All Forum Posts by: Xavier G.

@John Leavelle,

I am putting Capex & Maintenance together as to me, replacing a roof, a water heater or having to fix a faucet are all repairs/expenses (big or small) I am expecting to have over the long term (25+ years), so I total all of it up and bring it down to a monthly basis. If the house I'm looking at is in really bad shape, I'll count those repairs in the cash I need upfront to put in to fix the house. But over 25-30 years, I'll still have to replace again the roof, water heater (maybe on less time), repaint (maybe on less time) etc ... Of course, If I planned on keep the house for only 10 years, the numbers would look very different.

@Cameron Tope,

Thanks for the numbers. They do help me understand what I'm looking at. The cash flow numbers I consider are after Vacancy, Maint & Cap Ex (which would bring your cash flow to less than $200 to compare apple to apple). The other big difference is the tax. Your property seem to have a very low tax rate compared to the ones I am looking at and the assessed value is quite a bit lower when compared to the rent you are getting. That's what's eating the remaining $200 cash flow for me. So it seems I'm not necessarily being overly conservative, it's just that the monthly rent vs taxes in the areas I am looking at is not favorable, which was my gut feeling.

And to answer your question, I am mainly re-using the insurance and maintenance cost from my current rental house as estimates for other houses (similar houses). However, when looking at a different house, I use the actual numbers for that house (taxes, HOA, rent in that area).

Thank you both for your feedback!

Brian Garlington , Do you agree with her that it would actually be hard to give her kiddo a bath? I do not know your house set up but I used to give my kiddos a bath either in the kitchen sink with a plastic tub or in the bathtub (still with the plastic tub). I don't see why she would use the shower, it would be very inconvenient. The other question is, is she going to take showers in the same shower? With the door off, it's going to splash everywhere = either damage to what's around the shower or someone slipping, getting hurt = possible troubles for you. Again, not sure what you're exact set up is but I would explain to her nicely that you think it's dangerous and that you'd rather her use other means Hope this helps!

@John Leavelle, @Cameron Tope, thanks for your answers,

I am actually using actual numbers:

 - insurance from my current rental house (not an investment at the time, just rented it when I moved to my current house)

 - rent is in par with the market (based on my research) for the size and location of the house

- HOA and taxes are actual numbers

 - Cap ex/Maintenance (10%) is a guess as I don't have 20 years of experience but looking at my current expenses on the rental, it seems about right

 - Vacancy (10%) is a guess. Currently I am way lower than that but I consider myself lucky with my current renter (>5 years).

 - Property Mgt (10%) is being conservative since I self manage my current rental but I understand that if I grow my portfolio, I may decide to switch at some point so I want to account for it.

@Cameron Tope, would you mind sharing your actual numbers on the Katy house (what you include in your expenses, loan payment, COCR ...)? That would help me figure out where we differ in our estimates. Maybe your house is smaller and valued at about $95k which would make your taxes lower than the houses I am looking at. There maybe many assumptions that are different than mine.

@John Leavelle, my expenses (not including mortgage) are definitely quite a bit higher than 50% (About 70%). I can't fight much with taxes and insurance so maybe I'm overkilling Vacancy/CapEx/Property Mgt or the houses I'm looking at are in a high tax area or a combination of the two ...

Here are my numbers for ref (ARV $150k, $95l loan, 20% down-5%-30years):

Insurance	$1,200	/year	$100	/month
HOA	$350	/year	$29	/month
Property & School Tax	$4,500	/year	$375	/month
Vacancy	10%	of rent	$130.00	/month
Capital Expenditure/Maintenance	10%	of rent	$130.00	/month
Property Mgt	10%	of rent	$130.00	/month
Loan Payment	$6,120		$510	/month
Total Expenses	$10,728		$894	/month
Total Monthly Expenses	$1,404
Rent	$1,300	/month

Hi Biggerpocket,

I am trying to make sense of my rental numbers for SFRs in the Northwest Houston area and I can't seem to make them work so I am wondering if I am just looking at it differently from everybody else and am too conservative in my estimates or just completely looking in the wrong area ... Basically looking for feedback!

In order to get a rent of $1200/$1300 a month, I would expect a house in the $100-150k, approx. 1800 ft2:

- Insurance/HOA/Tax of about 30% rent (tax being the biggest hit at rates of 2.5-3%)

 - Vacancy, Maintenance/Cap Ex and Property Mgt another 30% of rent

Even if I were to pay $100k for the house (20% down, 30 year loan at 5%) including rehab, I would barely cash flow.

If the house was actually worth $150 but still paid $100k for it, I would now be $100 negative cash flow due to taxes.

Tax/Vacancy/Cap Ex & maint/Property mgt are the major hitters. In order to reduce tax, I would have to find a house that is actually worth less than $100k but then I don't think I would get $1200 rent for it. If I look for a house that may get $1600+ in rent, then the house value has gone up quite a bit and taxes/insurance have followed so it's still not cash flowing.

So, is it just that I am overly conservative with Vacancy, Maintenance/Cap Ex and Property Mgt or just that there are houses that are not worth much but have high rents and I'm just missing them?

@Kelsey Toomey, @Heather Roy, @Todd Faulk check your PM, let's get together!

John Mathewson , Are you actually using your license to sell/buy houses for others or just for you own use? In other words, what was the most helpful part of having a license for you? Was it the access to MLS data and freedom to go see houses whenever you wanted or was it learning about the market while acting as a real estate agent? Or others? I am thinking about getting a license but still trying to figure out pros & cons since I would be using it for my own buys/sales, not as a real estate agent. Thanks.

Hey Guys, What would you do: this family has been renting for 6 years now and the 2 kids are now over 18 and the lease is going to get renewed. I am planning on adding the 2 kids to the new lease. Would you run a background check? Since I have not had any issues with them for he past 6 years, I am not planning on running a background check on them since I essentially have 6 years of good history with them. I am just curious to see what you guys would do and why? Thanks! Xavier

@Aundrea Newbern - I am not sure how the lease agreement was set up, but typically (or should I say in the one I use) the responsibility for the move in inventory is with the Tenant. If the Tenant fails to provide this form to the Landlord, it is assumed that there were no damages to the property when they moved in.

@Aundrea Newbern Is there an HOA in that neighborhood? If yes, she most probably would have had to get HOA approval for the shed. However, I wouldn't necessarily check with them as you may open a can of worm. She may have indeed asked the previous owner and since you just bought the property there is "reasonable doubt" in my opinion. If she's been taking care of the property otherwise, I would just let it go and just take it down when she moves out (I am assuming it's a fairly small shed and won't be too difficult).

Hello fellow investors,

The results may not surprise anybody and some may think "duh", but I always wanted to put some number down to compare financing a property versus fully owning it (no mortgage) and see the impact on cash flow/equity 10 years down the road. So I finally ran the math (hopefully without any big mistake) with the following numbers (based on rule thumb of 1% (rent/purch price) and 50% expenses rules of thumb to simplify):

 - About $145k cash available

 - House sell price: about $130k

 - Financing with 20% down, 5% over 30 years, Closing costs $3k

- Insurance, tax, Vacation, Maintenance, Cap Ex, Property management, HOA: $650 (or 50%)

 - Rent: $1,300/month (1% rule)

 - No repair cost

Two extreme and very specific cases:

Case 1: Buy the house cash, so only by 1 house in this case, cash flow $650/month

Case 2: Finance the house, but buy 5 houses, cash flow $90/month*5 = $450/month

Case 1: after 10 years: $78k of cash flow, $130k equity for a total of $208k "net worth" + $12k cash leftover.

Case 2: after 10 years: $54k of cash flow, $227k equity for a total of $280k "net worth"

Everybody can draw their own conclusions and figure out which case gets you the more "bang for your buck". None of these two cases actually look bad to me (I thought the no financing would be worse), just a question of what kind of investor you want to be. Case 2 would take 7 houses to cash flow as much as Case 1, hence a lot more hassle. At the end of the 10 years, the 5 houses would get you an extra $73k "net worth", all of which tied into equity.

Now, sure, those are two very simple case and don't account for the typical strategies (BRRR, 100% financing ...) that would get you even more houses/equity in Case 2, but my purpose was more to have a simple hassle vs rewards comparison.

I guess the only real conclusion of this exercise is do your numbers in your market, figure out what your goal is going to be and what it will take to get there.