All Forum Posts by: Zach Westerfield

Hope you dont mind me working through your numbers as practice, i have developed an underwriting guide but want to put some properties through it to vet it. 

i think on your gross income, you meant 9570/month, not year. 

what would your acquisition costs be? will you be funding those out of pocket as well? also, do you plan on maintaining reserves? 

my expense estimator comes out to about 54%, since i always stay conservative i will stay with that. i also assumed a 10% increase in rents. i assumed an 8% vacancy rate. 

based on these assumptions, with rents as is im showing an NOI of $56,342 per year. At the loan terms you mentioned, your debt service is $59,274, meaning your yearly cash flow is negative (-$2,932).

if you increase rents by 10%, your NOI increases to $66,037, and yearly cash flow is $3,477.

seems like a pretty slim deal if you factor in all assumptions. IF you raise rents and dont affect vacancy, you are looking at a 3.4% COC return.

im not an expert but i have looked into this before. while the requirements arent super clear, seems there is something about you must "sleep there" for so many days a year, i want to say like 10 or 11 months. that being said, if you make it your legal residence, to include mailing address, etc, and dont rent it out long term, i dont think you would have any issue. its not different than buying a personal residence then traveling for work 200 days a year (which i did). 

im not sure which type of brick wall you are referring too, but framing wont vary much on cost for the same wall that is load bearing verses non load bearing. its more a function of materials and complexity. 

as for bundling, anything is negotiable. in general, i have found it much easier to negotiate with contractors for bigger versus smaller jobs. put yourself in their shoes, a bigger job has more security and profit. i would be willing to accept lower rates for a project that will take 4 weeks versus one that takes 2 days. 

my 2 cents

1. when you say brick, do you mean cinderblock walls? if so, is it functional? if it is, only reason to add sheetrock is to increase value (for refi) and attract better tenants. look at comps in the area and see how they are done

2. minisplits can be purchased and installed for $800-900 each. a standard forced air system runs anywhere from $4,000-6000, depending on the size. without seeing the house, its hard to say which is better. 

3. some things i do to "tenant proof" my rentals. Bathroom hardward (TP and towel racks) - mount to a 1x4 plaque that is screwed to studs. you can pretty much hang on it without pulling out the hardware. i use entry level granite countertops - stain resistant, and should last a long time. i put LVP through the entire house, bathrooms and closets included. its water proof and scratch resistant. while the initial cost is more than carpet, you wont have to replace it as often. i use Sherwin-Williams Harmony line of paint, in a semi-gloss sheen. the semi-gloss is easier to wipe off for small marks, and the harmony line has deodorizers built in. for exterior door knobs, i use the smartkey knobs from kwikset. you can rekey a knob in a few minutes - no need to pay rekeying fees anymore. last tip - figure out which appliances your market typically provides. in my market, its not common to provide washers and dryers, so i dont. thats one less thing to have to repair. 

4. i dont see an issue with the gas stove. to convert to electric you will need to have a 220V plug, which could be costly to install if not already there. 

In my opinion, it would be very difficult to manage long distance with no boots on the ground. When things go well, it can be done. its when they dont go well that its important to be there or have a trusted representative there. I would try to find a trusted representative, whether its an agent or someone else.

as for keys and showings, i put keys in a lockbox on the front door. In my screening process, i have an initial screening questionnaire. I only allow showings for people that pass that questionnaire (you would be surprised how many people it weeds out). Then, if someone wants to show i require a picture of their driver's license and phone number. i then give them the code to the lockbox with stipulations to see the property between the hours of 7 am and 7 pm. they can see at their own leisure, they just have to let me know when they are through. i do inform them someone will be swinging by afterwards to check in (i dont specify when). 

i adapted this from my property manager (i have a PM for long distance properties, but self manage the local ones). she has used it for years with no issues. i still swing by the property periodically to make sure everything is okay, but it prevents having to physically be there everytime someone wants to see it. That was super annoying to me, taking time to show a property to 15 people who never followed through. 

@Matthew Beans thanks everyone for the insight, looks like I will be making the swap soon. One last question, is there a difference between the two in user experience? I don’t have an accounting background, so I taught myself to use QuickBooks desktop. Will it be seamless for me to swap to online? Not a show stopper for me, I am just curious. When I swap, I want to know what to expect so I don’t have any major speed bumps in my bookkeeping

@Cara Powers i have debated about swapping to quickbooks online if i out source bookkeeping. i would still like the ability to pull reports and look at numbers without having to go to my bookkeeper. however i just paid to update to QB 2020 desktop, and in general i always prefer desktop software as i do a lot of work without internent connections (on airplanes). Any advice either way? i was thinking as long as the bookkeeper updated by books once a week, i could continue to work with desktop. 

also, is the user experience different between the two? i have never used QB online

not huge, a small property management business, a small long term rental portfolio, and a small flipping business. i keep separate books for all of them though so that they can scale into their own companies easier. i am one of the rare people who enjoys bookkeeping. however, i am looking to outsource in the next year or so as i continue to scale. 

one of the best decisions i made when i first started in real estate 4 years ago was to bite the bullet and buy quickbooks and learn it from the start. i figured i would tackle the learning curve early, when my business was super simple. it would be easier to grow into it rather than swap sometime down the road. after buying a quick how-to-guide, and sitting down with my accountant who took the time to teach me, i got it down pretty quickly. i still do my own bookkeeping, and i could not imagine using spreadsheets for what quickbooks does. 

as far as setting it up, a lot of people do it themselves to save money. i would recommend using an attorney for at least the first couple, or anything after that that is "different". LLCs are not an iron clad wall that no lawyer can get through. they are one layer in a liability protection strategy. having an attorney set it up, and provide guidance on how to property run it can help strengthen that layer. mine only charges $250 to set up an LLC. its important to show the LLC is run as a business as well. Maintain separate books, and do not mix accounting and expenses with personal dealings. an improperly established LLC that is not conducting business appropriately will not last one minute in court with a good attorney.