Real Estate Investor · Member since 2008 · 340 posts · 34 votes
Okay, I have had enough of this CA investor talk in other posts. I am one of those investors who lives and invests in flyover country and I am scratching my head as to how you investors make money in a systematic, reproducible way in California. I'd like to know your system or how you cashflow on your properties. Here are the ground rules:
- You can't be a realtor, attorney, closer, contractor, etc., i.e. someone who makes their money through REI services.
- You made a ton of money flipping in 2004 and 2005. A monkey could have made money in that environment. I'm talking about a reproducible system, unless you are still doing it today with success. Kudos to that.
Real Estate Investor · Charlotte, NC · Member since 2008 · 368 posts · 42 votes
17y
My question would be why mess with something like this when you can enter into another market with less risk and more CASH FLOW.
I think this has become a MAJOR problem, that many investors are looking to get into the game, but they are trying to stay in their own market and they can not make any money there. But, when you mention to them to go to another market they say they prefer to stay where they are.
Well if you are not making money where you are how is that working.
Real Estate Investor · Chicago, IL · Member since 2008 · 122 posts · 46 votes
17y
Cash flow is an interesting topic. Surely, a property needs sufficient cash flow to cover expenses, debt service, etc. in order to run smoothly. If one is investing in a property for the long term (5+ years), you probably place a premium on cash flow. When we structure our REIs, our properties cash flow. We may have put down more than 10% on said property, but when your COC is 15% and the IRR is 31% before taxes, it doesn't matter. You're looking at a great investment.
So, how exactly do we structure these investments? :)
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Kyle,
COC, ROI, and other calculations can be minipulated depending on how you arrrive at the NOI. Also, COC and ROI can be in the 1'000's if you put $1 down. That said, you mentioned placing more than 10% down and getting a 15% COC. That is not bad, but nothing to jump at in my book.
You mentioned in your previous post that the cap rates you are purchasing at were in the 5%-6% range and I asked, how do you get cash flow when you are paying so much for the property?
I am interested in hearing an explanation on that.
Real Estate Investor · Chicago, IL · Member since 2008 · 122 posts · 46 votes
17y
Nationwide,
You're right, 15%COC isn't anyting to jump at, but combined with the overall appreciation of the buildings and stellar IRR, 15% COC is just a nice added benefit.
I remember you asking about how we're able to cash flow at Cap Rates in the 5-6% range. I wasn't trying to blow you off, but, as you might imagine, that's information I don't care to share on these forums. If anyone is truly interested in our investment products, he or she should feel free to contact any one of us at Epifany Properties.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Kyle,
I don't see how it is secret or proprietary information, but so be it. I only asked because if you TRUELY had cash flow with those prices, I would be interested in investing in CA. I have many other investors who would follow my lead.
To play devil's advocate here, I am guessing that the properties truely do not cash flow since you are not willing to share how. To me, numbers are numbers and cap rates of 5% anywhere in the country won't cash flow (excluding buying the cash flow with large down payments of course, which reduces your COC and leverage usage.)
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
THAT'S EXACTLY RIGHT! A rental bought at a cap rate of 5% to 6% DOES NOT CASH FLOW unless you're BUYING the cash flow with the downpayment. Who are we kidding here?
Real Estate Investor · Chicago, IL · Member since 2008 · 122 posts · 46 votes
17y
I never said that we structure our properties with the lowest down payments. On one of our latest properties, the down payment was 27% of the purchase price.
To increase the cash flow of our properties, we've introduced the FLEA (Forward-Looking Expense Allocation). The FLEA is a method of providing coverage for projected expenses over the holding period of the property. The FLEA provides for extremely high levels of cash flow relative to the initial investment amount while still maintaining high internal rates of return.
Granted, the IRR on our investment properties are lower with the FLEA than without; however, many of our clients so value the cash flow and the expense insurance that the FLEA provides that they are willing to sacrifice a little IRR.
On some of our larger projects, a single investor may not have the required capital to go in on it by himself. In those cases, we form syndications and spearhead the whole process thus making the property, essentially, a passive investment vehicle.
Our clients want to know where to put their money nowadays. Why not put it into an investment that is secured by income-producing real estate, partially guaranteed and that will deliver a high level of monthly cash flow (12% starting cash-on-cash return) and deliver a 50% return in two years? We walk our clients through the entire process and analysis and, needless to say, we earn them many fond returns...
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
That sounds like total gibberish to me. The bottom line is that any property with a cap rate of 5% or 6% would be bleeding cash without a big down payment or other gimmicks.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Kyle,
I am not attempting to bash your product or your business, just trying to understand your posts and how an investor can expect to earn true positive cash flow in CA. I am all ears for that as I live here in CA and am not against investing in my own backyard again!
But I have to ask again, how does the property cash flow at 5 caps without short term "lipstick" as someone called it. If there is enough room to pay for a "FLEA", then it should not be necessary in my book. Can you expalin better, as I am truely interested.
Real Estate Investor · Chicago, IL · Member since 2008 · 122 posts · 46 votes
17y
Originally posted by MikeOH:
That sounds like total gibberish to me. The bottom line is that any property with a cap rate of 5% or 6% would be bleeding cash without a big down payment or other gimmicks.
Mike
Sorry about the gibberish. It's really a numbers game and I like numbers. That's why I love multi-family homes-- evaluating them and valuating them is all objective.
You bring up a good point though-- with those low cap rates, these properties surely can't cash flow and they certainly couldn't be good investments. It's a wonder why so many investors continue to invest-- and make money-- in low cap areas like New York and Southern California...
Nationwide, perhaps I could email you a prospectus of one of the properties that is currently in our portfolio. I'm certainly not going to sit down and create an excel spreadsheet on these forums.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
Kyle,
Does it really take a prospectus to explain how your properties cash flow? It should be as easy as listing the income, expenses, and debt!
It's not surprising to me. The vast majority of newbies fail, so the idea that people continue to buy and lose money is no surprise. In addition, many of these people are probably speculating on future appreciation, which is a valid model. They could make a lot of money if home prices skyrocket in the near future. On the other hand, they will lose a lot of money if the market continues to decline or stays flat.
Pleasant Hill, CA · Member since 2008 · 428 posts · 43 votes
17y
I know a lot of people that are using self directed IRA for leverage since the stock market is so bad. You can do a short term flip to a buy and hold investor. Believe it or not there is a lot of cashflow in CA now.
There are properties less than 20 minutes away from me that are going for around 100k in great rental areas. Oh how things change!