Author Topic: Evaluating a Rental Property  (Read 26682 times)

myamnesia

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Re: Evaluating a Rental Property
« Reply #50 on: January 28, 2016, 04:30:05 PM »
It looks like finding a trustworthy turnkey company would be the way to go for us, definitely more appealing than the CA market.

Thanks so much :)

arebelspy

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Re: Evaluating a Rental Property
« Reply #51 on: January 29, 2016, 01:37:00 PM »
Do either of you have any experience with turnkey real estate companies?

Thanks!

Run a search on the real estate part of the forum for turnkey and you'll find plenty  :)
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smartmoneymd

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Re: Evaluating a Rental Property
« Reply #52 on: April 17, 2016, 07:19:01 PM »
This question is a peripherally related to the rental market. I was wondering whether OP or the other REI folks here typically run their rentals through an LLC, several LLC's for each property, or simply insuring each property adequately? For those of you with an LLC, do you operate it out of the state you have your rental or in your home state?

Fascinating topic. Thanks @iamlindoro for spending the time to write up your experiences. Did you ever travel to your property before purchase?
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sun and sand

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Re: Evaluating a Rental Property
« Reply #53 on: April 25, 2016, 07:25:11 AM »
Florida--Anna Maria Island.   Did major reno on a house 7 houses from the Gulf.  Put online and got bookings for over 30k in two weeks.  The island gets bookings year round. House should get 60k per year and I use it for approx. one month.
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mousebandit

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Re: Evaluating a Rental Property
« Reply #54 on: May 31, 2016, 05:18:25 AM »
Hi!  Awesome post, thank you!  Where do you find your data for neighborhood ratings and average income for certain parts of a zip code?   Thank you!

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Re: Evaluating a Rental Property
« Reply #55 on: May 31, 2016, 07:29:21 AM »
Hi!  Awesome post, thank you!  Where do you find your data for neighborhood ratings and average income for certain parts of a zip code?   Thank you!

MouseBandit

Thanks! Most demographic data, including income, education level, median rent, etc. is available at:

http://www.city-data.com/

You can search for a ZIP code and see a report on a lot of these items, including visualizing data on a map at the neighborhood level, which is more granular than the ZIP code level. Neighborhood "letter" grades are subjective, but they should theoretically be a combination of the above data.  Remember too that neighborhood letter grading should scale according to the surrounding community. What I mean is, a $50K median income in Columbus, Ohio is very different from a $50K median income in San Francisco.  Whereas in one community it might be middle to upper middle class, in the other it might represent practically living in poverty.
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mousebandit

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Re: Evaluating a Rental Property
« Reply #56 on: May 31, 2016, 11:01:47 AM »
Excellent!!  Thank you!! 

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jrhampt

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Re: Evaluating a Rental Property
« Reply #57 on: July 16, 2016, 03:22:09 PM »
Soooo...there's a home we're thinking about buying and living in for a few years at least, then maybe trying to rent out.  Home costs ~$148k including closing costs and inspections.  $4k/year property taxes, $1k/year insurance.  It's right across the street from a university so would probably be easy to rent to college professors or maybe students (4 bedrooms total).  Looks like comparable properties in the area rent for $1500/mo or slightly less.  What else would I need to know to determine if this is an okay prospect for a future rental?  Or can you already tell looking at the above information?

iamlindoro

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Re: Evaluating a Rental Property
« Reply #58 on: July 16, 2016, 04:06:10 PM »
Soooo...there's a home we're thinking about buying and living in for a few years at least, then maybe trying to rent out.  Home costs ~$148k including closing costs and inspections.  $4k/year property taxes, $1k/year insurance.  It's right across the street from a university so would probably be easy to rent to college professors or maybe students (4 bedrooms total).  Looks like comparable properties in the area rent for $1500/mo or slightly less.  What else would I need to know to determine if this is an okay prospect for a future rental?  Or can you already tell looking at the above information?

Those numbers are a good start towards what you need to know, but the original post has many of the common items you ought to consider under the heading "The Numbers," with each item to consider in bold (need to figure in vacancy, repairs, etc). You can make a copy of the spreadsheet linked in the first post and plug in your numbers to see what cash flow you could expect. Go through the analysis described in the OP and you should be able to determine whether this property would be an acceptable rental to you.

Based on what you've said so far, though, I'd anticipate that it would cash flow very poorly, if at all, so if you're hoping for cash flow, this one isn't likely to work very well.
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finitelement

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Re: Evaluating a Rental Property
« Reply #59 on: August 15, 2016, 01:03:15 PM »
Cell P8 refers to the annual cash flow in regards to doing your own PM.  It takes the annual cash flow calculated  with paid PM but subtracts cells F30 and F31 which are Sewer Service (per year) and Lease Renewal Fee.  Why isn't this just subtracting the Variable cost PM (cell F27)??

iamlindoro

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Re: Evaluating a Rental Property
« Reply #60 on: August 15, 2016, 01:15:09 PM »
Cell P8 refers to the annual cash flow in regards to doing your own PM.  It takes the annual cash flow calculated  with paid PM but subtracts cells F30 and F31 which are Sewer Service (per year) and Lease Renewal Fee.  Why isn't this just subtracting the Variable cost PM (cell F27)??

Good catch (though I think you mean adding it back rather than subtracting as we're talking cash flow).  Seems to have been an artifact of some of the additions I made to the sheet when I made it multi-unit.  Thanks!
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Pixelshot

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Re: Evaluating a Rental Property
« Reply #61 on: December 09, 2016, 10:42:14 AM »
iamlindoro - I'm considering buying a home in the Denver area in a specific neighborhood because of my son's school location. We will live in the house for now, then I am thinking to rent it later. I want to run the numbers now to see if it's a good decision. However, in reading through this thread, I am struggling to translate the numbers to a much different home value. What we're talking about here is a home price in the mid 400k range (with rental prices around 2$500).

Do you have a standard formula that will still hold up at those higher numbers? Thanks.

iamlindoro

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Re: Evaluating a Rental Property
« Reply #62 on: December 09, 2016, 11:42:48 AM »
iamlindoro - I'm considering buying a home in the Denver area in a specific neighborhood because of my son's school location. We will live in the house for now, then I am thinking to rent it later. I want to run the numbers now to see if it's a good decision. However, in reading through this thread, I am struggling to translate the numbers to a much different home value. What we're talking about here is a home price in the mid 400k range (with rental prices around 2$500).

Do you have a standard formula that will still hold up at those higher numbers? Thanks.

When the price/rent ratios don't hold up to the formula, the right answer probably isn't to find a new formula :)

A 400K purchase price with 2,500 is rents is a bad rental for cash flow. There may be other mitigating factors (like your family situation, or banking on appreciation, which is purely speculative) but as a cash flowing rental, it doesn't sound like a good one.
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FrugalSaver

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Re: Evaluating a Rental Property
« Reply #63 on: December 28, 2016, 11:51:58 PM »
Can anyone share examples of how the statement below works with actual numbers?

My current plan reinvests all the cash flow in future properties.  I'm buying 2-3 a year for the next 5 years.  This will be a serious pull-up for the first two years, after which the cash flow starts buying properties for me almost as fast as I can on my own.

Also, what's a "serious pull up for the first 2 years" mean?

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Re: Evaluating a Rental Property
« Reply #64 on: December 29, 2016, 05:27:34 AM »
Hi!  Awesome post, thank you!  Where do you find your data for neighborhood ratings and average income for certain parts of a zip code?   Thank you!

MouseBandit

Thanks! Most demographic data, including income, education level, median rent, etc. is available at:

http://www.city-data.com/

You can search for a ZIP code and see a report on a lot of these items, including visualizing data on a map at the neighborhood level, which is more granular than the ZIP code level. Neighborhood "letter" grades are subjective, but they should theoretically be a combination of the above data.  Remember too that neighborhood letter grading should scale according to the surrounding community. What I mean is, a $50K median income in Columbus, Ohio is very different from a $50K median income in San Francisco.  Whereas in one community it might be middle to upper middle class, in the other it might represent practically living in poverty.

Note also that this does not make SF the better place to buy into! certainly, making 5% on a $850,000 property is a lot better than making 5% on a $50,000 place - but the opposite holds true if you lose. Also, finding renters at each price point is no different and one may be easier to finance than the other. Price can only be the beginning of your search. Many secondary markets are overlooked and offer great opportunities - both from a LL perspective and as LCOL retirement options (our plan).
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SuperMex

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Re: Evaluating a Rental Property
« Reply #65 on: January 12, 2017, 05:15:25 AM »
Two things that you may want to look at.

1. Normally 1-4 unit buildings are considered single family dwellings for mortgage purposes. I don't think you need investor financing up to five units after that you will need the investor financing.

2. The law generally says you must have the intent to occupy the dwelling to get owner occupied  financing. In practicality you can either move in for six months, or have the intention to do so but change your mind later. You need to look at the wording of the mortgage, some say you have to live there for a minimum time period and others say intent.

If you are single or have a wife willing to move you will do much better by living in one side while fixing the place up and then moving to your next investment.


Rewdoalb

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Re: Evaluating a Rental Property
« Reply #66 on: January 16, 2017, 12:51:25 PM »
Helpful spreadsheet, thanks!

Question on your purple boxes at the top.  You break out Cash Flow & ROI between doing your own Property Management and outsourcing PM.

If doing your own PM, wouldn't that cover your listed costs for Tenant Placement, Annual Tuneup/Inspection, and Lease Renewal Fee?  Or would you still be hiring out those servicing while doing your own PM?  I guess I'm not sure what PM is actually DOING at that point...help me out here.

iamlindoro

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Re: Evaluating a Rental Property
« Reply #67 on: January 16, 2017, 01:51:16 PM »
Helpful spreadsheet, thanks!

Question on your purple boxes at the top.  You break out Cash Flow & ROI between doing your own Property Management and outsourcing PM.

If doing your own PM, wouldn't that cover your listed costs for Tenant Placement, Annual Tuneup/Inspection, and Lease Renewal Fee?  Or would you still be hiring out those servicing while doing your own PM?  I guess I'm not sure what PM is actually DOING at that point...help me out here.

The idea is to change the line-item values as necessary to suit your situation. The unmodified spreadsheet just happens to have been configured for the specific additional charges that I factored in for this property. Easiest way to handle it is to just save your own copy and then adjust the line items to suit you (I ignored the non-PM price completely in this scenario since the property is far out of state and I preferred not to attempt to manage it from afar).
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Rewdoalb

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Re: Evaluating a Rental Property
« Reply #68 on: January 16, 2017, 03:44:25 PM »
Helpful spreadsheet, thanks!

Question on your purple boxes at the top.  You break out Cash Flow & ROI between doing your own Property Management and outsourcing PM.

If doing your own PM, wouldn't that cover your listed costs for Tenant Placement, Annual Tuneup/Inspection, and Lease Renewal Fee?  Or would you still be hiring out those servicing while doing your own PM?  I guess I'm not sure what PM is actually DOING at that point...help me out here.

The idea is to change the line-item values as necessary to suit your situation. The unmodified spreadsheet just happens to have been configured for the specific additional charges that I factored in for this property. Easiest way to handle it is to just save your own copy and then adjust the line items to suit you (I ignored the non-PM price completely in this scenario since the property is far out of state and I preferred not to attempt to manage it from afar).

Thanks.  However, my question pertains to the formulas/assumptions behind L8 / P8 and not to the "line-item values".

Felicity

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Re: Evaluating a Rental Property
« Reply #69 on: February 27, 2017, 06:20:59 PM »
Of course I read this only *after* making a calculator from scratchish XD

I'm definitely going to look over this spreadsheet and make some changes, though...Iamlindoro (or anyone else who's interested), I'd love feedback :)
https://fetchingfinancialfreedom.com/calculator-rental-property/  I would link back to this thread/the share sheet as a reference source, of course. (Feedback thread for calculator here: http://forum.mrmoneymustache.com/real-estate-and-landlording/i-made-a-calculator-for-real-estate-newbs-feedback-please-d/)

« Last Edit: February 27, 2017, 06:48:14 PM by Felicity »
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Captain and Mrs Slow

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Re: Evaluating a Rental Property
« Reply #70 on: March 17, 2017, 02:51:13 AM »
Bigger Pockets just had a webinar on this very subject. The actual numbers start min 45. Anything before that is just hype.

https://www.youtube.com/watch?v=l1u2qPXBadc&feature=youtu.be
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Re: Evaluating a Rental Property
« Reply #71 on: March 17, 2017, 11:30:52 AM »
Helpful spreadsheet, thanks!

Question on your purple boxes at the top.  You break out Cash Flow & ROI between doing your own Property Management and outsourcing PM.

If doing your own PM, wouldn't that cover your listed costs for Tenant Placement, Annual Tuneup/Inspection, and Lease Renewal Fee?  Or would you still be hiring out those servicing while doing your own PM?  I guess I'm not sure what PM is actually DOING at that point...help me out here.

I would say that you are doing the job of the PM and should be paid accordingly.   Ditto if you are doing your own repairs.   That income is above and beyond the profit you are making from renting the property out.

I think it's important to look at it in that manner for several reasons:

1) You might decide you don't want to do that work anymore, but you might be stuck with it if you can't afford to hire it out.

2) You might not be able to do that work anymore, but you might start losing properties because you can't at least break even on the ones you have.

In other words, as long as you're doing the work, it's bonus income from working a side-gig as a PM.

bendavis

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Re: Evaluating a Rental Property
« Reply #72 on: April 12, 2017, 07:49:27 AM »
I typically use the 7-year rule (http://www.fromcentstoretirement.com/how-to-evaluate-a-rental-property/) to filter out bad deals.

I am a cash flow guy, so when I invest the first thing that I ask is how long will it take to get my capital back. 7 years is the answer for Real Estate (I do not consider appreciation whatsoever).

Hope this helps.
Ben