Danville. CA · Member since 2017 · 313 posts · 221 votes
I have about $150k to invest into my 5th property. I am leaning towards and all-cash buy in Memphis with a fantastic turnkey operator. My focus is on cash flow.
What am I not thinking about??
I am leveraged on the other 4 properties and like the idea of having a paid off asset.
This time, let me try to give you an answer without the "clouds" in the way.
The bottom line is this...math.
1 - If you put $150k cash into a $150k property, and the property has positive CF, that property costs you $150k. 2 - If you put $150k cash into a $150k property, and the property has negative CF, that property costs you $150k...plus, all the negative CF...and is a bad deal. 3 - If you put $30k cash into a $150k property, and the property has positive CF, that property costs you $30k. 4 - If you put $30k cash into a $150k property, and the property has negative CF, that property costs you $30k...plus, all the negative CF...and is a bad deal.
...but,...
5 - If you put $150k into a property that only gets $1000/m in CF ($12k.yr), it will take you 12.5 years to recover your cost ($150k). That means you don't start making a profit until the middle of year 13...and that's a terrible deal. 6 - If you put $30k into a property that only gets $500/month in CF ($6k/yr), it will only take you 5 years to recover your cost ($30k)...and that's a great deal.
...further more...
7 - If you spend $150k on one $150k property all cash, you own $150k in property value. If your PV appreciates 10%, you only gained $15k in PV and free equity. 8 - If you spend $150k, $30k per property (DP), that's 5 properties worth $150k each, which means that $150k is now buying you $750k in PV, and that 10% appreciation will get you an additional $75k in PV, and free equity.
@Bob S. That's awesome you are able to be that profitible on very low cost cleveland properties and owning a management company likely helps cut your management costs, most investors will be looking at 4-10% total returns when buying cash in typical US markets which is similar to an index fund. By using even 50% leverage it creates much higher COC and leveraged appreciation + mortgage paydown.
@Bob S. That's awesome you are able to be that profitible on very low cost cleveland properties and owning a management company likely helps cut your management costs, most investors will be looking at 4-10% total returns when buying cash in typical US markets which is similar to an index fund. By using even 50% leverage it creates much higher COC and leveraged appreciation + mortgage paydown.
4% why bother, heck , I picked up a 3/2 in a nice area for all in 60k, rent will be 1300- 1400, about 20 5 net cap, value about 125k BO YA lol