"I use  40% of Gross Income as my Total Expenses (taxes,insurance,repairs,vacancy,etc) not including mortgage and in my case, management fees since i manage the properties myself.  Am I on the lower or higher end of it?

How do you guestimate your total expenses? is there a formula?"
 

I believe the context here is for estimating what effect this will have on cash flow when you are coming up with an amount to offer and therefore finance when purchasing a cash flow property. 

I’ll tell you where I really want to be – I want the maintenance to be 10% of gross income or less.  You’ll get this on properties that are mid 1960’s and newer, or older homes that have the plumbing, electrical, and heat and air updated. 

I remember when I first started out I bought these old junker houses – you know the ones…pre-1950’s plumbing, wiring so old that you didn’t trip the breaker, you blew a fuse…and yes, tempermental floor furnaces. 

I thought you just bought the house, gave her some paint and carpet, and you are off to the races. 

WRONG!!!

You’ll pay through the nose if you don’t get these items updated to some standard that doesn’t required constant maintenance.  That doesn’t mean you have to totally rewire the property just because it has a fuse box.  But it does mean that you need to know where to spend your money properly on upgrades.  If you don’t, you might as well figure in 20% on mainenance and a higher than usual vacancy rate. 

That brings me to vacancy, which ideally is less than 10%.  If you are running higher than 10%, it’s time to take a look at what’s not working right in your business.  Basically, you have a break down in one of the following areas:

1) You aren’t getting your properties ready to rent quick enough between renters,

2) You don’t know what you are doing when it comes to collections,

3) Your marketing / advertising isn’t getting you enough traffic into your properties,

4) Your tenant screening is not adequate, or

5) The amount of your advertised rent and/or deposit is too high relative to your market.

As for property tax and insurance, it’s best to use actual values. 

Once a year you should be doing a financial statement, even if you don’t have to put one together for the bank.  When you do, calculate out the maintenance and vacancy that you are experiencing.  The amount of maintenance that you actually do will be in those numbers. 

As for vacancy, you can calculate that by taking the amount of income you collected (other than late fees and seized deposits) and divide that by your potential income if 100% of rents would have been collected for the year. 

Answer: “I think for people that are starting out in general, I would recommend single family homes. The advantage of multi-unit properties is you can hopefully buy it for less money per unit than you would have to pay for a single-family home. For instance, you might buy a single family house with two bedrooms for 50 thousand dollars. However, you might hope to buy a two bedroom in a multi-family unit for 35 or 40 thousand a piece.”
The rent is a little less per unit than a single-family home would be per unit. The management and expenses are generally a little higher in a multi-family than a single-family home.

But the biggest problem is that a multi-family property is much harder to sell than a single-family home. For single family homes, you two types of buyers. You’ve got other investors like you. You’ve also got retail or owner financed buyers who might want to live in the house.

Retail buyers usually don’t buy multi-unit properties, at least here in Oklahoma City. Not even duplexes.

When you talk about selling a mult-family property you’re only talking about other investors. And the management is a little more complicated for a mult-unit property than a single family home. One factor is that you’ve got some common utilities. You may also have some common land to keep up with and you may be forced to play referee between your tenants.

Can you make some good money? Absolutely. I don’t think apartment complexes, especially in Oklahoma City are the huge money maker because you’ve got investors on a national basis who are also buying those properties, whereas they don’t compete much with mult-unit properties of 4 units or less or single family homes.

Recently, I saw an 16-unit apartment complex in what I thought was a pretty crappy neighborhood. I thought it might go for $200,000 to $250,000. By the time the dust finally settled, it sold for $475,000 to an out-of state investor.

In my opinion, the investor who bought that property isn’t going to make that much on cash flow. In my opinion, they’ll have to hold that property for a long time to make the investment carry it’s weight.

That’s why most of what I buy are single family homes. That’s also what we highly recommend for beginning investors.

For some great insights into getting started investing in single family homes, CLICK HERE to check out this special report I put together for you.

Question: “I want to buy a property, but I can’t get the money. What do you do when the banks won’t lend you money, and you don’t have cash to work with?”

Answer: “You don’t have to have bank financing to make this work – to buy real estate. One of my favorite way to buy cash flow properties is to use private money.
Find an individual who might be taking their money out of the stock market and wants to get a very good return. Think about it – it’s challenging right now for someone with, let say, $100,000 to invest it to get a 10 percent return. I challenge you to go out there and find that.
Investing in the stock market is just strictly hope because there is no way to know what’s going to happen. When the stock market is booming, there is no way to know what the market is going to do. Same thing when the market is down.
You just put in your money and then hope. All you’re doing is hoping.
And what about those people who are earning 2% on their CDs at the bank? To them, a 10% return sounds too good to be true.
If you are a retired person, and you have your money in CDs, you are not happy with the return you are getting because that’s the money you have to live on.
I’m certainly looking for anyone with money. I’m not doing direct marketing (sending out letters and postcard) to find them, but I’m certainly looking for them all the time, keep my eyes and ears open.
The best kind of marketing in that sense is just talking to people. Just talking to the people in your circle, you know and let them know.
But put yourself in the position of the private lender if they loan you money to buy real estate. If they invest in a mortgage you create in the process of buying a piece of real estate, your private lender knows exactly what they are going to get. It’s a much more predictable way you can get a pretty good rate of return.
I encouraged my friends with money to consider investing in first mortgages secured by real estate, whether they are lending money to me or to somebody else.
When you as a real estate investor have access to private money, it just totally changes things. You don’t wonder where your money will come from. Your focus changes to how you can use the money. That means the questions that you ask yourself on a habitual basis will change. That means your results are going to change. It becomes a matter of what kind of deals you want to go after. It will change your business, just like it changed mine.
Are you using money from the bank now? There are times when the banks tighten their standards. During those times, they might stop lending to you. That’s where private money can save the day for you.
Do you have a question about private money? Write a comment…

Passive income is thing of beauty.  You know, I can make more cash flipping properties.  But the income from flipping houses is inconsistent.  Once I have the income stream from a cash flow property established, it just keeps producing like an oil well that doesn’t go dry. 

I flip quite a few of the properties I buy.  It’s good money, but it is work.

In addition to the passive income, you also need to consider how much debt you are paying down.  I prefer to put my cash flow properties on ten year notes (certainly nothing more than 15 years).  There are those who will argue that you should put your properties on 30-year notes, but I’m not one of them. 

Every dollar that you pay down on those mortgages is another dollar that goes into your brick and mortar bank.  It’s just one dollar closer to financial freedom.