Here's some boring, practical advice...put some of it away so that you don't end up being stupid and losing it all.
A lot of pro athletes and others who end up with a lot of money at a relatively early age don't do proper planning. As Warren Buffet says: stocks, bonds, cash, and real estate. Have a little of each. Put some away for 10 years from now, some for 20, and some for 30+. Once you have that network taken care of you might consider:
-taking care of any family members who need help. Not handouts, but intelligent, collaborative deals that empower them to move forward in life
-creating a scholarship fund to help kids get to college
-funding a local civic center, cancer research institute, Walk for Hunger, or whatever tickles your fancy
-tithing to your church
Life has been good to me, too, and I certainly spent a lot of time pursuing skydiving and such. I've hiked the Himalayas and dove the Great Barrier Reef and a lot of great stuff in between so I understand how you feel. I felt the same way. But after the dust settled, I found that I got the most satisfaction out of using my resources and energy helping others to achieve similar or greater heights in their lives.
Just a thought.
Jeff :D
I wouldn't get too excited yet. Unless you've bought at a huge discount and bought about 850 units, you are NOT going to have $85,000 in spendable cash.
Mike
I wouldn't get too excited yet. Unless you've bought at a huge discount and bought about 850 units, you are NOT going to have $85,000 in spendable cash.
Mike
Why are you assuming he's only cash flowing $100/unit especially if he got a huge discount Mike?
Mike is right though in that not all those funds are coming from the buildings. I was factoring my other business into the equation. Part from another source, part from the buildings if you want be be exact. But you've got a keen eye. The main thing is that there's 182 units and I'm just debating if I should condo convert them all and cash out or not? My thought is that holding would be the comfortable easy route, but if you wanna reach the next level condo converting would be the way to go. But I don't know, do you know?
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I know nothing about your building, but how hard would it be to condo everything from the second floor up and make the first floor retail?
I'm assuming that because I understand the rental business. If you buy at a huge discount, you might get $100 per unit per month. If you buy at retail, you will almost always have a negative cash flow.
$85,000 per month/182 = $467 per unit per month, which is about 5 times what you can expect IF you do EVERYTHING RIGHT.
Mike
I'm assuming that because I understand the rental business. If you buy at a huge discount, you might get $100 per unit per month. If you buy at retail, you will almost always have a negative cash flow.
$85,000 per month/182 = $467 per unit per month, which is about 5 times what you can expect IF you do EVERYTHING RIGHT.
Mike
See this is wrong because it's not about how much of a discount you buy at, it's what cap rate you get. If you buy in most parts of cali then yes you need an outrageous discount to even break even. But there are are markets that you can do quite well buy near or even at market. Oklahoma city area and fort worth texas comes to mind. upstate new york also. I've seen some attractive areas around the great lake states as well.
Bottom line is you can't throw out a random value such as $100/unit is ideal, without factoring in the specifics of the market.
Cap Rate is defined as the NOI (net operating income) divided by the Capital Cost (purchase price). I agree with you that the ratio of the NOI (or gross rents) compared to the purchase price is the key factor. However, in the vast majority of markets, you can not buy a property at retail and have a positive cash flow. Additionally, I do not believe for a moment that the typical property can be purchased at market value in Oklahoma City or Fort Worth and that it will have any significant cash flow. Unfortunately, it doesn't work that way. If you disagree, post some numbers and let's take a look.
Market factors do not permit gross rents to stay high enough to allow the typical property to cash flow at market value for any period of time. If that were the case, more investors would be attracted to the market, thereby driving prices higher. Rentals would be easy money and everyone would do it. That can't exist in a market.
What I'm saying with the $100/unit/month, is that this is about the best you can normally expect if you've bought at a big discount to market value in a favorable area. Note that the discount has nothing to do with asking price, which is irrelevant). In the bubble areas, as you said, you would need to buy at an outrageous discount to even break even. That's why I knew that R2D2 couldn't be getting nearly $500 per unit per month positive cash flow. I don't know of anywhere that exists. In addition, R2D2 is in a bubble area and he claims appreciation rates of 50% per year. You aren't going to get big cash flow in bubble areas!
Again, I'd be happy to be proven wrong. I'm only in the rental business to make money. If you can show me anyplace that you can buy rentals at retail and have $500 per unit per month positive cash flow - well, count me in!!! In fact, I'll bet everyone on this forum would be there buying property if that were the case. Of course, that would drive prices up and cash flow down! It's that market thing again!
Mike
Probably my favorite area for cash flow is upstate new york (I've read appreciation will be nonexistant for a long time in this area, but the cashflow is still nice :)
Here's a building that looks good from the first glance:
http://listing.loopnet.com/15139489
Pro Forma gross scheduled income: $158,700
NOI using your 50% rule (I actually like this rule because it provides a nice, quick, relatively conservative estimate of NOI): $79350
Cap: 9.5%
Monthly cashflow per unit: $300
So at least from the information we have this seems like a good deal right from the asking price. Sure it could have some surprises, but a building like this is not uncommon to find in upstate new york.
Here is how I see the numbers on this building:
Purchase Price: $835,000
Number of Units: 22
Gross Rents: $158,700 per year or $13,225 per month
Operating Expenses: $6,612 per month
NOI: $6,612 per month
Debt Service: ($835,000, 20 year, 7.875%, commercial loan) $6,919 per month
Monthly LOSS: $307
I certainly don't see any cash flow in this property.
Mike
Well that's because you made a wild debt service assumption. (I should have done one myself actually) But with your numbers, 0 down? almost 7.9% interest? 20 year note?
Here's the same building using 20% down, 7.3% interest, and a 30 year schedule.
monthly debt service: $4,579
cash flow: $2033
per unit: $92
Pretty close to your $100/unit rule. But keep in mind this was one of the first listings I saw on a loopnet search. For this apartment, I think we can do much better after talking down the price a bit (not substantially) and finding actual operating costs which aren't likely to be 50% for a 22 unit complex.
Cash flow is not hard to find in every market.
AD1985,
Those are not wild loan assumptions. Commercial loans are normally 20 years in length, not 30 years. You're treating a commercial property as if it were a house, which it is not. I just completed a commercial loan in the last couple of weeks. I have excellent credit and a history of success in this and other business. The interest rate was 7.875% which is about the going rate for commercial loans. Again, you used a residential loan, which this is not. Finally, you used 20% down. Obviously, almost EVERY property will cash flow if you buy down the loan with money up-front. Even the very worst deal can be made into a "positive cash flow" deal by putting enough money down. So, to say this is a good deal because you're theoretically putting down over $170,000 isn't reality. I always judge the deal at 100% financing because that gives you the real picture and allows you to compare apples to apples. In addition, R2D2 is always talking about buying with the owner carrying a second for a 100% financed deal. We are talking about how I knew that R2D2 wasn't making $85K per month and so I'm going on what he always says. In fact, with a second mortgage on the property, the interest rate could easily be higher.
Mike
You guys are so funny that I shouldn't even bother to clarify things, but maybe I should....
Mike is right in his assumptions about a few things. The actual liquid cash flow is not $85k. I redid the numbers and now realize that the liquid spendable cash flow of those 4 buildings will be actually $36k conservatively. Plus my other business which does $20k liquid per month so I'd have only $56k in liquid cash flow.
In my original numbers in coming up with the approximate 85k I was factoring in everything. Such as appreciation (5% per year) and mortgage pay down. As if you factor both of those in the numbers into the equation the total income goes way up to $80k for just the buildings. And factoring in my other business ($20) up to $100k in total. So that's where that approximate 85k comes from which was accurate.
The total gross monthly income of the properties and my business is way up there at $157500. And because my operating costs have been so far substantially reduced by having my realtor run the property at 1% management fee I'm quiet certain that these properties are bound to cash flow significantly higher than what I'm assuming. I'm going ultra conservative right now basing the NOI of 50% of the gross and going from there to come up with the cash flow. So I'm curious to see what that much income looks like come august when I close on the last building.
So far the amounts I'm putting down vary. I found out that I might be able to get an additional 5% bring my total LTV up to 90% on 2 of the larger ones. Then I'm putting down 20% on a 29 suiter and I put down 10% on the one I already closed on.
The original question was "What do you do after you got enough property?"
R2d2,
It's not really that funny, but at least you're heading in the right direction. You started out claiming that your cash flow would be $85,000. Now, you're down to $36,000. You've already lost 58% of your money. Unfortunately, this number is still bogus. Based on 100% financing, your real cash flow MIGHT be $18,000 if you bought at a BIG discount to market. Since you've said that you don't do that, you certainly won't even get that much. The reality of the situation will become apparent after you actually own these properties a few months.
You can throw out crazy numbers; make wild claims; and fool many of the newbies if you like, but I'm not buying it!!! Anyone that's actually in this business knows better.
Mike
Mr. Hovila or is it...Hughes :wink: ...
I, along with the OP MikeOH I think, would like to understand how it is that Edmonton has such a higher ROI on real estate investments than every large market in the states.
This guy who is managing your units for 1% of gross rents must but nuts, or the people that live in your units must be robots, is he a partner?
How many of your 182 units are currently vacant out of curiosity?(this is a trick question, if you choose to answer it)
R2D2,
I don't have a crystal ball, nor do I need one. The rental property business is very simple and predictable. There is no "secret" in this business and the reality is not elusive. I am actually in the rental property business and have a very good understanding of the business.
I am not in competition with you about who can buy the biggest building. That's just silly. I am in business to make money, not brag about how big of a building I own. My current goal is to reach 100 units in the next 18 months. I believe that I can manage and maintain those 100 units, once stabilized, working about 5 hours per day. That will actually bring in about $20,000 per month, $10,000 from cash flow and $10,000 from earning the management and maintenance fees. That's about all I need. My goal is to work a few hours each day and stay semi-retired.
As I said in an earlier post, I have been looking for a larger apartment complex, RV park, or mobile home park for about a year, but haven't found one that will cash flow to my standards. I'm not buying anything just to buy. If the money isn't there, I don't want it!!!
Everything I have said is accurate to the best of my knowledge and ability. I never intentionally post anything that can't be backed up with facts. I believe that a person's reputation is very important and is judged on the accuracy of their posts. I am very careful with the info that I post (and do not post). That is not pessimism, it is reality.
I have no beef with you at all. However, I think it would be more valuable for the newbies if you would post the facts instead of wild claims. You started out by saying that you were going to have a cash flow of $85,000 per month from your 182 units. Not until I posted that that was bogus did you change your story. I am only pointing out your obvious errors because I think the newbies deserve the truth as opposed to the hype that it just being pulled out of thin air.
Can I tell you what your cash flow will be? No, but I can tell you approximately what your maximum cash flow would be based on optimum conditions and the percentage of financing. When you're claiming 5 times that amount, I've got to start waving the BS Flag (and I was right, as you've already admitted).
I still can't understand why you don't know these basics when you claim to have made millions in this business and have millions in the bank. Something doesn't quite add up.
Mike
This thread is being locked for now due to some board vandalism and other issues that have arisen. Until they have been taken care of, it will remain locked.
Sorry.