The Myth of Cash Flow
Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votesThe Myth of Cash Flow
Most Popular Reply
Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votesQuote from @Collin Hays:
Quote from @Michael Baum:
I read it, but I did have some disagreements. I don't like anything that loses money every month expecting/hoping that I will make it up with appreciation.
I don't know that it is "losing money". A 401K isn't producing any monthly cashflow, yet we dutifully dump $1,000 a month in it for 30 years, hoping there is a pot at the end of the rainbow. Never think twice about it.
If we are making some or all of a mortgage payment for a few years on a vacation rental, it's only the interest that is lost - the rest is paying off the asset, all while the asset continues to go up in value through the years.
32 Replies
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
I'm still a firm believer in cash flow. I have a bunch of paid for LTR's that are also really appreciating.
Boy do they cash flow!
- 1yMike GrudzienPro MemberLender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
Great article!
- 1yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
I read it, but I did have some disagreements. I don't like anything that loses money every month expecting/hoping that I will make it up with appreciation.
- Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes1y
Quote from @Michael Baum:
I read it, but I did have some disagreements. I don't like anything that loses money every month expecting/hoping that I will make it up with appreciation.
I don't know that it is "losing money". A 401K isn't producing any monthly cashflow, yet we dutifully dump $1,000 a month in it for 30 years, hoping there is a pot at the end of the rainbow. Never think twice about it.
If we are making some or all of a mortgage payment for a few years on a vacation rental, it's only the interest that is lost - the rest is paying off the asset, all while the asset continues to go up in value through the years.
- 1yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votesI hear ya man, but I want something that is flowing positive in addition to any appreciation. Right now there are areas of the country that are slowly depreciating at a 2.5% rate. You just never know!
Quote from @Collin Hays:
Quote from @Michael Baum:
I read it, but I did have some disagreements. I don't like anything that loses money every month expecting/hoping that I will make it up with appreciation.
I don't know that it is "losing money". A 401K isn't producing any monthly cashflow, yet we dutifully dump $1,000 a month in it for 30 years, hoping there is a pot at the end of the rainbow. Never think twice about it.
If we are making some or all of a mortgage payment for a few years on a vacation rental, it's only the interest that is lost - the rest is paying off the asset, all while the asset continues to go up in value through the years.
- Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes1y
Quote from @Michael Baum:
I hear ya man, but I want something that is flowing positive in addition to any appreciation. Right now there are areas of the country that are slowly depreciating at a 2.5% rate. You just never know!Quote from @Collin Hays:
Quote from @Michael Baum:
I read it, but I did have some disagreements. I don't like anything that loses money every month expecting/hoping that I will make it up with appreciation.
I don't know that it is "losing money". A 401K isn't producing any monthly cashflow, yet we dutifully dump $1,000 a month in it for 30 years, hoping there is a pot at the end of the rainbow. Never think twice about it.
If we are making some or all of a mortgage payment for a few years on a vacation rental, it's only the interest that is lost - the rest is paying off the asset, all while the asset continues to go up in value through the years.
You are right. I bought my first cabin in 2005. Negative cash flow for several years. Then the financial crisis, and the value of it dropped in half. But here I am, the thing is paid off and lots of cash flow, worth 3X what I paid.
Quote from @Collin Hays:
Quote from @Michael Baum:
I hear ya man, but I want something that is flowing positive in addition to any appreciation. Right now there are areas of the country that are slowly depreciating at a 2.5% rate. You just never know!Quote from @Collin Hays:
Quote from @Michael Baum:
I read it, but I did have some disagreements. I don't like anything that loses money every month expecting/hoping that I will make it up with appreciation.
I don't know that it is "losing money". A 401K isn't producing any monthly cashflow, yet we dutifully dump $1,000 a month in it for 30 years, hoping there is a pot at the end of the rainbow. Never think twice about it.
If we are making some or all of a mortgage payment for a few years on a vacation rental, it's only the interest that is lost - the rest is paying off the asset, all while the asset continues to go up in value through the years.
You are right. I bought my first cabin in 2005. Negative cash flow for several years. Then the financial crisis, and the value of it dropped in half. But here I am, the thing is paid off and lots of cash flow, worth 3X what I paid.
To your question, to Michael's point about depreciating real estate and to your point about this 3x. This is what I mean that real estate is inelastic in primo areas.
Real estate isn't about the $117/mo it nets after expenses or whatever nonsense folks worry about. Real estate got the early fools in based off that initial cash flow; they're no genius, they just gravitated to the lowest hanging fruit for money. That happened to be the inflection point of low rates + phys RE pricing reset. Now, we're back to normalcy in rates, less normalcy in supply(in key areas) and inverse(in dreadful areas).Invest prudently and in quality. Risk is what you pay, not always just what you buy.
- Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes1y
Quote from @V.G Jason:
Quote from @Collin Hays:
Quote from @Michael Baum:
I hear ya man, but I want something that is flowing positive in addition to any appreciation. Right now there are areas of the country that are slowly depreciating at a 2.5% rate. You just never know!Quote from @Collin Hays:
Quote from @Michael Baum:
I read it, but I did have some disagreements. I don't like anything that loses money every month expecting/hoping that I will make it up with appreciation.
I don't know that it is "losing money". A 401K isn't producing any monthly cashflow, yet we dutifully dump $1,000 a month in it for 30 years, hoping there is a pot at the end of the rainbow. Never think twice about it.
If we are making some or all of a mortgage payment for a few years on a vacation rental, it's only the interest that is lost - the rest is paying off the asset, all while the asset continues to go up in value through the years.
You are right. I bought my first cabin in 2005. Negative cash flow for several years. Then the financial crisis, and the value of it dropped in half. But here I am, the thing is paid off and lots of cash flow, worth 3X what I paid.
To your question, to Michael's point about depreciating real estate and to your point about this 3x. This is what I mean that real estate is inelastic in primo areas.
Real estate isn't about the $117/mo it nets after expenses or whatever nonsense folks worry about. Real estate got the early fools in based off that initial cash flow; they're no genius, they just gravitated to the lowest hanging fruit for money. That happened to be the inflection point of low rates + phys RE pricing reset. Now, we're back to normalcy in rates, less normalcy in supply(in key areas) and inverse(in dreadful areas).Invest prudently and in quality. Risk is what you pay, not always just what you buy.
Some great points.
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Michael Baum:
I read it, but I did have some disagreements. I don't like anything that loses money every month expecting/hoping that I will make it up with appreciation.
I 100% agree with Michael!
- 1yAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
I like where most people's expectations are nowadays. Been a while since I had a "lead" call in and say they expect to quit their job off cashflow of 1-3 assets. It was possible from maybe 2020-2022/3 but now it has normalized. It is possible to make a 8-12%+ CoC return while garnering appreciation. You can even double that potentially if you find a value add deal. I do not subscribe to the idea that you should expect negative cashflow UNLESS you want a specific property in a specific market that is more or less a second home situation. I have had some clients happily looking for breakeven or small loss if it meant having what they wanted. However that is more of an emotional investment IMO.
Vacation Rentals of Florida53 Reviews - Real Estate Agent · Salt Lake City, UT · Member since 2020 · 490 posts · 205 votes1y
totally agree with this. I see people underestimate CAPEX all the time
- 1yKerry BairdPro MemberRental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
Add in unexpected rising expenses, particularly insurance. Not just the monthly cost of insurance, but some of the oddities I've seen this year.
About 2 years ago I bought a house near the ocean, which had a barrel-tile roof. In looking to get better rates, I had an insurance company give me a quote. They said I needed to replace the roof, not because of the age of the tiles, but because of the age of the underlayment. Even to sell the house, the house would need a new roof so that the buyer doesn't have insurance issues.
The tiles were around 20 years old with about 20 years of "life" but the underlayment was 15 years, so it had to go. I paid $70k for a new metal roof (big house, near the ocean) this month. How long would it take for my STR income to pay for $70k in roof replacement? Yikes.
- Investor · Austin, TX · Member since 2017 · 107 posts · 89 votes1y
The primary role of cashflow for young investor is to cover holding costs, and create a payment stream that allows the investor to sell a bond (aka short the currency). Then, the government prints about 8% more M2 dollars each year on average which accretes value to the equity holder. In other words, cashflow (really NOI) is what allows you to achieve leverage your equity. Think owning 5 houses at 20% down instead of 1 house outright.
The primary role of cashflow for an exiting investor is to be a funding source for their life. You generally see a lower RoE because they naturally de-lever as payoffs and appreciation (currency depreciation) accumulate. Most of this cashflow is because they essentially are lowering their negative allocation to bonds.
The mathematically optimal path is to maximize RoE at all times (while remaining solvent obviously). The practical path is to take progressively less risk as your portfolio grows.
@Kerry Baird this is crazy. I have been in Roofing industry for almost 25 years have offices in 3 states and I know how tough the insurance companies are. I have a team that just deals with them but never have I heard of this. How do they even know what is under the roof for felt... do you?
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes1y
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luck- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes1y
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes1y
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life. Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes1y
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine. Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine.Is your lane creating deceitful posts? You left out significant expenses like maintenance/cap ex and vacancy to provide an inaccurate forecast on cash flow. I point it out and your response if "whatever dude ..." Not something along the lines that in your haste you let out some significant expenses or that admits the number is not an accurate even half a$$ attempt at a rough true cash flow number. I am not even stating your deceptive post was intentional but with you not owning up to the expenses that were not included, I am starting to question if for some reason you intentionally posted numbers that did not depict all expenses.
I want people to post corrections to such erroneous posts with so that newbies do not see similar numbers and think that the referenced property is good cash flow.
Again I am not stating anything about the quality of the investment. it could be a very good investment as I do not have the information to provided an educated thought on that. However, you did provide your cash flow calculation and it clearly was deficient some significant expenses and using your own numbers was not significant cash flow (Assuming that you do not consider $145/month unit with not all expenses included significant cash flow). It needs other sources of return to be a good investment and it may have those.
Good luck
- 1yLouis BeeseBusiness MemberGulf Shores, AL · Member since 2024 · 6 posts · 3 votes
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
How has your insurance been in Gulf Shores over the last few years? We've been seeing big increases after hurricane Sally in 2020 and the latest Florida storms keep driving rates up.
PMI Gulf Shores4.833 Reviews Quote from @Louis Beese:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
How has your insurance been in Gulf Shores over the last few years? We've been seeing big increases after hurricane Sally in 2020 and the latest Florida storms keep driving rates up.
We sold gulf shores a year or 2 after getting hit by hurricanes in consecutive years close to 20 years ago. Even though my San Diego properties have done great, I occasionally have seller’s remorse. Our duplex was in the ~25% still on the sand (did not get red tagged). In San Diego there are only a couple properties on the sand and no duplexes. If there was a duplex on the sand, it would cost 8 digits.
But I do not miss the crazy insurance costs or the crazy increasing property taxes (ca limits prop tax increase to 2% annually).
It was an awesome property. I was in the area about 10 years ago and stopped by. The driftwood hang downs that my mom (RIP) had created were still on each unit. I was surprised (they were probably 15 years old at the time, out in the weather 24/7, and different owners have different tastes).
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes1y
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine.Is your lane creating deceitful posts? You left out significant expenses like maintenance/cap ex and vacancy to provide an inaccurate forecast on cash flow. I point it out and your response if "whatever dude ..." Not something along the lines that in your haste you let out some significant expenses or that admits the number is not an accurate even half a$$ attempt at a rough true cash flow number. I am not even stating your deceptive post was intentional but with you not owning up to the expenses that were not included, I am starting to question if for some reason you intentionally posted numbers that did not depict all expenses.
I want people to post corrections to such erroneous posts with so that newbies do not see similar numbers and think that the referenced property is good cash flow.
Again I am not stating anything about the quality of the investment. it could be a very good investment as I do not have the information to provided an educated thought on that. However, you did provide your cash flow calculation and it clearly was deficient some significant expenses and using your own numbers was not significant cash flow (Assuming that you do not consider $145/month unit with not all expenses included significant cash flow). It needs other sources of return to be a good investment and it may have those.
Good luck
Whatever you say dude. These are real numbers. If you want to call them deceit, knock yourself out. I've only been doing this for 40+ years. What do I know.
Best of luck in whatever you do.
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine.Is your lane creating deceitful posts? You left out significant expenses like maintenance/cap ex and vacancy to provide an inaccurate forecast on cash flow. I point it out and your response if "whatever dude ..." Not something along the lines that in your haste you let out some significant expenses or that admits the number is not an accurate even half a$$ attempt at a rough true cash flow number. I am not even stating your deceptive post was intentional but with you not owning up to the expenses that were not included, I am starting to question if for some reason you intentionally posted numbers that did not depict all expenses.
I want people to post corrections to such erroneous posts with so that newbies do not see similar numbers and think that the referenced property is good cash flow.
Again I am not stating anything about the quality of the investment. it could be a very good investment as I do not have the information to provided an educated thought on that. However, you did provide your cash flow calculation and it clearly was deficient some significant expenses and using your own numbers was not significant cash flow (Assuming that you do not consider $145/month unit with not all expenses included significant cash flow). It needs other sources of return to be a good investment and it may have those.
Good luck
Whatever you say dude. These are real numbers. If you want to call them deceit, knock yourself out. I've only been doing this for 40+ years. What do I know.
Best of luck in whatever you do.
>I've only been doing this for 40+ years. What do I know.
Apparently not how to include maintenance/sap ex or vacancy in your cash flow numbers.
>These are real numbers. If you want to call them deceit, knock yourself out.
What is your definition of real numbers? I think most of us would state that any cash flow numbers that are missing maintenance/cap ex and vacancy are not accurate numbers. So if it was accidentally omitted then it is a mistake, but that you keep claiming these are real numbers without maintenance/cap ex and vacancy (as well as various other expenses) leads me to lean toward deceit.
However, you look at it, $145/unit per month not including vacancy, maintenance/cap ex, and various other expenses makes the OP's case. Your example clearly does not have positive cash flow when properly allocating for all expenses. I do not understand how this is not apparent to someone who has been doing this for 40+ (BTW i have been in REI longer, but I suspect most people do not need 40+ years to see that with complete expense estimates the $145/month per unit is negative).
Hopefully you did not purchase this primarily on the cash flow.
Good luck- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes1y
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine.Is your lane creating deceitful posts? You left out significant expenses like maintenance/cap ex and vacancy to provide an inaccurate forecast on cash flow. I point it out and your response if "whatever dude ..." Not something along the lines that in your haste you let out some significant expenses or that admits the number is not an accurate even half a$$ attempt at a rough true cash flow number. I am not even stating your deceptive post was intentional but with you not owning up to the expenses that were not included, I am starting to question if for some reason you intentionally posted numbers that did not depict all expenses.
I want people to post corrections to such erroneous posts with so that newbies do not see similar numbers and think that the referenced property is good cash flow.
Again I am not stating anything about the quality of the investment. it could be a very good investment as I do not have the information to provided an educated thought on that. However, you did provide your cash flow calculation and it clearly was deficient some significant expenses and using your own numbers was not significant cash flow (Assuming that you do not consider $145/month unit with not all expenses included significant cash flow). It needs other sources of return to be a good investment and it may have those.
Good luck
Whatever you say dude. These are real numbers. If you want to call them deceit, knock yourself out. I've only been doing this for 40+ years. What do I know.
Best of luck in whatever you do.
>I've only been doing this for 40+ years. What do I know.
Apparently not how to include maintenance/sap ex or vacancy in your cash flow numbers.
>These are real numbers. If you want to call them deceit, knock yourself out.
What is your definition of real numbers? I think most of us would state that any cash flow numbers that are missing maintenance/cap ex and vacancy are not accurate numbers. So if it was accidentally omitted then it is a mistake, but that you keep claiming these are real numbers without maintenance/cap ex and vacancy (as well as various other expenses) leads me to lean toward deceit.
However, you look at it, $145/unit per month not including vacancy, maintenance/cap ex, and various other expenses makes the OP's case. Your example clearly does not have positive cash flow when properly allocating for all expenses. I do not understand how this is not apparent to someone who has been doing this for 40+ (BTW i have been in REI longer, but I suspect most people do not need 40+ years to see that with complete expense estimates the $145/month per unit is negative).
Hopefully you did not purchase this primarily on the cash flow.
Good luck
Do you have anything better to do than bother me? Go away and do as you wish. I do not get into online pissing matches. Do whatever you want. Believe whatever you want. If you need help, which you may, feel free to text the Bigger Pockets support line. 720-902-8552 Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luckI've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine.Is your lane creating deceitful posts? You left out significant expenses like maintenance/cap ex and vacancy to provide an inaccurate forecast on cash flow. I point it out and your response if "whatever dude ..." Not something along the lines that in your haste you let out some significant expenses or that admits the number is not an accurate even half a$$ attempt at a rough true cash flow number. I am not even stating your deceptive post was intentional but with you not owning up to the expenses that were not included, I am starting to question if for some reason you intentionally posted numbers that did not depict all expenses.
I want people to post corrections to such erroneous posts with so that newbies do not see similar numbers and think that the referenced property is good cash flow.
Again I am not stating anything about the quality of the investment. it could be a very good investment as I do not have the information to provided an educated thought on that. However, you did provide your cash flow calculation and it clearly was deficient some significant expenses and using your own numbers was not significant cash flow (Assuming that you do not consider $145/month unit with not all expenses included significant cash flow). It needs other sources of return to be a good investment and it may have those.
Good luck
Whatever you say dude. These are real numbers. If you want to call them deceit, knock yourself out. I've only been doing this for 40+ years. What do I know.
Best of luck in whatever you do.
>I've only been doing this for 40+ years. What do I know.
Apparently not how to include maintenance/sap ex or vacancy in your cash flow numbers.
>These are real numbers. If you want to call them deceit, knock yourself out.
What is your definition of real numbers? I think most of us would state that any cash flow numbers that are missing maintenance/cap ex and vacancy are not accurate numbers. So if it was accidentally omitted then it is a mistake, but that you keep claiming these are real numbers without maintenance/cap ex and vacancy (as well as various other expenses) leads me to lean toward deceit.
However, you look at it, $145/unit per month not including vacancy, maintenance/cap ex, and various other expenses makes the OP's case. Your example clearly does not have positive cash flow when properly allocating for all expenses. I do not understand how this is not apparent to someone who has been doing this for 40+ (BTW i have been in REI longer, but I suspect most people do not need 40+ years to see that with complete expense estimates the $145/month per unit is negative).
Hopefully you did not purchase this primarily on the cash flow.
Good luck
Do you have anything better to do than bother me? Go away and do as you wish. I do not get into online pissing matches. Do whatever you want. Believe whatever you want. If you need help, which you may, feel free to text the Bigger Pockets support line. 720-902-8552
What I desire is to provide new RE investors real/accurate information. If someone posts cash flow numbers missing obvious expenses like maintenance/cap ex and vacancy, I think it is important to point it out. This can save a new RE investors from making a big mistake.
What I find interesting is that you still post as though those numbers could represent an accurate cash flow estimate. If you had indicated that the actual cash flow should include maintenance/cap ex, vacancy, and other expenses that would have been nice.
Instead you act like your numbers represent a best estimate of cash flow which is clearly not the case. The $145/month per unit will be negative when including real expense estimates. You have made the OP's case for him.
I do not know your issue. Clearly your calculations left off significant expenses and is not a best calculation of the cash flow. This is obvious even to new RE investors reading this thread, which is/was my intent (to protect the new investors from misinformation).
Have a great day.- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes1y
Well, my friend, they are accurate and correct. I'm sorry that you do not feel they fit your model, but that's okay. You operate in whatever city you work out of, which is fine. However, these are real numbers in New Jersey. Perhaps the numbers are different in your locale, and again, that is fine. However, in New Jersey, 1k a month after all costs on normal operations; most would find respectable. If you don't, no worries, that's fine; I promise you, I will not lose sleep that Dan doesn't like my numbers.
Do what works for you, and I'll do what works for me. Best of luck, I will not be going back and forth any further with you on this thread.
Quote from @Calvin Thomas:
Well, my friend, they are accurate and correct. I'm sorry that you do not feel they fit your model, but that's okay. You operate in whatever city you work out of, which is fine. However, these are real numbers in New Jersey. Perhaps the numbers are different in your locale, and again, that is fine. However, in New Jersey, 1k a month after all costs on normal operations; most would find respectable. If you don't, no worries, that's fine; I promise you, I will not lose sleep that Dan doesn't like my numbers.
Do what works for you, and I'll do what works for me. Best of luck, I will not be going back and forth any further with you on this thread.
>they are accurate and correct.
so in New Jersey you have $0 of maintenance/cap ex and zero vacancies? Do you really believe the BS you claim? Do you really think $145/unit per month of cash flow not including maintenance/cap ex or vacancy is decent cash flow? Do you really believe it is positive cash flow?I hope you have an additional expected source of return. If cash flow is your primary return on this purchase, your return does not justify the effort and risk. This is true in all markets from Cleveland to NYC.
Good luck
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Hopefully, I don't come off like a broken record when I say these things. But the investing for cash flow logic was only around for two reasons to put together at 20-25% down-- as it now is, and always will be a function of debt in the deal
1) Centurial---not generational--but centurial issue with physical real estate asset prices.
2) America's desperate attempt to re-ignite inflation with historically, and also possibly centurial if at minimum generational, policy on fed funds rates.Those two made physical RE have intrinsic properties from 2010-2017. 2-3 years prior and after that it will be less intrinsic but still resemble it, as it fades.
People need to stop thinking this is the norm, this is the outlier. Welcome to the reversion of the mean.
For how to invest in RE, it's going to be inelastic in nature and have real runway moments more often than not in primo areas. Prioritize quality + keep reserves for Opex + capex. Scale is in form of quality equity not nonsense quantity.
- Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes1y
Quote from @V.G Jason:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Hopefully, I don't come off like a broken record when I say these things. But the investing for cash flow logic was only around for two reasons to put together at 20-25% down-- as it now is, and always will be a function of debt in the deal
1) Centurial---not generational--but centurial issue with physical real estate asset prices.
2) America's desperate attempt to re-ignite inflation with historically, and also possibly centurial if at minimum generational, policy on fed funds rates.Those two made physical RE have intrinsic properties from 2010-2017. 2-3 years prior and after that it will be less intrinsic but still resemble it, as it fades.
People need to stop thinking this is the norm, this is the outlier. Welcome to the reversion of the mean.
For how to invest in RE, it's going to be inelastic in nature and have real runway moments more often than not in primo areas. Prioritize quality + keep reserves for Opex + capex. Scale is in form of quality equity not nonsense quantity.
That's some big words. Can you scale it down for me?
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