New REI from Center City Philadelphia, PA

6 Replies

Hi Everyone,

My name is John, and this is my first (second?) post on BP. I'm in my late 20s, but only started working my 9-5 (7-4 in my case) 3 years ago and I'm supporting my fiancee through school, so I'm still working on putting away cash for my first investment.

I plan on starting a few posts to ask specific questions but I'll just explain a little bit about what my goals are here.

I'm planning on partnering with one or two friends for financing, as well as getting some private money from family to help with the initial downpayment on a multifamily in and around the area, ideally within 1.5 hours of Philly, perhaps up to king of prussia, or down to newark, delaware. I'm looking for properties in class A or B areas, with a preference on cashflow. I'd like to manage the property myself.

As for myself, I'm a Mechanical Engineer working in KOP, graduated from UD and plan on moving out west (washington, oregon, colorodo, etc.) once my financee is finished with school.

Not sure if there's anything else I'm missing, but if so, please feel free to ask. I look forward to chatting with you on the forums!

Thanks, @Michael Graham 

I should probably add that I'd really like to get into the buy - fix - hold strategy (for multifamilies). I don't really want another full time job, more of an ideally relatively passive investment. 

I'm looking into notes as well, but if my math is right, on a purely cashflow property, my gains will be significantly greater with a rental than they will be with the note.

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Hi @John Matthews and welcome to BP. Your assumption about notes vs buy and hold rental properties is not necessarily correct. It really depends. With notes (or private lending) you can get obtain a simple interest rate of 10-12%+ right now, which can make for terrific cash flow, sometimes better than what you might actually see cash flow wise from a passive buy and hold investment. On the other hand buy and hold might have a better ROI even on a cash flow basis, with additional possibility for appreciation over the long term. The buy and hold investments also have tax benefits like depreciation, mortgage interest, and property tax deductions. The benefits of investments can also come with higher risks then lending (with the proper due diligence). I personally have both been a lender and investor, but am focusing on investing now.

@Larry Fried  Thanks. So why did you end up moving towards investing rather than lending?

Regarding the returns on an investment, I had the math wrong when I posted the previous post, but now I'm looking at the following: I think can get a CAGR of about 23% (including the tax benefits, cashflow and equity growth) and about 12% CAGR for cashflow only (including tax benefits)

  • 9% Cap rate
  • 97% LTV (most from private investors - family)
  • 5% APR, 12% APR (first 5 years) on 17% of the loan
  • using the 50% rule
  • no appreciation
  • Buying the property at ~100% ARV

I think most of that is realistic except for maybe I could refinance sooner than 5 years, to improve returns (by roughly 7%), and the price I'm buying the property at is obviously quite high, but being a new investor, it's probably likely I won't be able to get a super awesome deal.

With all that said, I'm not sure it's worth the added work of dealing with the 3T's for a few percentage points, when I could just stick with notes and get the 10-20% (maybe)

Is my thinking on this flawed?

    @John Matthews  

    Well, without knowing more details about the property, pricing  and location, I can't really comment very well on the wisdom of this investment.  Still it seems to me with the calculations you've done you are taking a lot of risk, even it is with other people's money. I think you might be better off starting with lending, and build up more cash.

    I think of lending as more of a short term investment, as the deals usually turn around in 6-18 months, and I now focused on more of a long term strategy without the turnover.

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