All Forum Posts by: Chase Gochnauer

Where are you getting your 100s of thousands of dollars to buy properties cash if you are not leveraging anything? Even if you started off with $1mil at a 8% cap rate, $80k/yr is not going to give you much to reinvest.

 Let's be clear. I own ten investment properties with no liens at the moment as I don't have the time to manage fifty properties. But why don't we forego the personal attacks and instead explain why my numbers are wrong?

Ah didn't see your response before I responded. :)

 I would argue the opposite of that, though. When you have financed/leveraged a property using your cash, you're building both cash flow(net worth if you save it), equity through paydown(net worth), and appreciation(net worth). By paying all cash for your properties you're limited to only the cash flow and appreciation, and do not gain that pay down of equity that comes with the financing.

In the case of the $125/mo cash flow, there's likely another $100/mo in equity being gained by debt paydown, as well as appreciation occurring. I think they just aren't talked about quite as much because cash flow is what puts food on the table.

Just running a quick example through my spreadsheet:
$100k purchase, $1100/mo rent, $2400/taxes, $600/yr insurance, $1500/yr maintenance, paid in cash yields 7.64% return on your cash or $7,644/yr of cash flow. Add to that 4% appreciation each year and your first year yields you $11,644 of net worth gain.

Using the same $100k you could purchase 5 of these deals:
$100k purchase price, $20k down, 5%/30yr amort, same numbers as above. This gives you a cash flow of $2,491 per property. You gain that same $4k of appreciation, now at $6,491. Add in the $1,180 of debt paydown(1st year), you're at $7,671 net gain on this one house and you'd have the ability to buy 5 of them, or make $38,355 off of your $100k, when counting all 3 avenues(cash flow, appreciation, debt paydown).

Even if the expenses change, rent changes, the net worth growth will still be significantly higher with the leveraged scenario. I don't really see it as any more risky, either, with 20% down on each property. It just takes more time to manage.

Yes I didn't read through the numbers, but I agree with Jerry, $10-15k for all that is a bit low. $10-15k is maybe materials. I think you'd be lucky to get away with $10-15k for just the siding and roof, assuming you're hiring professionals.

@Tristan Neumann Just think of it as the seller providing the financing on the terms they want rather than the bank. . They may want 5-10% down, and a higher than market interest rate. But if it's a short term flip then the interest isn't as critical.

Hello Tristan, I'm over in Des Moines. Some of those wholesalers will be willing to do contract terms, but you do pay a premium for that. I'd just give them a ring and ask if they'd be willing to do contract terms and see what they say. 

It goes back to your goals when purchasing rental properties. If you're looking for something to replace your 401k or another investment vehicle to give you more passive returns over the long haul so you can comfortably retire, that's different than the person looking to quit their job and dedicate their full time to acquiring and managing properties. 

Mike, from what you're saying, you did finance your first rental. You may have used your personal residence as collateral but you took out a loan with the sole purpose of buying a rental property. You say they're free and clear now but then mention how after you purchased a number you'd buckle down and pay off the mortgages. 

To me, when someone talks about the philosophy of paying cash to purchase properties, they don't mean taking $$ off of an existing property to buy a new property but rather using funds made from your main source of income to purchase homes cash. I get you're able to take the financing contingency off the offer and are "paying cash" for the purposes of your new purchase but you're really financing behind the scenes.

You have no mortgages now but it sounds like financing properties was key to get you to where you are today. I would also ask what the interest was on an owner occupied loan when you paid it off? I agree a nest egg is essential to prevent a personal "financial collapse" but when you have a 3.5% interest owner occupied loans over the last year or two, after tax deductible interest is really like 2.5%, I can't see any sense in paying that thing off quickly.

I do agree with the nest egg philosophy though, don't finance to the hilt and hope things don't drop out. I think if you could comfortably put down 20-30% on a non-owner occupied property, while still maintaining a nest egg of a few thousand per property to cover CapEx, then I think that would be a safe financial move.

I think leveraging does improve your cash on cash returns but one thing that nobody speaks about is TIME. If you had $100k and had the choice between buying a single property and making 8% cap rate($8k/yr on your $100k) or buying (5) $100k properties at 80% financing and making 15% cash on cash return($15k/yr on your $100k + equity) do not forget that you're managing 5 tenants versus 1. It will make you more money but take much more time. But again this goes back to your rental property goals.

Yeah the 5 hrs is just something I threw out there. It just has to be enough time consumption that you can actually build a process/SOP around it. 

There are lots of CPAs out there that have departments solely for monthly bookkeeping. It might be worth looking into that before hiring someone full time. Same goes for the notices, maybe just focus on getting a reasonably priced attorney that could send them out for you.

It will likely be cheaper to have an in-house employee handle them for you if you have enough to keep them busy. But finding a good person at something like bookkeeping has been more of a challenge for me and will likely cost more than a basic admin, unless you can put together some strong training/guidelines on doing it. 

I hear you on the overhead, employees can get expensive quick, wait until you have a few and then you have to start worrying about vacation, 401k, etc. But, you only have so many hours in a day so if you want to grow you need help. 

Where are you feeling the pressure yourself now, what are you not able to get done that you're wanting to?