Studio City, CA · Member since 2016 · 69 posts · 15 votes
Let's say you're ready to buy your first property. It's either going to be on a luxury SFR (600k-1m) in your own area, or it'll be on multiple properties elsewhere through a turnkey operation. What's your inclination? I see definite pro's and cons for both. The goal is long-term cashflow. Buy and hold, or potentially BRRRR.
Note Investor · Orlando, FL · Member since 2016 · 135 posts · 79 votes
10y
Hello @Daniel Smith, why only both extremes? No middle for you?
Your goal is long term cashflow. Great goal but it's not enough detail. What type of return do you want?
I don't know what you mean by turnkey operation but to me, that means you are buying a property that is already repaired with a tenant in place and most likely management as well.
Does that mean you are prepared to rehab the luxury home but not smaller properties?
What are your pros to the luxury home? How do you plan on generating the cash flow - renting it or selling it with owner financing?
Studio City, CA · Member since 2016 · 69 posts · 15 votes
10y
Good questions, Gerald. Thanks for asking.
Rentals is what I'm most interested in.
I would like modest returns in the first years followed by steadily increasing ones in the future. Of course I love a big return as much as anybody, but I don't trust them much. Furthermore, I'd really like passive income (for tax purposes) as opposed to flipping for instance.
Yes, I would be more willing to rehab local properties, simply because I know contractors in my city and would have a better idea of costs with my own boots on the ground. Turnkey properties in the Midwest and elsewhere appeal to me because they're cheap. Cash flow would likely work out better there from the beginning (at the sake of appreciation most likely).
Redding, CA · Member since 2016 · 224 posts · 143 votes
10y
I do like your humor Daniel.
Buying a $600K++ SFH for cash flow............Just kidding you..........buy funny.
Let me give you some serious food for thought:
When you purchase average properties in average condition, you can expect to pay average price and get average terms. Equity creation or build-up is somewhat difficult when all things are average. Equity build-up comes from several sources. The first is very insignificant. It’s the principal portion of each mortgage payment, which adds to equity in the property with each monthly payment.
The second kind of equity is what I do. It’s called ADDING VALUE. It comes from fixing up a property or straightening out people problems by initiating better management. This kind of equity is forced equity. The owner makes it happen.
One of the best ways to create equity is to improve the financial performance of a property (raising rents). For example, if I’m able to fix up a rundown property and increase rents from $20,000 annually to $30,000 that is FORCED EQUITY CREATION. If the property is worth eight times the gross rents, I’ve increased the value from $160,000 to $240,000. That’s an $80,000 equity addition. It has nothing to do with normal appreciation. It was forced to increase by myA fix-up work. If the building appreciates 5 percent next year, that will add $12,000 equity to the $80,000 I’ve created. The operating word here is CREATE. I make it happen.
Good luck and again just kidding on the funny stuff.
Studio City, CA · Member since 2016 · 69 posts · 15 votes
10y
I have been able to find some properties that will cash flow slightly positive. Of course, I am not counting my own principal payments (a bit of forced savings) in those calculations. Including those would turn things negative month-to-month.
Adding value is great. I think I could turn some of those $600k properties into $800k properties ARV.