All Forum Posts by: Chad Duncan

Do you know how to create and analyze a construction schedule? A normally overlooked aspect of construction/development is not comparing the opportunity cost of getting into another property in less time and less money out the gate, so keep that in mind.

The last reply wasn’t very helpful, so I will go into a bit more detail. Let’s say you want to find out how much you need to save for a roof due in 15 years. If the roof costs $8,000 today, then how much would the roof cost in 15 years, given that construction costs increase at 4% per year? Haha, definitely a traditional finance exam question. 

The answer is $14,408. (Formula: $8,000 x (1+ 4%) ^(15)). Then you divide the $14,408 by the remaining months until replacement, in this case its 180 months (15 x 12 = 180). So, $14,408 divided by 180 equals $80 per month. You would do this for every system in your investment (siding, concrete, doors, sinks, cabinets, etc.) and it would come out to be $X per month required “replacement” reserves.  

There are quite a bit of analysis you can do to make sure your calculations aren’t way off. Unfortunately, most analysis that doesn’t come with professional judgement isn’t going to be very helpful. That’s why having someone trusted that can check your work, that also understands cash flow analysis and can help coach you through some things you may have missed is recommended. 

I hope this helps!

@James Devoeundefined

@James Devoe Okay, the most accurate way to calculate it is fairly complicated. It requires research into each systems useful life and future value calculations.

@James Devoe How long do you plan to hold the property?

What amount are you putting into your capital expenditure reserves?

@Dennis L. Having a good property manager is worth it in most circumstances. As for big ticket items, you can get a general contractor or inspector to see what's going to be needing replacement for the next 10 years and save for them. That would most likely lower your stress when those come due.

How did your accountant come to that ROI? Does the Cash Flow from your properties pay your living expenses? A good idea would be to compare three scenarios from a pure numbers perspective :

1. 1. Keep the properties and hire a p.m. , 
2. 2. 1031 exchange into DST,
3. 3. Sell and invest in ETFs, and 
4. 4. Combine it into the NNN.
   

The third scenario is good for adding in another perspective and opportunity cost. After you determine the numbers, then think about which one would make your life better. Sometimes it's not always the best financial decision that wins, but the one that makes your life easier, happier, and more fulfilling.

What's your main goal? Is it investing or lowering your cost of living? If its investing, then house-hacking is good. However, you would need a sizable down payment to lower your cost of living in the short-term.it seems your refinanced payment could be better, but I don't know your situation. Have you analyzed each scenario and then looked at it from the numbers perspective? If not, this is the next step after figuring out what your main goal is.

@Andi Leka In most circumstances, time allows for it to make sense.

Not likely. The capital expenditures and maintenance alone would probably be more than your current net cash flow, even if you completely renovate everything. This is something a lot of investors get wrong and seriously affects investment returns over the long haul. This is why properties with more units and more rent per unit are worth obtaining, even if they are multiples more expensive.

Does your mortgage including property taxes and insurance? Have you considered property management costs in the event you absolutely hate managing it?