All Forum Posts by: Adam Adams

Hello BiggerPockets! I am so happy to share the following story with you guys! My name is Adam Adams, yes that's my real name, yes my parents have a sense of humor. I've been a landlord since the crash of 2008 when I purchased my first multi-family. but because of BP I found a hidden gem in a specific area of NE Ohio last July (13 months ago from writing this). So, last year I purchased 3 houses and an apartment building up there and they all have cap rates above 18%. Since my partners and I purchased these for cash... all monies were tied up so I got creative and offered some friends a significant interest rate to "be the bank" All three houses are paying my friends 12% interest and I still pocket enough to cover all turnovers, maintenance, mortgage to my friends, and future capital expenditures. We are still receiving cash flow above 150/door. With the newly made private funding we have a duplex, triplex, and home UC and we already have 80/20 loans with other private investors in our network all 3 new buildings again have 18% cap rates and my friends are going to be getting 12% on their money, again, while we have plenty coming in to cover the debt service and then some. To use one example: the duplex is in a great C+ neighborhood with long term tenants each unit is receiving 600/mo (1200 gross) and our purchase price is $36k (value is approx 60k) our private lender is doing a deed of trust for 30k and we are covering the 6k plus closing costs. Approx Expense for the duplex: 10% property management $120/mo 7% property taxes $84/mo 6% insurance $72/mo And then we budget (set aside): 27% for cap ex, maintenance, and turnovers $324 $300/mo goes to the 12% interest only loan to my friends and we pocket/cash flow $300/mo I run a local (Denver) Real Estate Club so I'm lucky enough to be well connected in an area where even the BEST cap-rates to be found are still well below 10%. So offering an 80/20 1st lien position for 12% interest only payments has been very well received so far. Even if you're not in a city like Denver, there is trillions of dollars out there in stagnant IRA funds collecting no more than 1% interest so I don't think it would be a problem for you to find someone willing to make 6% 8% 10% or 12% on their money, and have it secured by real estate! I'm thrilled this has been such a win-win for me and these other investors. I hope this story inspires you to think outside the box and create some win-wins of your own. Adam Adams Landlord, Podcaster, and Creative Real Estate Specialist.

Hi BP! I joined BP not too long ago, 18 month or so, and I keep putting off introducing myself to the community, so here I am! Landlord since 2008 but because of BP I found a hidden gem in a specific area of NE Ohio last July (13 months ago from writing this) that I wanted to share with the rest of you. (my abundance mentality understands that even after I share this with all of you, there will always be more than enough good deals for us all). So, last year I purchased 3 houses and an apartment building up there and they all "cash flow" above 18%. The All my money was tied up so I offered some friends a significant interest rate to "be the bank" All three houses are paying my friends 12% interest and I still pocket enough to cover all turnovers, maintenance, mortgage to my friends, and future capital expenditures. With the newly made private funding we have a duplex, triplex, and home UC and we already have 80/20 loans with other private investors in our network all 3 new buildings again have 18% cap rates and my friends are going to be getting 12% on their money, again, while we have plenty coming in to cover the debt service and then some. To use one example: the duplex is in a great C+ neighborhood with long term tenants each unit is receiving 600/mo (1200 gross) and our purchase price is $36k (value is approx 60k) our private lender is doing a deed of trust for 30k and we are covering the 6k plus closing costs. Approx Expense for this building: 10% property management $120/mo 7% property taxes $84/mo 6% insurance $72/mo And then we budget (set aside): 27% for cap ex, maintenance, and turnovers $324 $300/mo goes to the 12% interest only loan to my friends and we pocket/cash flow $300/mo It's a total win-win-win I run a local (Denver) Real Estate Club so I'm lucky enough to be well connected in an area where even the BEST cap-rates to be found are still well below 10%. So offering an 80/20 1st lien position for 12% interest only payments has been very well received so far. Even if you're not in a city like Denver, there is trillions of dollars out there in stagnant IRA funds collecting no more than 1% interest so I don't think it would be a problem for you to find someone willing to make 6% 8% 10% or 12% on their money, and have it secured by real estate! I really hope this helps! Adam Adams Landlord, Podcaster, Father, and Creative Real Estate Specialist.

 Joe, respectfully, CoCR and Cap Rate are definitely not "basically the same thing". 

1) Cap rate measures the rate at which you capitalize your investment back based on the purchase price and the net operating income (not including debt service). Gross income and Gross expenses (besides debt service) based on purchase price.

2) Cash on Cash Return measures Cash invested in acquisition vs Net cash back in your pocket after ALL expenses (including debt service) and has NOTHING to do with the purchase price.

Please Note: The ONLY reason I am correcting you is because there are a lot of new people reading these and the last thing I want is for a new person to think CoCR and CAP are "basically the same thing".

I believe every investor should be looking at CAP & CoCR & IRR & DCR when underwriting a potential investment opportunity, furthermore I believe every investor should know the difference between them.

Originally posted by @Peter Milic:

Adam Adams great answer Adam, thank you so much!
This is my first 5+ property so I'm trying to figure out if I made a good deal or not.
I new some stuff when I was buying it but not everything.
So far looks like my cap rate will be around 7.5 and I'm happy with that, but my COCR is only around 8%. I've put 25% down and had to invest more money to fix it.
they said on the podcast once not to pay what property will be worth in the future, I think I that that's what I did, but I'm happy, it's a perfect location for me and I self manage for some extra money, and the loan is getting payed off, all in all not to bad I think.
Thanks again!

Peter, the principal paydown is part of what they call IRR (internal rate of return). this is the number that includes everything you are making.

Hope this helps!

-Adam Adams

Originally posted by @Sincere Fox:

Adam Adams I would like to chat to get guidance with my apartment investing. I am new to South Carolina Market.

 Sure, reach out to me any time!

@Diane G.

Any property sold at an eight cap will cash flow, guaranteed. 

ie 

NOI= 50K

50K @ 8 cap = 625K

80/20 loan @ 5% interest = 2684/mo (that's a 500K loan @ 5% interest amortized over 30 years)

Cash flow is $17,792/yr (or 1482.66/mo)

Originally posted by @Chris K.:

@Paulo Silva

Scranton is a basically 10 cap market. Depending on the cycle, the cap rate may fluctuate percentage or so. 

Given that it's a 10 cap market, good properties in the area should cash flow with reasonable assumptions (10% vacancy, 10% maintenance, 10% management, and around $1,000 CapEx reserve). And like most 10 cap markets, properties don't appreciate the same way that NYC or SF does. Rentwise, you can see anything from $400 a month to $2,000 (and above a month). In other words, Scranton has both Class A rentals to Class D rentals. Also note that taxes are high and the City historically hasn't been friendly to out-of-town landlords.

If you have any other questions, ask away! 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

Hi Chris! do you ever see a C+ property in a B- neighborhood trading at an 11 cap in that area?

We are ready to buy but our preliminary underwriting is stating a value between 450K and 500K 

Please advise, 

-AAA

Originally posted by @Andres Giraldo:

Hi

Im looking to buy a rental property. My investment rationale is:

1. Strong CAP rate 6.5% or plus

2. No leverage used to juice/reach the CAP rate.

3. Investment amount 250k. All cash.

4. No low income areas. I invest in places where I would live if I had to.

5. The state has a landlord friendly regulation

6. Preferably, not necessarily, low state staces.

So which ones do you consider? Any realtor you recommend?

Thanks

Andres,

1. a 6.5 cap rate is horrible. Especially right now. You need to be above 8.5 if you're buying right now.

2. Note: leverage never affects cap rate. By definition, cap rate is not affected by debt service.

3. why do you want to do all cash? (sincere question)

4. good criteria

5. fantastic criteria!

6. do you mean taxes? I don't know what staces are.

Based on your criteria, I'd choose DFW. 

In Dallas they have great landlord friendly laws, big cap rates, a diverse economy, deals you can get into for 250K, among other good reasons to invest there. 

Good luck!!!

-AAA

It's too late for me to call you right now, but I just came accross this property and I can purchase it at a 8.5 cap rate minus initial repairs. Reach out to me if that works for you.

Adam Adams

[email protected]