All Forum Posts by: Anthony Palmiotto

Michael D. what you fail to take into account is that higher rates do just the opposite of what you opined. Higher rates force rental pressure.

Higher interest means less consumers qualify for home purchase, so they have no alternative but to seek rentals.

Rental pressure increases rents. Increased rents force appreciation, forced appreciation builds equity.

And who said that we were starting with negative cashflow?

Tevis

You are making 20k - taxes on 600,000 value.

Let's say you sell it and 1031 exchange to something else. Sales costs would be roughly 8% (5% commission, 3% transaction fees). You would net 600,000 - 48,000 = 552,000.

You would than buy a multi-family or another investment. If you decided to do all cash you can buy something for 552,000 that has a CAP rate of 7%. (Search Bigger Pockets for the definition of CAP Rate if you don't know).

552,000 * 7% = 38,640/year

That means you should NET 38,640/year with very little work.

Many investors on this forum can achieve CAP rates over 10%. We typically put more hands on effort in but that means:

552,000 * 10% = 55,200/year.

Be careful when researching. Many Seller's don't show all the real expenses in their Cap rate... so do a lot of research before you buy!

The other options: use leverage.

Let's say you buy a property for 1.1million at 7% cap rate financed at 5% amortized over 25 years and put 552,000 down.

1,100,000 * 7% = 77,000 / year

You would have 550,000 mortgage with payments of $3,215.25/month or $38,583/year. You would net $37,417/year but also have $11,000 in principle reduction on your loan. So effectively would make $48,417/year versus under 20k.

On a side note, the seller's agent sent me a P&L statement from 2012, and it wasn't too exciting.

2012 had an NOI of of $7972 and had 74% of gross income go towards expenses, and that's with the current owner self-managing the property. Two out of the four tenants were paying very sporadically, granted, they are both gone now. Also, new wood floors, new a/c unit, new appliances in one of the units, in addition to smaller maintenance issues. I'm waiting to see if he can produce sheets from the previous years to see if it's any different.

Are numbers like that a dead giveaway of a dud property that's not worth my time, or is one year's P&L Statement not enough data to make that determination?