Re: Advice on purchase of our First Investment Property - Posted by Bud Branstetter
Posted by Bud Branstetter on December 27, 1999 at 12:13:05:
If you were a large company doing the investment you would allocate 10% of the gross for management, 10% for maintenance and 5-10% for vacancy. You are going to be paid that 10% for the hours you put in advertizing, collecting rents, showing the property and assundry other functions. There is always going to be fixup needed in addition to normal yardwork. You are hiring yourself out to do that work for part of the maintenance budget. Many times there is deferred maintenance on rental property. A roof that needs to be replaced in 5 years has a presant worth cost. Same for new appliances, hot water heaters, carpet and HVAC. A through analysis will factor in the present worth of all these repairs that will be needed in the future. As far as vacancy goes a large company knows the rate for large complexes. Yours is likely to much greater because of your ability to screen and evict tenants. You also do not have an office that gets applications daily. My guess is that your 500/month positive cash flow would be eaten up by these factors.
It may be a good investment but remember you are doing the work and it is called sweat equity for a reason. Multi family is less liquid than single family. The value is the cash flow. On single family the price goes up with supply and demand. On the multifamily you wait until rents are effected that increase you cash flow. How fast the property will appreciate depends on your area. Some areas have 1%. Some have had 10%+ in a year.
There are good investment strategies using rental property. Most investors do it because they have surplus cash. It will be a experience for a first timer. Hopefully a good experience.