All Forum Posts by: Christopher Za

Perhaps I wasn't specific/clear enough.  I'm looking at a $600,000 property that will only be cash flowing $1600/year at the time of sale. Expenses come to $48K/year (54%) accounting for everything, so my cash flow is only 3.3% of my expenses. It's an older building and has an "older roof and boiler."  It's also a landmarked building so repairs could be pricey (it will also probably need new windows, brick tucking/pointing etc at some point).  My plan would be to save all cash flows for several years to pay for any capital improvements that may be required. However, if any of these issues arises in the near future...

Do any of you ever look for a number for cash flow as a percentage of expenses that makes you feel relatively safe? 

My goal is simply to buy and hold and have a property that pays for itself, but unforeseen expenses could hurt. So while it may look like a deal that satisfies my requirements simply by being cash flow positive, I'm looking to those with more experience to advise whether or not they have a guideline that they use to determine if cash flow is sufficient when taking into considerations costs. 

(Also, cash on cash metrics don't really apply to me here as a metric for me because I'm borrowing private money for the down payment and providing the lenders a 5% return on that money.)

Thanks!

Pretty simple question, that my searches haven't turned up.

I understand cash flow, expenses, and the 50% rule. I also understand that people tend to look for a certain number for Cash on Cash return (e.g. 6-10%). What I can't seem to find is whether or not anyone every looks at just how much cash flow is enough given expenses.  

I'm in a situation where I am going to be putting very little of my own money into one or more properties (all of which are older construction). I've tallied the actual expenses and added my own estimates and the numbers happen to fall around 50%. However, the property only barely cash flows. If the unexpected big expenses arises, it could really hurt (I've budged 2% of purchase price for Maintenance, which totals $12,000/year for one property). 

So the question is this.  Do any of you have a guage that compares cash flow to expenses?   What do you consider safe? 10%? 20%?

Wow, thanks for all of the help everyone.

@Anthony Gayden This sounds very interesting. I just started listening to @Ben Leybovich podcasts and lo and behold, he commented right here!  I'm a little unclear as to how the order of such a thing works.  Do you borrow from the seller first, and then take that 20% and your 10% to the bank to get their mortgage?  It also sounds like Mr. Leybovich is suggesting that a bank might not be willing to engage in this arrangement without a prior history with me.

@Steven J.I believe the current owner, who has had the properties for 35 years, owns them free and clear. As I said, I do think he's probably open to creative financing based on what I've heard from someone who has dealt with him; I just need to have the convo with his broker tomorrow to see what those might be --- and I'm talking to all of you fine people to get a sense of what kinds of things I can do!!!

Obviously, my ideal situation is to limit my down payment as much as possible.  

Thanks again for all of your help.  This site has already far exceeded what I could have hoped to have gotten out of it!

PS - if anyone has any other suggestions for particular podcasts which might relate to partbership structures or creative financing please do recommend!

Hi all, 

I'm making my first post, as I look at starting off in multi-family REI.

I have identified two properties that are being offered by the same owner in the midwest. They are not currently listed. They are being listed for a total of $1.2M.  They are cash flow positive (10% return on equity DP), in good condition, and sound buy-and-hold investments with long term upside (cap rates around 9.5).

My questions largely surround financing.  

I am a filmmaker and so have a very up and down income. Some years it's high, some years very low.  As such, I don't have the traditional steady pay of a "regular" job. I do have some cash saved.  I also have my mother, who is eager to help me with down payments and/or partnering so her current, regular income ($130K/year) might be applied toward my financing deal if we partner in some way.

We could form an LLC, and then try to get a commercial loan, but then it appears that our only option would be something in the 30% down and 5% loan range. We can manage 20% down, but 30% will be a stretch. We both have 800 plus credit scores.

So I'm appealing to the BP community!  Are there any other options that might be available to us?  Some thoughts I've considered but don't know if they are feasible:

1) Could I owner-occupy one of the apts in the two properties and somehow be considered for a residential loan that would cover both? In this case my mother would probably act as a guarantor? Would they require my mother (instead of me) to owner-occupy to qualify? Does it have to be her primary residence? (she is retiring next year but will maintain a $100K+ income from annuities and pension etc.).

2) A variation on the above idea might be to buy the two properties separately. I owner-occupy the more expensive of the two to get better terms there, and then we buy the other under a commercial arrangement. 

3) The owner was willing to do a land contract with a prospective buyer in the past, but that fell through and now he won't do a land contract (he is quite old and just wants to cash out). However, he does appear to be open to "creative" financing, and someone mentioned he might take a 2nd. Despite a bunch of reading, I don't know how that would really work in this situation, because, again, I would only be bringing 20% cash to the deal. 

Thanks in advance for any help/suggestions. I'm just starting out in this world but very excited for the future!