Ask me about real estate investment?

[RJT]

[ QUOTE ]
Right now there are deals everywhere. I only go after properties under 250k though. I just bought a triplex for 210k just west of the turnpike. Its renting out for $2900/m. Thats a 16% cap rate plus over 100k equity. I wholesaled a quadplex on US1 by the beach that went for 220k and rented out for $2600. Thats 14% cap rate.

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I am confused. How are you able to buy 210k and rent for 2900 and have 40-45% of cash flow go towards operating expense?

[GittyUP]

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Right now there are deals everywhere. I only go after properties under 250k though. I just bought a triplex for 210k just west of the turnpike. Its renting out for $2900/m. Thats a 16% cap rate plus over 100k equity. I wholesaled a quadplex on US1 by the beach that went for 220k and rented out for $2600. Thats 14% cap rate.

[/ QUOTE ]

I am confused. How are you able to buy 210k and rent for 2900 and have 40-45% of cash flow go towards operating expense?

[/ QUOTE ]

Debt service/month=approx $1300 month
Operating expenses(insurance, taxes, maintenance) is the the other $1600 I use what I need which is about $1200(or about 41% of the $2900) and pocket the difference.

This was an exceptional deal by the way.

[john voight]

How do you do your homework about a neighborhood?
I mean you can go on an online listing company like realtor.com and find hundreds of properties in any one given city. Or I can just go cruising in my car. Bottom line is; I'm not really sure what I am looking at.

How do I spot a possible bargain? (you said you use mail marketing, any other strategies? also how do you know who to mail to?)
How do I appraise it to make sure the I know the value?
How do I compare the value to similar properties in the neighborhood, (also how do i know the neighborhood will yield good profit margins)?
Lastly, and possibly most importantly, what negotiating tips do you have to make a deal be in your favor. I mean hopefully all ends happily for everyone, but in the end, I wanna be getting the most I can from a negotiation.

Since i live in bay area, I am looking to invest out of state. My dad has done so w/ 2 properties, and I too hope to build up some equity via real estate (renting it out).

Last question: How did you get started.

[spex x]

[ QUOTE ]
What percentage of your gross income from your multifamily properties goes to expenses (not including debt service)?

I usually plan on 40-45% of cash flow going to operating expenses. It really depends on the property and my long term plan. The larger the property the closer to 45% or even 50% I shoot for. This is because of large maintenance or marketing expenses that might suddenly occur. I tell people that it also depends on how much capital they have to work with.

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Sorry, maybe I wasn't clear. I was wondering what the ACTUAL percent of your ACTUAL gross incomes on properties that YOU OWN go to expenses. I know the general rules, I'm wondering how much you actually spend. Out of curiosity more than anything, but I like to see how it comps to my experience and my area.

I liked your other responses though - makes me think you actually know what you're talking about.

[spex x]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Right now there are deals everywhere. I only go after properties under 250k though. I just bought a triplex for 210k just west of the turnpike. Its renting out for $2900/m. Thats a 16% cap rate plus over 100k equity. I wholesaled a quadplex on US1 by the beach that went for 220k and rented out for $2600. Thats 14% cap rate.

[/ QUOTE ]

I am confused. How are you able to buy 210k and rent for 2900 and have 40-45% of cash flow go towards operating expense?

[/ QUOTE ]

Debt service/month=approx $1300 month
Operating expenses(insurance, taxes, maintenance) is the the other $1600 I use what I need which is about $1200(or about 41% of the $2900) and pocket the difference.

This was an exceptional deal by the way.

[/ QUOTE ]

I'm a little confused too.
Purchase price = 210,000
Gross Rents - 34,800
Expenses (41%) - 13,920
NOI - 20,880
Cap rate = 9.94%

9.9% cap rate is decent enough. How are you figuring 16% cap rate?

On your second example:

PP - 220,000
GOI - 31,200
Expenses (40%?) - 12,480
NOI - 18,720
Cap rate = 8.51%

Personally, I'd pass on a 8.5% cap rate unless the property had something else going for it.

[GittyUP]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Right now there are deals everywhere. I only go after properties under 250k though. I just bought a triplex for 210k just west of the turnpike. Its renting out for $2900/m. Thats a 16% cap rate plus over 100k equity. I wholesaled a quadplex on US1 by the beach that went for 220k and rented out for $2600. Thats 14% cap rate.

[/ QUOTE ]

I am confused. How are you able to buy 210k and rent for 2900 and have 40-45% of cash flow go towards operating expense?

[/ QUOTE ]

Debt service/month=approx $1300 month
Operating expenses(insurance, taxes, maintenance) is the the other $1600 I use what I need which is about $1200(or about 41% of the $2900) and pocket the difference.

This was an exceptional deal by the way.

[/ QUOTE ]

I'm a little confused too.
Purchase price = 210,000
Gross Rents - 34,800
Expenses (41%) - 13,920
NOI - 20,880
Cap rate = 9.94%

9.9% cap rate is decent enough. How are you figuring 16% cap rate?

On your second example:

PP - 220,000
GOI - 31,200
Expenses (40%?) - 12,480
NOI - 18,720
Cap rate = 8.51%

Personally, I'd pass on a 8.5% cap rate unless the property had something else going for it.

[/ QUOTE ]

Yes your correct.
A lot of people I deal with use when talking residential speak of GOI when talking cap rate. I understand though that usually NOI is the proper number to determine cap rate especially in commericial RE.

[spex x]

[ QUOTE ]
Yes your correct.
A lot of people I deal with use when talking residential speak of GOI when talking cap rate. I understand though that usually NOI is the proper number to determine cap rate especially in commericial RE.

[/ QUOTE ]

I've never know anyone to use GOI to calculate cap rates. What is the rationale behind using GOI instead of NOI? I can't figure a good reason to use GOI other than you can't get any decent cap rates on smaller residential properties by using NOI.

[GittyUP]

[ QUOTE ]
How do you do your homework about a neighborhood?
I mean you can go on an online listing company like realtor.com and find hundreds of properties in any one given city. Or I can just go cruising in my car. Bottom line is; I'm not really sure what I am looking at.

How do I spot a possible bargain? (you said you use mail marketing, any other strategies? also how do you know who to mail to?)
How do I appraise it to make sure the I know the value?
How do I compare the value to similar properties in the neighborhood, (also how do i know the neighborhood will yield good profit margins)?
Lastly, and possibly most importantly, what negotiating tips do you have to make a deal be in your favor. I mean hopefully all ends happily for everyone, but in the end, I wanna be getting the most I can from a negotiation.

Since i live in bay area, I am looking to invest out of state. My dad has done so w/ 2 properties, and I too hope to build up some equity via real estate (renting it out).

Last question: How did you get started.

[/ QUOTE ]

Your questions I think can be paraphrased as "How do I know if I am getting a good deal?" or "How do I find a good deal?"

The first question is easier then the second. Once you have a property you think is a good deal it can be verified by comparing it to others in the area, "comps" as they are called in the industry. Also look at how Spexx and I have discussed cash flow and "cap rate". The biggest resource I use the Multiple listing service (MLS) and realquest.com. Both of them require a subscription but they are well worth it if your serious in getting to RE investment. MLS lists all houses in the area that are currently for sale. realquest gives you past houses sold (comps), tax records (property taxes,lot sizes etc), and various other info.

To find a bargain either takes some initiative or take the easy way and find a good wholesaler.

What you want to find is what we call a "motivated seller". This is someone willing to sell their property cheap because of various circumstances. Looming forclosure, moving, the house is a dump, owner died and kids want the house sold immediately etc. You want to find these sellers before they put their house up for sale on the MLS or with a realtor. You know all those ads you see that say "we buy houses cash". These people are looking for motivated sellers and are called wholesalers. They send out mailings to every house in a certain area, post flyers, signs, criagslist ads etc. When people respond to the wholesale ads, the wholesaler offers them 70% or less of the value of the house as a net price to the seller so the buyer pays all clsoing cost. The wholesaler then assigns the contract without closing to an investor adding an assignment fee. The investor then rehabs and flips or rents out the property.

Now anyone can be the wholesaler, investor or best case scenario both. The problem is that being a "good" wholesaler has a lot of barriers to entry. Mailing costs, realquest and MLS subscription fees, network of investors to sell to QUICKLY, experience. These good wholesalers often are a good resource for someone like yourself to start talking with. They do a lot of the leg work and you still get a good deal (usually).

Again though anyone be be a part time wholesaler and sometimes you don't even need to put down a deposit with a seller. There really is no risk with this kind of transaction because if you cant find someone to assign the contract to you can cancel it with no loss. (make sure you use a contract with an inspection period so you can cancel with no legal liability) This is what thos RE gurus talk about on the infomericials "make money in RE with no money and bad credit"

Negotiating with a wholesaler is very easy because they are under a time limit. They already signed a contract to buy with the seller (put down a 1k deposit or so) and have a closing date. They have to assign the contract before the closing date or they have to close or lose their 1k. If the deal sounds good (you have researched rents, taxes, went though the house, rehab costs etc) then low ball the wholesaler. They will often come back with the lowest possible price maybe 1k or 2k over what they signed the contract for. This is as good as you can get.

[GittyUP]

[ QUOTE ]
[ QUOTE ]
Yes your correct.
A lot of people I deal with use when talking residential speak of GOI when talking cap rate. I understand though that usually NOI is the proper number to determine cap rate especially in commericial RE.

[/ QUOTE ]

I've never know anyone to use GOI to calculate cap rates. What is the rationale behind using GOI instead of NOI? I can't figure a good reason to use GOI other than you can't get any decent cap rates on smaller residential properties by using NOI.

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I dont have a good answer sorry. [img]/images/graemlins/tongue.gif[/img]

[john voight]

thanks a lot for the info!