the-abcs-of-real-estate-investing-ken LifeFeeling

Per Unit
Seller Pro Prior Year Our
Forma Actuals Projected
Real estate taxes $425 $3,400 $3,400 $3,400
Real estate tax expenses are simple to determine with almost pinpoint accuracy. The
data is usually available on the Internet in most areas. Simply go to the county assessor Web
site and locate the property search area of the site. Then just type in the property address to
get the current figures. In most cases you’ll see not only the prior year property tax
amounts, but also projections for one or two years out. Focus on the future and use the next
year’s assessment as your projection.
Understand that property sales often trigger tax increases, so you may want to consult
with your real estate tax team member about this. For the purpose of the expense evaluation,
I’ll just say I found the seller’s figures to be accurate.
Next is the insurance expense line.
Per Unit
Seller Pro
Forma
Prior Year
Actuals
Our
Projected
Insurance $125 $1,000 $1,000 $1,200
Insurance is a fast-moving business and rates can vary widely from company to
company. My suggestion is that you get a couple of insurance agents to bid on the property
and use that number in your projections. As your business grows you can bundle all your
properties under a bulk insurance program, which generates substantial savings. We do this
and secure bids annually. For our expense analysis on the Phoenix property, we will
increase our projected figure to 11,200 per year based on my personal experience.
Finally, we’ll look at “Replacement Reserve” :
Per Unit
Seller P>v Prior Year Out'
Forma_Actuals Projected
Replacement Reserve $150 $1,200 $1,200
The replacement reserve is the funds you put aside for the inevitable replacement of
capital items such as appliances, carpets, countertops, roofs, and so on. I get really nervous
when I see that the seller did not spend a dime on the property in the prior year as this table
indicates. Moreover, the broker or seller projected an additional $1,200 for the new buyer
and trust me, this is no gift. This tells me that this property has some deferred maintenance
and it’s probably more than the $1,200 figure. For purposes of this offer, I will keep the
number at $1,200 for now, but after I walk the property I may have a very different opinion.