Should you invest in this rental income property gas stoichiometry problems

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I have a similar property. We paid 350k for a duplex that rents for $2500 a month combined. It’s in a FANTASTIC area and we also never have problems renting to professionals with perfect credit. We have thus far have never had a vacancy and our current tenants have been there for nearly three years. I don’t really see how you can apply the 1% rule equally to Class A, B, and C properties. Yes I have less reward (debatable) but I also have less risk. This rents all day long to great tenants who don’t trash the place. gastric sleeve scars Since no one trashes it and it’s so popular, we spend minimal time screening because everyone is great, and since I never have a vacancy (new tenants move in two days after the previous tenants leave), my .07% may well yield as good a ROI and ultimately as high a cap rate as the 1% rule property mentioned on this website that remained vacant for months. Ultimately it’s about cap rate and ROI , not the 1% rule. There are many models out there that work. I think for people starting out the 1% rule is very safe, especially in marginal areas. But it’s not the only way to be a successful investor.

Thanks for laying it all out. You didn’t mention it here, but one cost that I always put into my cap rate (and other) calculations on investment property is vacancy. 1 unit electricity cost in tamilnadu When you look at investment returns long-term (e.g., what it will make over a year, three years, etc.), vacancy becomes a cost. I have seen you account for vacancy in your projections of your own properties, but I think it can be handy for cap rates too. This is particularly true if you are comparing multiple properties and have a good sense of the market. Not all properties will have a similar vacancy rate. I’ve been investing in real estate for about 10 years and when I go to look at a potential property, I try estimate what vacancy will be. An APOD from previous managers/owners can be helpful, but not always trustworthy. I almost always start at 10% and go up from there, just to be safe. (I’ve got some properties that have had 0% for years, but it’s not something you want to count on). Some high-risk properties here (Albuquerque) can have vacancy rates of 25% or more. There’s good money to be made on those, but a lot more time/effort/management has to go into it. So, if you are evaluating properties in the same neighborhood in the same condition, it doesn’t matter whether you add in vacancy as a cost. But if you are looking at diverse properties, it’s a must. Something that looks like a great deal (1.5-2% rent to cost) might actually be a bad investment once you have deal with high vacancy (which means more cleaning, advertising, unpaid rent, etc.).

To determine the rent: I pretend (inside my head) that I’m a renter who wants to live in a particular neighborhood, and then I’ll search online for rental properties in that area. I’ll check Craigslist, PadMapper, Zillow, Trulia and Postlets, narrowing the search based on the number of bedrooms and the type of property (example: high-rise condo vs. single-family home). 4 other gases in the atmosphere I don’t actually make any viewing appointments, since I want to respect the other landlords’ time, but if anyone is hosting an “Open House,” I’ll swing by to check out the condition and size.

Just for kicks, I’ll also check websites like RentOMeter.com, but you should take their recommendations with a grain of salt. If the rent you see on RentoMeter is aligned with that you’re finding independently (when you’re researching online), then cool — they’ve corroborated what you already know. If the results you find on RentoMeter are drastically different, through, give priority to the prices that you’ve found firsthand by searching online.

My pricing philosophy is to compete on quality, rather than price. If I start undercutting the other houses in the area, then I’m starting a chain reaction that will cause the whole neighborhood to fall in price. (Plus, I’m depriving money from my own bank account). Instead, I’ll price my units at the same rate as everyone else, but offer a nicer place to live: fresh paint, updated cabinets and countertops, new windows, professional cleaning before move-in. The tenants get a higher-quality space at the same price.

1) Imagine concentric circles, with your home in the epicenter. Start systematically looking at properties each “ring” of concentric circles, until you reach the ring that offers a selection of properties that meet the one percent rule. Remember that these homes aren’t always going to be the first listings that leap out at you — many neighborhoods offer 1% Rule properties in the form of foreclosures, short sales, auctions and other deals that aren’t advertised.

2) Choose a specific area/neighborhood that you’ll specialize in. For example, you might decide that Philadelphia, Pittsburgh, Cleveland, Cincinnati, Columbus, Dayton, or various rural communities/towns in Vermont, New Hampshire, Maine or upstate NY might become your area of specialty. Then concentrate all of your investment properties in that specific area. This carries a few benefits: 1) the more you’re an expert in a given geographic area, the better able you’ll be to spot deals when they emerge; 2) you’ll develop a team of contractors, realtors, etc., who are localized in one area; 3) you’ll become well-versed in area specifics like turnover patterns, specific local laws, etc.

The “concentric circles” method is ideal for people who want to invest close to home, but can’t find anything in their immediate neighborhood. I often talk to investors in places like Charlotte or Charleston or Atlanta who say, “there’s nothing here!”, but their problem is that they’re only looking at the type of places where THEY would live. They’re not asking themselves, “Where do the janitors in my community live? Where do the TSA officials and baggage handlers live? How about the Starbucks baristas and the cashiers at Target; where do they live?” If this is the case, start methodically searching in concentric circles. Start within a 5-mile radius, then expand out to 10 miles, 20 miles, 40 miles.

Sometimes, however, people genuinely live 50+ miles from the nearest One Percent Rule neighborhoods, and that’s when I recommend choosing a particular city/town and specializing in that area, accepting the knowledge that it’s not in your backyard. There are serious benefits to investing in a city/town that’s too far for you to drive to on a whim, as this forces you to develop the systems and processes necessary to make this a passive enterprise.

I also wish such articles would make it easier for us to compare apples to apples. Generally, returns are presented without inflation, taxes and fees, which make the raw returns so much easier to compare between opportunities. electricity billy elliot karaoke I suppose the article is trying to show buying power, though, and don’t want to overwhelm the reader with too many stats.

In terms of how I interpret that data, I agree with your analysis for the most part. That period (1920 – 2010) seems to have had an average annual inflation rate of about 3.1% ( http://inflationdata.com/Inflation/Inflation/DecadeInflation.asp), so 4.1% becomes 7.2% after inflation. I’d add taxes next, which I’d guess people pay an average of 20% on. How amazing it would be if people realized the extraordinary power of tax-advantaged accounts, but that’s another discussion 🙂

20% from 9% yields 7.2%, so 9% is the pre-tax amount. Lastly, let’s subtract fees. About as bad as not going the tax-advantaged route is when people use high-fee instruments or worse, active management. Since this article focuses on the S&P500, we can assume the money isn’t actively managed. Yet, fees are probably non-negligible. gas leak I could be wrong, but my understanding is that the lowest-fee funds/ETFs like VOO and FUSVX have only been so low-fee in recent years. And at any point in time, I think it’s safe to assume the average investor probably doesn’t realize they can track the S&P500 for as low a fee as the cheapest instruments out there. So I’d tack on another .7% or so (or higher, historically) as the average fees people might pay to track the S&P500. That leaves us with a reverse engineered 9.7% average return over those years.

By the way, I see this as a bit of worlds colliding. You are an expert in building wealth via real estate in a way that’s accessible to most, and want to teach those concepts to the masses. Though I’m no expert, I’ve always had a similar approach, except with a focus on the stock market. I’ve used this approach since I started working in 2006, and since having read how the experts (Mr Money Mustache, Go Curry Cracker, Mad Fientist, JCollins) turn it into a science, I’ve started taking it even further. I now teach this stuff as part of a training series at work (I’m an engineer, so it’s more like a User’s Group), teach interested friends one-on-one, and write articles for a Financial Independence fb group. But I’m by no means in the same league as the aforementioned experts, so I’m always trying to learn more – which is what brought me to your site 🙂

I see you as on the level as those experts, except in real estate. We’re all trying to help the masses reach financial independence – some via real estate and some via the stock market. And there are other approaches too. When these worlds collide, it helps people to broaden their toolset for achieving FI, since they all can play a powerful role.

Let’s take the lowest-tax, lowest-fee set of assumptions — that a person pays a 15% effective tax rate and a 0.1 percent fund fee. (I know those assumptions are far too low, and that it’s likely that the average investor pays higher taxes and fees, but just play along with this thought experiment for a moment, so we can see where it leads.) The pre-tax amount, in this scenario, would be 8.5%, which means the return before fees would be 8.6%. Again, that’s using a set of assumptions that’s too-low-to-be-likely-for-the-majority-of-cases, but this number shows us the lowest end of the likely range.

The other bloggers in the financial independence space focus on stock investing; I refer a lot of people to JLCollinsNH’s stock series, in particular. And I credit MadFIentist with teaching me how to “hack” my H.S.A. (pay out-of-pocket, scan the receipts, and let your money compound its tax-free growth within the account, assuming your H.S.A. balance is invested in index funds.) In retrospect that tactic sounds obvious (why wouldn’t I let my money continue tax-advantaged growth for as long as possible?), and I mean that as a credit to the MadFIentist; the best ideas often seem obvious in hindsight, because the wisdom is so clear.

A great post! Have been binge reading your blog and it sounds very exciting for you 🙂 I am envious with the real estate market you are living in though! Buying foreclosed houses in cash! I live in Ottawa, Canada and I have literally never seen a foreclosed house selling for less than $100K. Heck….even under $200 k is a rare find and is usually in a run down condo building with $800 condo fees! lol

I’m trying to get into the real estate game after being inspired by family and have a substantive down payment! Problem is property prices. The cheapest most run down detached houses in not the best location sell for at least $300K. But the 1% rule really wouldn’t apply…these places can, at MOST, rent for $1500. I saw a house in an up in coming neighborhood that would have been great to update and rent….but the house was listed for $500K. I did the math and realized no way would I be able in a million years rent it for $5k a month. I figured maybe at most $2500 ? But that would just barely only cover costs (mortgage and tax). So I passed. z gas ensenada Someone else bought it and I saw a ‘to rent’ post a week later for $2000/month. Its been 3 months and it still hasnt rented!! Which tells me I was smart to pass but also depressing because how the hell is one supposed to get into real estate rentals like this??