should deduct monthly management expenses, taxes, insurance, vacancy and maintenance. Some people deduct 5% of the monthly rent and others 7% and others still, 10%. So it's like a theoretical "cost" sheet. You're already paying insurance, management fees and taxes. But this just breaks it down month by month. So you might want to take whatever the total number of deductions are and stick that money into a bank account. Especially the vacancy and maintenance funds. So if something does happen, you'll have at least a little bit of money saved. I guess it all depends on whether or not you're cash strapped. But it's a great way to figure out your expenses. At the end of the year, your costs might be lower than what was calculated, or it might be more. I would suggest you keep track of it. Kenneth is right. Things go wrong. So if your just breaking even and your mortgage is being paid off and there's nothing left and something goes wrong, now you're in the hole.  Does that sound like a good investment to you? What if you had a bad tenant in the house and they tear it up? What if they don't pay the rent? What if they move out and it takes a month or more to find a new tenant. Now you can't even cover the mortgage payment. There are plenty of homes where you can get a minimum return of 7%, after all expenses are paid (unless you're in California).We give our buyers a minimum of 10%. So find a property that "cash flows". In other words, find a house where there's money left over after all the monthly expenses are paid. You'll thank yourself! Best of luck to you.

Roberto,

I use to be a financial adviser. I would definitely pay of the debt, if it equals 12%. However, you should follow a plan as to what is paid off when. Start with the highest interest rate debt first. Doesn't matter what the balance is, pay it off first. Then just continue down the line until it's all paid off. I'm not sure that's what you wanted to hear, because you mentioned your wife has followed you all over the world. But look at it this way. Those 7 years are in the past. If you pay the debt off now, time will fly by, it really will. You'll feel so proud of yourself that you have no debt! Before you know it, you'll have a place of your own. Best of luck to you.

Jinyu,

Welcome to the world of real estate investing. BP is a great source for knowledge and will help you become a better investor. In my opinion, it's the best site out there. What I'm about to say, contradicts the last part of my message, but I think you'll get my point. Be careful investing out of state. Do your D.D. on each area and talk to others. Here's an example why: An investor emailed me from Switzerland. He bought a 3 unit in Indiana, near me. He asked me to check it out for him, so I did. To make a long story short, he got taken to the cleaners. The company he bought it from had a big fancy website. The ad stated it was "ready to go". Well, my contractor told him it was $90k to rehab all the units and get it into shape. That didn't include the estimate on a new roof!  He paid $65k for it. I seriously would not give him $5k for the whole building. So be careful. But you also have others that help out of state investors like you. We have our own rehab crews and property managers, specifically for out of state investors. BP gets mad when I describe what we do. They tell me it's advertising, so I won't go into it. But my point is, there are companies out there that can help you and companies that are honest. Probably the best thing for you to do is to visit the areas that you're interested in investing in. It's always nice to actually see where you're buying properties. I wish you the best of luck and hope things go well for you.

Jerome,

My contractors are very busy right now and I doubt they'd just do an egress window.  PM me and we can go from there. Good luck.

Anthony,

I'm seeing some examples that aren't making sense to me. When you're calculating your ROI (return on investment), it's very important that you add in the closing cost and holding costs, or else you'll get burned and not make your ROI%. You should add in the following before calculating your ROI%: 1. Closing costs. Even if your buyer is paying the closing costs when you flip it, you'll have to pay the realtor fees. That can be as high as 6% of the selling price. 2. Holding costs. You have insurance on the property, taxes, utility bills etc. These all need to be factored in. Some people also factor in the closing costs they paid to purchase the property, because after all, it was a cost you incurred. I made an excel spreadsheet with a couple of simple formulas that calculate the ROI for me. PM me for more information.

Stephen,

I don't mean to sound abrasive,  but I just don't see how you can factor anything in, not knowing what the inside looks like. It sounds as though there's a tenant in the property, is that correct? If it's a tenant, than someone can most likely get in. Heck, I'll go over there and give you a cost. I'm NOT a contractor, but I'm accurate at estimating repair costs. The numbers I quoted in my post, were for a rehab right across the border in Indiana. Illinois will be more expensive. Probably about a 10% increase per square foot. So  I don't want to tell you what number to use, because only the tenants and God knows what the inside looks like. Plus if they're facing eviction, who knows what kind of damage they'll do to the property before they leave. I know this isn't what you wanted to hear, but it's the reality of the situation. If your buyer is willing to assume the risk, I'd probably just pull a number out of a hat and be perfectly clear to him that you don't know what the costs will be. Give him a cost per square foot . But the problem with that, is you have no idea if it's accurate. If the house is in good shape, then the cost will be low and vice versa. There are people that will accept deals like this, but it greatly reduces your odds of wholesaling the house. I wish you luck. Private message me if you'd like to discuss it further. 

Rob,

Sharads price is accurate. My contractor subs out gutter work,  but I can ask him the name of someone, if you'd like. Just PM me. 

Francis,

I was shocked at what some people pay for an attorney. I do business in Illinois and Indiana. Believe it or not, almost no one uses an attorney when we close in Indiana. On the other side of the coin, almost everyone uses one in Illinois. What a difference! I think it all depends on your comfort level and level of expertise and experience. My attorney works for the title company we usually close with, so she looks over the documents for me. I just trust her to do her job. Sometimes she'll email me and tell me she's charging me $250 or so, because she had some "extra" work to do.  So I think it depends on what I mentioned. However, since I'm not typically "buying" and just wholesaling, I don't always need one. If I get a contract that I'm not familiar with, I retain my attorney. But I pay $400 for a full blown "job" by my attorney for sfr's and small multi units. I hope this helps.  

Jamal,

Welcome to BP. Be sure to check out the podcasts and the other forums. You'll find a lot of people on this site that are willing to help you and answer your questions. I'm in Crown Point, so we're practically neighbors. I'm curious as to who is doing your credit reparation. Be very careful with that. There's a lot of con artists out there taking peoples money! You can do it yourself, if you're a very persistent person. It's not that difficult, but you have to follow certain procedures month after month after month. As far as cash flow goes, you might want to purchase something and house hack. That means you buy something, live in one of the units and typically you can live for free, because your tenants rents pays the mortgage. There's more to it than that, but it's worth looking into. I think you might want to make your credit a priority. Remember though, that if you buy a "multi plex" that needs rehabbing, it can get expensive. Let's say it's a 4 unit. Now, you most likely have 4 kitchens and 4 bathrooms to rehab. Those are the 2 most expensive rooms to rehab. So you have to be careful with what you buy. PM me if you have any questions. I'd be happy to help you. Best of luck to you. 

Stephen,

Cost per square foot doesn't mean a lot in your particular case. You're playing with fire, if you try to estimate rehab costs blindly. Plus, a cost per square foot can vary beyond belief. Do walls need to be torn down? Your price increases. Does the electric need work? Your cost goes up. Is there leaks in the basement foundation? Your cost goes up. My contractor has rehabbed 1000 square foot properties for as little as $18. He's also rehabbed 1000 square foot properties for as much as $60 a square. I would strongly suggest you get your contractor into the house. There's are hundreds of ways to do that, even if the owners aren't suppose to know it's for sale, or the tenants aren't suppose to know. What you tell the occupants will vary widely, depending on if they're the owners or if their tenants. If their tenants, it's much easier. Owners, not so much. Just be careful that the contractor doesn't misrepresent himself. For example, if he says he's from the city, that could spell problems! PM me for more information. Best of luck. 

P.S. Monee is a good area if you can get the properties for a good price!