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Old 02-25-2014, 02:27 PM   #21
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Hey clifp - I am fishing in Minnesota - not New Mexico

A couple clarifications - typical buyer side commission here is 2.7% and then I split it with my broker so probably about a 2% break but then I pay taxes on it.

My primary maintenance costs are actually appliances and HVAC repairs so I'm not sure your costs are that different. All of my units are townhouses (& 2 condo's) which I specifically bought to avoid any outside maintenance issues.

Also, the 50% rule already assumes that you are paying for property management. That said, I'm sure I do much better than farming it out since I am much more on top of things. Biggest difference (besides not paying 8-10%) is vacancy. I've probably had a grand total of 2 months vacancy total across 10 units in the past 4 years. I don't typically raise rents on current tenants and I have very little turnover that way which avoids vacancy and the costs of refreshing unit.
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Old 02-25-2014, 02:49 PM   #22
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I had a college girl move out and she left her cat behind. These are the tenants/people you will meet owning a rental. I call it the fringe of society.
Nobody has respect for stuff they don't personally own in my experiences landlording. Its high stress and low reward.

If you can get a 15yr loan w/10-20% down and pay that sucker off in 10years, the next 10 years you will then finally begin to get a nice ROI. But you will be dumping your own cash into it all along.
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Old 02-25-2014, 02:54 PM   #23
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Old 02-25-2014, 04:07 PM   #24
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I had a college girl move out and she left her cat behind. These are the tenants/people you will meet owning a rental. I call it the fringe of society.
Nobody has respect for stuff they don't personally own in my experiences landlording. Its high stress and low reward. ....
emphasis added

Actually, from what I have experienced they don't have much respect for stuff they own either.
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Old 02-25-2014, 04:16 PM   #25
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... Assume 6% cash on cash return, which is $100/month net cash flow or $1,200/year per unit. Calculated with 4% average annual appreciation based on historical data. 3% appreciation also calculated in case future trends are below past trends.
Hi,

Math looks fine (though I didn't calculate). We know many folks love real estate and have got very good returns from real estate... while many have not. Leverage just makes it better... or worse.

IMHO the word assume should have a red flag, as anyone who suffered $$$ from real estate probably contravened one of those little assumptions. You can hardly argue with cashflow and appreciation.

The skill and trap? is in the execution:
Finance and find 5 properties that gives $100/month net (while paying for $400k mortgage and maintenance) and give 3% or 4% appreciation.

When you do that more detailed math, don't forget to allocate a decent chunk of rent to expenses outside the mortgage (some advise as high as 50%). This will provide safety in your estimate of $100/month.

Another appreciation warning to add to CalmLoki's. I find the appreciation impossible to quantify - except in hindsight, I am pretty good at that! I wish I had been like Fishingmn and bought 10 over the last 4 years I am seeing that places which were outstanding buys in 2009 or OK even in early 2012 are a lot worse now.

IMHO 20% deposit and some cash buffer sound like an improved (lower risk) plan for a first time purchase, than personal debt and 100% financing.

Good Luck
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Old 02-25-2014, 07:16 PM   #26
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Hey clifp - I am fishing in Minnesota - not New Mexico

A couple clarifications - typical buyer side commission here is 2.7% and then I split it with my broker so probably about a 2% break but then I pay taxes on it.

My primary maintenance costs are actually appliances and HVAC repairs so I'm not sure your costs are that different. All of my units are townhouses (& 2 condo's) which I specifically bought to avoid any outside maintenance issues.

Also, the 50% rule already assumes that you are paying for property management. That said, I'm sure I do much better than farming it out since I am much more on top of things. Biggest difference (besides not paying 8-10%) is vacancy. I've probably had a grand total of 2 months vacancy total across 10 units in the past 4 years. I don't typically raise rents on current tenants and I have very little turnover that way which avoids vacancy and the costs of refreshing unit.
Sorry about that I knew it was Minnesota, is there enough water for fish to live in New Mexico j/k.

What you don't have the tenants, that stop paying rent then trying to sublease the place for cash after the eviction notice? After being evicted they sneak back (using the garage door opener) to steal the washer and dryer and the hot water heater, but don't bother to turn off the water and hence flood the garage. After repairs, eviction proceedings, and vacancy I got one months rent from that house last and was in pretty nice condition (2006) when I bought it and beautiful when I rented it out. I have had my share of appliance and HVAC problems but plenty of other things also.

I notice a lot of folks don't raise rents ever or seldom on existing tenant. When I was constructing spreadsheets of course I factored in a 3 to 4% annual rent increase. But when comes time to renew the lease, if you have a good tenant, you always hesitate cause a 2 month vacancy and clean up cost are typically two to four years worth of rent increases.
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