Calculating NOI for Real Estate and How to Start Investing with $70K (Rookie Reply)
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Let's get your questions answer. My name is actually care and i'm here with tony j. Robinson and this is the podcast .

here to help you kick start your real, say, investing journey. And today we're diving back into the bigger pocket forms to get draw questions answered. No guys, the forms of the absolute best place to quickly get all of your real, say, investing questions answered by experts like me, ashly and so many others.

So what are we going to talk about today? We got a couple of things here. Number one, we're going to talk about how to calculate your inner as a first time investor.

We're going to talk about a tenant who has some appliance issues and whether or not you as the land or should get those fix for them and then will finish up by talking about how to get started in real state with seventy thousand dollars. Now before we jump in, we want to give a quick thank you to corporate direct. This episode is sponsored by corporate direct, where you can protect your properties with an lc and let corporate direct take care of the paperwork, build to a bigger pockets. Outcomes slash directed for a three fifty minute consultation and one hundred books off. If you mentioned the real set rooky pocket .

going to the show. okay. So our first question here is pulled from the bigger pocket forms. And this question says, hi, i'm a first time investor trying to underwrite making all cash offer on a duplex. I've always struggled with coming up with Operating expenses to calculate my N O I, my net Operating income, specifically maintenance and insurance.

I can find out pretty easily what the property taxes and I can shop around or just guess about eight percent to ten percent property management fees, but insurance and maintenance is where the analyse calculation have really confused me. The duplex is located in the midwest, no flood zone. Is there a landlord policy? Or what should I actually be shopping for? Also, what should be taken into account when coming up with maintenance for the N.

I equation? okay. So let's started the first top of that question of calculating. Anyway, if you need help figuring out what specifically to add in as expenses to calculate your Operating income, you can go to bigger pockets and go to the calculator reports where IT will show you depending on what strategy you're using.

If you're doing a rental, let's use that for an example, will show you exactly everything you need to analyze a rental property, what kind of expenses you should be looking at. So uh, the person that ask this question said they already kind of know they can look up property taxes, which most often you can do on mine or you know you can get the actual tax bills from the seller of the property or some times it's even listed in the animals listing. Then they did their research for the property management feels.

But insurance and maintenance is where, uh, they're getting confused. So insurance I will one hundred percent agree IT is difficult to estimate, especially on your very first or rental property, what the insurance will be because you will be different than your home owners insurance because there's often times more liability because you are really in lord on the policy, but maybe you won't have as much coverage. So first thing I think to take into account is that is really going to vary upon what type of coverage you get onto the property.

So are you going to do replacement cost of what other things are on the property that could increase the insurance premium? Is there a pool to determines have a tripling on there, things like that? So tony, what would you say is your best advice for estimating the insurance on a property? I told to understand what the .

questions come from as well, but I only have like it's an easier solution the most people give a credit for. You can reach out to an insurance agent and a lot of time, same day, they can give back you with some sort of quote on what they think insurance might be.

So from looking at a market, i'm going to reach out, you know maybe ask your your agent, your real site agent, maybe ask your london, hey, who's a good insurance agent that you know that works in this market. Reach out that person to ham thinking about buying three different properties, you know, give them, you know, do plus a single family home, whatever IT is I was that you're looking at and say, hey, can you give me some ballpark quotes to want to cost to ensure these. And within a day, maybe a day or two, you can get back and bob are quit and whatever cost to ensure those things.

And now you can kind of use that as a foundation moving forward. So super easy way, I think, is to just reach out to an agent. In worst case, you can probably go online, decides like other some of these big insurance companies echo progressive whoever punches to information there and they might be able to give you a quit bar quote online within minutes.

You ah billing problem with that is that you have to input your phone number and then you wit a million.

It's like when you apply for a Morgan.

you know you have accurate insurance premium numbers for your analysis that might be or to get those phone calls. But um yeah, there's a bunch of different websites that you can go in and you can get a quote. Another thing you can do to is going to the bigger pockets forums, ask other investors in that market what they're paying for insurance premiums to. And then I would just increase that and give yourself a little bit of a buffer in case there is something that specifically different about show, show or property. As far as the coverage of that.

the only of the thing out out to the insurance peace is also just kind of be aware of where that state is kind of moving in terms of insurance. You there like IT, for example, live in california. There are a lot of insurance providers that are leaving california for risk of fire, and they're just not coming back.

I was actually talking to someone I know who lives here in south in california, and they had on their primary residence, all of the insurance factors have left. The only covers they have to choose from now is the state sponsored insurance. And like fifteen thousand dollars a year, which is insane for we're at here in california. So just make sure that you're going to keep in tabs on hab. Is insurance cost kind of getting crazy in this marketers is still pretty reasonable in comparison to the rest of country?

That's a great point. In part of the question of this too, was do you get a lame or policy which should actually be shopping foreign? If IT is going to be a rental, you will want a landlord policy that will cover the property, the building, so the property were to build, burn down, you would get money to replace that property. And most of the times, the landlord policy will not cover any contents or personal items of your tenants. So you could add appliances on their view on the appliances um to that policy. But that's why it's born to have your renters have renters insurance because if a devastation occurred, your policy would not cover their contents, which makes sense because you are paying for the public icy and not them um so they should get their own and then the liability pieces a huge thing of the lander's policy because if your tenant does get hurt in your property or does decide to sue you for some reason, you have the liability piece um not just the property coverage on the property. And sorry.

you brought something to up to us. You are same like liability and what that looks like because I think one of the best things you can do is a Ricky is just get multiple quotes and then asked the agent to compare those quotes for you. So sometimes you know, if you your first time, really and even for me, like sometimes you reading through these, like, what does this me like, what do you say and what is actually come with? So take whatever quote you get from these different companies, say, get three quotes.

Take all three quotes to insurance for Better a and say, hey, can you compare your your quotes with these other two? And let me know what difference is you see and take those things to revotes insurance of our b and the insurance for iter sea and let them look through what the other coverage options are and actually explain to you well why there is mayor may not be the best. But I found a lot of value and kind of put that work back .

on the insurance yeah and I really like going with an insurance broker that shops IT out for you two to different insurance companies and set up just like an insurance agent for one company like geode state farm.

You know, there A A broker where they can actually shop a whole bunch of different and a lot of times zones know like already know from experience that this company is going to give you the best deal because they love you know a ensuring duplexes and they always have great coverage bubble aba, something like that. Could that can see you sometime? So the next piece of this is the maintenance factor, estimating maintenance.

So for me, i'm definitely looking at the age of the property. Was this property rehabs updated? How old are the mechanics of the property?

Things like that as to how much i'm allocating as far as a percentage to estimate for me. So on the high side, that could be eight to ten percent a month. On the low side, I usually always at least put five percent for maintenance.

I've never built or purchased a brand new build that was a rental property. So maybe in that case, you could even go lower for the first several years of not having a lot of maintenance come up. But that's kind of where I keep my baLance.

That is that it's an older property. I'm doing eight to ten percent. And if it's been remodeled and rehabs and the mechanics are good, that i'm doing five percent that i'm allocating every month. Two minutes.

honest. Not much to ask that actually think you with that when those pretty much in ball park figures we use as well.

okay. So kind of the last piece of this to wrap up here is what are other things that you can use to calculate the the annoyin self? And I think that just the answer to that is really just go to the bigger pockets and go to the calculator reports and just look at all of the expenses that you can allocate in there.

Um tony, besides, you know as far as Operating expenses, do you think there's anything off hand maybe for a short term rental that you don't you see that often times people leave out um like one example is well keeping fees like you're gna have to pay you know either an account to file your taxes every year or a book keeper to do the monthly book keeping. I see a lot of people leave that out of their not Operating income. Is there anything else. Um that you notice that maybe he should be taking into account.

Yeah the two biggest one that I probably see are um are consumers les, so things like your tailored paper, paper tows, body wash, sop champ o set a people tend to forget that. And then the other piece of people tend to forget is your cleaning fees. Now your cleaning fees or they are an expense that you pay out, but they're also income the you collect and is important to account for both of those when you're doing your analysis because sometimes you might collect more cleaning fee income than you do cleaning fee or than you pay out in cleaning fee expenses, there's actually a margin there. But cleaning fees and and consumer ables of the two things people miss in the short time side.

Before we jump into our second question, rocks, we want to thank you so much for being here and listening to the podcast. As you may know, we air every episode of this podcast on youtube as well as some original content like my new series of bRicky resource. We want to hit one hundred thousands of scribes, and we need your help.

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Okay, everyone, to welcome back. So for our second question, tony pulled one out of the real state rooky facebook group. right?

I did. yeah. And I was a question of national. I both separately had looked at, and we were like this, like a good question. Seems like the universe is talking to us here.

So let me let me pull up this question that we can all all read IT together. Here's a question. IT says it's been a while since I posted, but I need to vent.

I have a tenant that submitted a main request this morning because the outlet to the refrigerator stopped working. When another vendor moved the refrigerator in the ticket, they said that they have plug the refrigerator into another outlet using an extinction cord. He then told me that he wanted someone out there to fix the problem by five year today, or else he'll have his friend come and fix IT and just build me.

I don't even know if this friend is a certified electrician or the company that he's representing. I have my electric that can come out after five thirteen, which still same day service. He told me that he's going to call the county inspector, the city inspector all this because I won't let his friend work on my property.

And he wants me to pay for the thinker giving food, that is in the refrigerator. Is that me or is this tenant potentially being unreasonable? I feel like IT always gets little dicing.

We're talking about thanksgiving dinner. You know people people want to protect the turkey. So got we got and outlet that's gone up. But I think the interesting part here because maybe we need a little bit more clearly here, but IT says that the outlet stopped working when another vender moved the refrigerator. So much sure what that means. But um I guess maybe i'm interpreting that is like the tenant themselves hire someone to move the for age and that somehow let to this outlet going out? Or are you read .

that a different way? ash? yes. So when I was looking at that and I don't know for sure if IT was somebody that tenant hired to come in, like maybe they already had someone in their doing maintenance and something.

Um but either way, I just look at this and i'm looking at the time frame as and this is taking care of same day, um there shouldn't be this big of an issue. And I think IT really goes back to setting your expectations. So actually Wilson SHE owns A A bunch of apartment complexes.

And one thing I love in her property management model is that when you move in to one of her properties, SHE has almost like an expectation sheet that SHE gives out to all the tenants. That is, if you have a plum ming issue, IT will be taking care of within twenty four hours. If you have a handy man issue, forty eight hours, whatever that may be.

And IT goes through this whole list of things of maintenance issues that could come up. And IT says, we will take care of IT with an example t of time. And SHE said, this is over and above what IT actually takes them.

So say, for example, if the hot water thing isn't working, and they say we will take care of this within forty eight hours, SHE knows that they will actually always be able to take care of this and twenty four hours. So there's this expectation. And then when they exceed the expectation, IT makes them look even Better in the tenant, more appreciative that he was taken care of even faster than what they agreed to upon signing the least.

So if there's some way that when you create your release agreement is to putting into your release stating this is when maintenance will be performed and these are the time frames, if we cannot get someone to you in a timely manner, then you know, yes, that is our fault. Like will decrease your rent or do something like that, but same day service. And I don't think that you should treat if there's one thing that i've learned is for someone to harass you and to the and you mad they're gonna have someone come in and take IT.

It's what's going to happen in this situation is if they bring someone else in, they pay that person. They're probably going na withhold friends. They're going to pay you for whatever is extra for rent and then you're onna come out to them and say, hey, you still me the rest of rent you going to say, no, we had to paid the elections to problem and then IT comes down to, is IT worth you hire erin, an attorney, to send them a notice saying that, you know, you have passed you right? Going to go up to the eviction process.

So depending on the amount, IT may not even be worth sending. You know, having an attorney started an eviction process or sending them notice that the at least violation because they haven't paid their lease or at least violation because they had a contractor come in that wasn't certified. So IT really does get messy.

But I think the biggest thing is, is that remaining calm, like so i've been in so many circumstances where i've just wanted you to like freak out, but remaining calm and just overly effectively community with the resident. And I think what was the time for men here? There was like five thirty P M. When the person actually got there. Yes.

five thirty versus five.

Yeah and as far as um like the food and everything in the fridge at some point IT gets the thing of you know what I will give you twenty dollars gift card to the girls y store is something like that. If you really just want to make this tenant happy in the problem, go away. But also you don't want to get into that.

We're now they're always going to expect different things. So we actually had in our least agreement for a long time, if we weren't able to get your fridge or freezer repaired, we would remembers you for ice and for a cool if he was such a certain amount of time. So IT was still on the resident to going get the cooler, get the ice or whatever, which is still as a huge inconvenience to them.

But we had that in the least agreement so that they were signing and saying, yes, I agree to this. If my appliance is not working and we can get someone out to fix the appliance to replace at that same day, then that's where we're going to reivers you for that. And we had a circumstances one time I remember where I was like over a weekend, and we literally cannot get anyone to this person's place.

And we ended up they have the receipt from their less grocery trip and we did cover that whole thing. Um so like sometimes IT comes down to like is that really worth fighting over? You know like forty dollars if that's what they're asking for. Um so there's a lot to taken into into account that I would say that this person is very over the top if they do not think that you are taking here of this in a time in manner. Let me ask if you .

find questions as you so well. First, I love the point you made about setting expectations. I think so much of being, whether it's its short term, long term, the term, whatever IT is in mean time you have someone staying at your property.

So much of how smooth that relationship goes is dependent upon your ability to set and keep expectations. Where I set realist expectations and exceed those. I was actually talking to someone the other day and he had its a short term tal that he owns and the previous guest.

Smoke inside the house, which is not not allowed based on his house rules and they left like the a cigarette burn, small little cigarette n inside of the pool table and yeah the cleaner said icon as small to smoke so he had a guess checking in I think like the next day of canceling that reservation he said, guy just didn't want them to like, walk and be shocked by the smoke I was like, I get what you're doing that I was like but you just lost out on, you know how much money by cancer that reservation? I think a Better thing would have been to let them know. Just be honest with them, say, halo guys, i'm super excited to host you this weekend.

Unfortunate the guess we just checked out didn't leave the place in the best shape or in the matter. It's all tip top and clean for you when you get here. However, there may be some lingering smoke.

Sml, potentially by the time you guys to get there. If you want to cancel, hey, no harm, no foul. But if you want to stay out, give you guys a small discount for the inconvenience.

Are you okay with that? And if you were to frame IT up that way, they're not gna be upset as the smoke smell is there. They're to be upset if the smoke smells there, they weren't notified beforehand, right, if they're surprised by. But if you can set that expectation makes everything so much easier as I love that you said the expected.

Well, tony, on that note or quick on like how you just said for as a short term rental as an example, as in you're in the hospitality industry and you're gonna a do you know what you can to make your gust, you know, accommodate them? And I think that is something that gets so constructed with looking at long term rentals in short term rentals, that in short term rentals, more often, you want to make the person happy, you want to make them feel home, you what you want to be at service for them.

What extra things can we do for them? And there is such a stigma as a long term plan, lord, that all you got stick your guns like they pay you rent. You do you know the maintenance, what you have to do, not anything extra. And I think sometimes, like IT is so vastly different.

Like if this was a short term rental tenant that was, you know, staying in your property and the fridge didn't work, when would you be instead of saying like, oh, i'm in the right, like this is okay and I feel like you would have taken this. This would have been a whole different question and would have been completely freed differently. And I think that sometimes maybe we should look at our long term rentals more as a customer based business and think like, well, it's okay to actually give them some money or to accommodate them things like that too.

But I think the difference, I think there's probably two big differences is, number one is that every single person that stays in one of my bnb s has the ability to write a public review afterwards. And in the long term tal space, like I mean, adama, maybe they can go like if you have like a google page or something. But typically there is no there is no way for one tenant to communicate with the next.

In the second piece is that obviously, there there's typically more revenue generated by short term mental. So if we give a guest fifty books, that's a very small percentage of our of our profit for that month. Where is if I have A A long time mental sam, i'm nett maybe two hundred books. That's what twenty five percent of the revenue that I just potentially collected, right with that forty or fifty dollars funds. So I do believe there's there's some new on, but I couldn't agree more that putting the tenant, putting your resident as the focus in the long term will probably help you grow and and build a bigger business.

There's this book. It's by j bear. I think that his name and it's called huggers, haters and IT is all about like customer service and how to kill people, kindness and how to handle people you know especially when they are a tenant that you know has you know a complaint or is upset about something.

It's a really great read for rely in lord. It's build more for like if you have a business and people are leaving you bad reviews and things like that, how to handle that and how to respond. But IT is great for tenant customer satisfaction, too.

okay. So let's move into our second ad break because we love talking about real, say, and we love answering questions like this with you all. And we'd love for you to hit the fallow ba and on your podcast APP wherever you're listening. So we can take one final break. And we back with our last question.

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okay. So back from our break and we have one last question. Hi, my spouse and I are both the w two employees. Most of our savings have been in part in the S P.

5。 We wanted to diversify into real state investing and thus came into this forum will welcome i've seen some of the resources online and it's a bit overwhelming. Can you can you please share any resources or advice on how to get started? And really interesting.

Here's a few details about us savings available for investing seventy thousand. Our current residence is renting in the north east. We haven't bought yet because our rent is super low.

Thirty eight year geographical preference to buy anywhere in the U. S, but would prefer to avoid west coast current w two in commons, two hundred fifty per year. How much time can I dedicate to this? You know, ten hours per a week.

okay. I don't know this question has been asked before or if my information is relevant, but i'm a fast learner and highly motivated to invest in the space to diversify my assets and get some extra cash low on the side. thanks. Well, first of welcome to bigger pockets and welcome to really, really excited that you are a new working investor running to get into investing. I think first.

can we you've got like a pretty decent profile here, right? Two hundred and fifty eight year and and come only thirty k year in rent expense and seventy case saved. I would assume on that income, you could probably save a good chunk every single month as well, like that income to your red, assume that everything else kind of as well.

So first, just cut s you guys for, I think, a land, a really solid foundation. But the question here, I K if i've got seventy k and about ten hours per week, what is a good strategy or maybe what's a good way to to get started? And I think know we said this quite a bit on the rookie podcast, but I think a lot of IT comes down to your specific investment goals.

Now he says that we want to diversify into real estate, so it's good. There is additional itin motivation. If we dig a few days, a few layers deeper, what is beyond the desire to diversify?

Are you looking to diversify into real state so you can pay maybe lesson taxes on that two fifty that you're earning? Do you want to diversify into real state just so that you have maybe like a tangible asset is going to appreciate over time in a way that maybe stocks smoked? Do you want to diverse find the real safe for the active cash flow so you can actually get some cash coming back into your pocket?

Because I think depending on which one of those motivations, each kind of next step would be a little bit different. I don't know what do you think? Uh.

yeah I mean, in the details about us, I did say like they want to get some extra cash flow um on the site. So we know that at least somewhat of a priority and they want to be not not in the west coast. So kind of eliminating that space.

Then one of the great is the best places to start is to go into the bigger pockets ts um blog post and you'll find a whole bunch of different articles there based on cash low and water different markets on the bigger pockets. Real state podcast. They have done a couple episodes recently like um if I had one hundred thousand dollars to invest, what would I do with that?

If I fifty thousand dollars to invest, what would I do with IT? Where would you. The top markets for twenty, twenty five. So i'd recommend going back and listening to those episodes with dave mayer and get a gate.

So the first thing I would do is look at where other people are investing that are getting some cash vote that you want, then pick some of those markets and then go head and analyze them to a brief overview of those markets, make sure they're gonna be a good fit for you. So once say you pick cleveland, ohio, this is where I want to invest, that seems to have good cash low. And also if you're having seventy thousand, like how much of that do you want for the came in the closing cost?

Um do you want to buy a house and or cash with that? Think about how comfortable you are with how much of that you want to spend and you want to keep some for reserves to. So let's say you're gone to do a downpayment so you wanna see what your budget is.

So if you have to put twenty, twenty five percent down on an investment property, which is typical, how much is that? How much can you actually afford to buy with that dum payment? So that will help you narrow down which cities you can actually invest in.

Then you want to look at tenant landor's laws, which ones are maybe more tenant friendly that would be Better for your, uh, rental. So narrow down some of these cities then once you actually decide city niche down into neighborhood. So there are some great websites like neighborhood oud pride investor, where you can actually click on neighborhood instead of just the city as a whole and see our people moving to this area even though a city may have decline.

If you look at some of the suburbs, you may actually see the people in the city are moving to the suburb and from other places are moving into the suburb. So there's actually population growth going on there. But um I just did a rookie resource video to on the real state rookie youtube channel, all about analyzing markets how to fine broadly across, decide on which market to invest in.

Then once you actually decide how to narrow down in what data to actually pull out of that market to analyze. And there's two uh worksheet to that go along with these videos. If you watch the videos, you'll get the link to to actually pull up these and you can use these tumble's actually going and analyze.

So that's kind of like a starting point is to really figure out what your strategy is going to be, what your motivation is if its cash flows look at where other people are investing, what actually matches what you want to do, what's your budget picture? City and the narrow down the niche into neighborhood. And that's where you can go to the bigger pockets, a agent pinder, and you can actually find an agent that works with investors in that neighborhood who can kind of be your boots on the ground and really help guide you through putting in offers and properties there.

So that was a master of class niche down and choose in the right markets. The only thing I had is bigger pockets. Just have a tool to help, not just workyard for all investors, find new markets if you had over two bigger pockets that come slash markets.

Now the B. P. Team has put together a phenomenal kind of map based resource with tons of information on different markets, went to Price ratio, unemployment appreciation, population growth.

That s so lots to get date to help you kind of choose, choose your market. I think the one thing that I would consider appreciate that you put in here that she's kind of open to a lot of different geographical locations. But I think the mistake that we see with a lot of new investors is that they only choose cities based on either familiar or approximate.

And I not saying that you can't start with those cities, but I see some new investors. You almost force a market just because it's closer, just because they they're familiar with them and not necessarily because it's the best place for them to invest. So my my strong recommendation is to choose marts based on how well they are, line with your goals, on how well they alive with your resources, not necessarily how close they are or how familiar you are with them already.

But yeah actually this point of of using the I think to seeing what other folks investing is, is a big one. I think the other p student we're kind of assuming here that he wants suggest going like into the rental space and made with that time commitment two hours for week. Maybe that actually is what makes them a sense for you.

But I think you know maybe even of an easier way to get started that we probably don't talk about enough, but maybe it's just lending money to other real investors. If you ve got seven D K, you lend that out and you know twelve percent, you know maybe a point or two up for IT, and you did a couple times a year, that might be a great way to really quickly accelerate the growth. About seven years from seven hundred to one hundred to one twenty to one fifty. And you look up in a couple years and you ve be double what you'd able to make. So just another another person to venue that would take away last time um that actually go on there in your own real deal.

I think we need to do an episode on european investor who wants to lend money. How do do that? How do you protect yourself? What are the documents that need to be in place? What do like a new york stay? If you're lending on a property you wanted lean on IT, you have to file as a mortgage and you're paying you know, the more you checks on IT that your paying fees like IT is not convenient for someone to lend money in new york.

But we could kind of go through some of those examples of what IT, you know what I would look like because you know, as a looking investor, you may have no idea how to go purchase property, let alone how to lend someone money and make sure that you are protected and they just don't run off with your money too. So that might be a good idea to do one of those. Well, if you want to get involved in the community like all these other real city investors, go to bigger pockets that com slash forums. Thank you so much for listening. I'm Ashley in his tony and was you guys on the next rooky reply?