All Forum Posts by: Tchaka Owen

@Michael Garfias - my response is always yes. Unless you have tons of cash, you should always have a HELOC in case of emergency. It will cost you $50-$100 per year to have one. That's nothing. Whether you choose to use it for real estate investing is up to you and depends on your financial situation.

HELOCs are not risky. What you do with it is what determines the risk level. 

@Paul Teske - the best advice is that you hire an agent and let him/her handle it. Your situation is a very good example of when NOT to do it yourself. Unless a home is junky (ie, a true fixer upper), I will not use a standard lockbox, only electronic. I am a licensed agent so I have that advantage. For a non-agent like yourself who is that far away, hire a professional. 

@Ashraf Abbas - in addition to what the others have stated above, I'm not sure $200k is a fair price for the place. Have you calculated the cost of improvements? I'm not talking about replacing kitchens with granite, etc, just the basics. You need new windows throughout, a 4-car garage that is in shambles, what's the remaining life expectancy of a 20-year old boiler? 4 kitchens needing repair, concern for lead paint (not sure how likely that is), possible mold. It may sound daunting, it's not. It's all about the price. You need to estimate what all the repairs will cost, double that and subtract from FMV if the building were in good shape. If you can't estimate, hire a contractor to help you. I'm probably offering $150k max. But that's me.

@Matthew Shafran - yes it takes into account all expenses, however mortgage payment isn't one. The answer to your 2nd question is yes. And in at least 99% of the listings, the cap rate will be off....and not in your favor. Hence the need to do your due diligence. 
Have you contacted the agent yet?

@Account Closed - whether or not to use an agent depends on your market. The most important thing is that you get a renter in quickly. If you are in a hot rental market, listing on Craigslist, Hotpads, etc. will probably work for you. If the market isn't as hot OR if you don't have time to show the property, do a background check, etc...hire an agent. The only wrong move is having a vacant home.

If you didn't get hits at $2400 and almost nothing at $2200, you may be overpriced. Have you researched fair-market rent for where your property is located?

@Matthew Shafran - you don't have enough information to know if it's a good deal or not. The first thing I'd question is the CAP rate. Why? Because it's always set to an attractive level. Contact the agent(s) and request rent rolls and expenses to help with your due diligence.

Agree with Dennis. 
I'm not even seeing 1%, let alone 2%.

@Matt M. - loan payment is not a component of Cap Rate. It's NOI divided by purchase price. So the 1st home's NOI would be $14,000 minus taxes, insurance, utilities, vacancy, maintenance. Guessing at a few numbers, let's say you net $8576 (I did 5% vacancy and another $1k for maintenance, etc). Your purchase is $40,100. So your cap would be 21.3%. Can anyone else back this up?

It appears your confusion on the 2nd place is because you're factoring in mortgage debt. Once you exclude that, it should make sense.

@Dillon Marshall - could you give a breakdown on the $10,600 of expenses you calculated?

I would use 5% vacancies ($4560) which leaves $6040. Is that enough to cover insurance, hot water, maintenance/repairs and reserves for capital expenditures? And you must be managing the place, correct?

 Not necessarily. Escalation clauses were the norm in the DC area 2003-2006 (by norm, I'm agreeing with Jay that you either have it or will lose the offer)…...at the same time, many agents listed just below market in order to create a bidding war. So yes, the final figure may be over market but not necessarily so far over that it's DOA. Plus a good agent prepares the client for that and the buyer knows that extra cash out of pocket may be needed.