Scenario 1

[dcaz4moores]

For those savvy investors:

If the annual Revenue properties rent equates to 9.8% (that number is not considering the cost of borrowing) of the total purchase cost, is that ratio acceptable? Is there a marker to aim for where the deal goes from making good business sense to no longer worth considering?



Thanks for the great dialogue thus far.



Regards,



Dave.

 

[Thomas Beyer]

it's a start .. but FAR MORE INFORMATION IS REQUIRED, such as:

a) expenses

b) location upside, if any

c) city upside, if any

d) deferred maintenance (new roof required ? new boiler ? new windows ? new kitchen ?)

e) what is an expected vacancy

f) what type of property is this ? a $1M home in a nice sub-division, a 4-plex in a very upscale neighborhood with primo condo conversion potential, a trailer park, a 12-plex in a slummy neighborhood ?



Do you want to buy my car ? It is only $12,000 ! Is this a good deal ?

 

[bizaro86]

The short answer is "it depends."



There are many properties where 9.8% rent is a good purchase. But it depends on factors like what type of financing can you get, and with what interest rate. What are the expenses on the property, does the rent quoted include utilities, how is the neighbourhood/location/economy in the city, what is the condition of the property, what type (and cost) of management would be required.



9.8% rent to purchase on a single family home in good condition in a good neighbourhood of a growing city with A credit residential financing at a low rate/long amortization where tenants pay their own utilities would be great.



9.8% rent to purchase on a rooming house in poor condition in a bad neighbourhood of a decaying city where you can only get private money at high rates rented all-bills-paid by the week increasing your management costs would be awful.



Regards,



Michael

 

[dcaz4moores]

WOW...I have so much to learn, but learn I will.

Thank you both for the wise feedback.



Decaying city...what a great term (but hope to never reside in one, or own investments in one)



Presently, to show constraint (so as to learn wisely), when all I really want to do is jump right in, is the most difficult part of this process thus far.



But I trust that patience, gleaning (such as this process) and eventually networking, along with doing the ACRE home study course, will prove to be a path worth trodding.



Regards,



Dave.

 

[Thomas Beyer]

[quote user=dcaz4moores] ... when all I really want to do is jump right in ...


one of the BIGGEST MISTAKES is to be too keen, too impatient, as you will likely OVERPAY !



Do your very intense homework on the area, on the type of properties you have in mind, on the financing available, on the possible property manager(s), on the true rents and the true expenses .. then and only then write an offer .. and if the first one is accepted you likely paid too much !

 

[bizaro86]

[quote user=ThomasBeyer]and if the first one is accepted you likely paid too much !




This is one of the most valuable pieces of real estate advice I've every followed. When I bought my first property, I made 4 offers that were rejected, and I'm glad it worked out that way, although it was frustrating at the time.



I was subsequently able to purchase a unit next door to one of the 4 failed offers, at a price 20% less than what I had offered for an extremely similar property, and 28% less than what that property ended up selling for to someone else. (It came up in my Realtor's search for comps!)



So Thank You to Thomas!



Michael

 

[invst4profit]

Dave a wise investor learns every possible scrap of information they can about their chosen business venture before they enter that business as you have seen.

The major mistake individuals make in buying rental properties is not understanding they are starting a business.

Learn the numbers, stick to the numbers, learn the provincial landlord tenant act front to back and be prepared to invest not only money but also a great deal of time and effort. You will find learning the numbers is a cake walk compared to dealing with tenants.

Starting in this business takes far more time, effort, stress and heart ache than many can manage.

 

[dcaz4moores]

Point well taken. Thank you for taking the time to respond. I will add to my study of the numbers, getting a hold of the Landlord tenant act and begin studying that as well. I have a friend who is a landlord and approached him if I could help him in any way possible...and that I am very interested in having him be my mentor. He obliged (I am very fortunate) and we are going to set up a weekly get together to discuss what I am learning, how I can be of benefit to him; and when I am ready to invest in our first property, I will be running it by him and the forum.

I will definitely employ and heed the advice of those who have gone before me.



Regards,



Dave.