All Forum Posts by: Daniel Kelly

Quote from @Ben Scott:

While a Class A property won't cash flow like a C or D, you'll have more stable tenants and less maintenance issues. The low income houses look great on a spreadsheet but you're subject to repairs, vacancy, evictions, etc. I'd move forward for the appreciation opportunity and the tax benefits.

 Thanks Ben, I'd be interested in discussing property management with you if you want to set up a call!

Quote from @Jeremy Horton:

Quote from @Daniel Kelly:

Quote from @Jeremy Horton:

1.32% CoC is extremely low

What kind of tax savings would you get? What % are you using for vacancy reserve/maintenance? What would the loan paydown be? What's the purchase price?

I personally wouldn't do it. It sounds a bit like you're justifying buying the property based on possible appreciation and that you just like it. 

My advice: Never force a deal to happen. Run the numbers where the purchase price makes sense for you or where the financing makes sense for you. Then offer what your number is. Who cares what the list price is? That's what I would do anyway 

Cashflow is essential - that is the life of the business unless you are a multimillionaire and can remain solvent until you get the appreciation you estimated and sell for a profit. I personally am not in that position. Nor do I have the knowledge to predict appreciation with the accuracy necessary for me to risk a major investment. 

Thanks for the reply Jeremey. I'm using 5% vacancy, 5% maintenance since it was just gutted. 10% property management (although ill be self managing for the first year or 2). Purchase price is $730,000. $140 per sq foot. Almost an identical comp sold a few blocks down (even listed with same rent roll) at $256 per sq foot. Another comp nearby at $230 per sq foot. Which makes me really like the asset.

But I do agree with you the cash flow is not what I want. Its optimistic thinking but rents in the area seem to be that I get the cash flow up relatively quick.

Interesting - why do you think that the others sold for so much higher $/sqft? That's not even a small difference. It makes me think there's an error or a problem somewhere 

What are the total rents? What are the comps renting for? How "comparable" are the comps? Reason why I'm asking is because there is a big discrepancy in the cost 

Are you putting 20% down? What's would the loan term look like?

As @Henry Clark would say - It's your money, you're right, even if you're wrong. And make your big mistakes early. Two pieces of advice I think apply here 

The $256 sq foot was new construction 2024 - appears to be rented for $1,700 per unit per month, the one I'm looking at is $1,600 per unit per month, with one unit vacant. I have limited info but the listing had a built in 4.75% property management fee and alludes to some tax advantages.

And yeah, that's line of thinking is where I'm at with this property at the moment. I've ran a conservative estimate that lands me at 1.32% CoC (barf), I've ran an optimistic estimate that gets me to 11% CoC. Truth probably lies somewhere in the middle, and hopeful that I can raise rents (I see nearby rents of $1700, $1800) and continue to see appreciation.

Putting 20% down, 6.75% interest. Mindful of the fact that if rates drop and I can refinance that will unlock cash flow as well.

The way I'm looking at it right now is that It's not the best deal in the world but I think it has a lot of paths to be a good one in the near future. 

But also wanted to post this incase everyone comes on here and says RUN!! Then I'd listen. Lol!

Quote from @Jeremy Horton:

1.32% CoC is extremely low

What kind of tax savings would you get? What % are you using for vacancy reserve/maintenance? What would the loan paydown be? What's the purchase price?

I personally wouldn't do it. It sounds a bit like you're justifying buying the property based on possible appreciation and that you just like it. 

My advice: Never force a deal to happen. Run the numbers where the purchase price makes sense for you or where the financing makes sense for you. Then offer what your number is. Who cares what the list price is? That's what I would do anyway 

Cashflow is essential - that is the life of the business unless you are a multimillionaire and can remain solvent until you get the appreciation you estimated and sell for a profit. I personally am not in that position. Nor do I have the knowledge to predict appreciation with the accuracy necessary for me to risk a major investment. 

Thanks for the reply Jeremey. I'm using 5% vacancy, 5% maintenance since it was just gutted. 10% property management (although ill be self managing for the first year or 2). Purchase price is $730,000. $140 per sq foot. Almost an identical comp sold a few blocks down (even listed with same rent roll) at $256 per sq foot. Another comp nearby at $230 per sq foot. Which makes me really like the asset.

But I do agree with you the cash flow is not what I want. Its optimistic thinking but rents in the area seem to be that I get the cash flow up relatively quick.

HI all,

Want to start with thank you to everyone in the bigger pockets community taking the time to read this and provide input...

I'm looking at a property in Oklahoma City in what looks to be a very desirable up & coming neighborhood. Its a 4plex, gut renovated in 2021, A class. Im 29 years old and have 2 other properties where I've typically only invested based on cash flow. As we all know, strong cash flow is hard to find right now. I've shifted my approach to be long term appreciation focused, which lead me to this property. I have the property under contract. Right now, its a 6.51% cap, but only a 1.32% CoC ROI (this is with a very conservative formula: vacancy reserve, property management (although I'll likely self manage to start), maintenance reserve, etc.

Historically, I would hate this deal on paper. But with my appreciation mindset, I like it because I'm buying a great asset in a great neighborhood that will see both rent and property value growth. I believe I can slightly raise rents at lease renewals and get this to a 7.33% cap, 5.09% ROI in the near future.

Also should note that I am looking for turnkey properties only as my W2 job does not give me much time for renovation projects. 

Am I making a mistake moving forward with a property that will not see strong cash flow for the next few years? Or is this a good approach as I'm not looking to be financially free immediately, but want to set myself up for that by age 40-45. 

I'd really appreciated either the validation to go through with it, or the "wait for a better deal" take so I can weigh my options. Thanks everyone!!

TLDR: Is it worth it to invest in a property producing low cash flow that has strong appreciation upside?

Hi all!

I’ve never refinanced before (or utilized any creative financing strategies, although I’ve researched them at length). I bought my first rental property in 2020 at $290k. Since then, the market has boomed and I’ve been fortunate enough to now have this home valued at $380k on Zillow. I’m looking for ways to grow my portfolio and a cash out refi seems to make perfect sense.

My question is, however, I purchased this home during Covid with an incredible 3.2% interest rate. With interest rates now above 7%, it's made it almost impossible to find new opportunities that could even sniff the ROI I currently have. Does it make sense to refi such a great rate? I put down 20% originally so I'd essentially be getting all of my cash back out of the deal, which in turn makes my ROI infinite? Any advice / suggestions would be much appreciated !! Thank you!

Originally posted by @Bill B.:

Why would you bother buying if you’re planning on selling in 5 years? Do you think you’ll find a better performing investment in 5 years and be out of money to invest? You’re going to have 10% in costs to sell, so if it appreciates with inflation a couple percent per year you’ll only be even after 5 years. What if it drops 10%, then your plan is to lose 20% in 5 years? If it’s making money and you don’t sell it doesn’t matter what it’s worth. Just keep taking the money and use it to buy more. 

Hi Bill, 

Thanks for the opinion. I agree with what you're saying. It was worded poorly when I said "when I go to sell it in 5 years" . My concern stemmed from: this is a SFH, I eventually want to be investing in multi family (specifically apartment complexes) , so sell the SFH homes that I own and 1031 up. So having an asset that I would have to hold because I bought at the peak of the market was something I was mulling over. Anyways, I bought the property! Closed on it yesterday. I appreciate the feedback.

-Dan

Hi all,

This is my first post on the BiggerPockets forum, woohoo! I have a quick question that I'd love opinions on. I am investing in a market in CT, I currently have one SFH, and looking to add my 2nd. The dilemma i'm having is I'm concerned i'm buying at the height of the market.

The house I would be purchasing has tenants signed through May 2022, at roughly a 9% cap and 19.7% ROI. From everything I've learned so far studying real estate, those numbers are good!

However: Ever since Covid-19, the prices on homes in this area have SKY ROCKETED. It's a sellers market, and in this instance I would be buying a house that was worth 25% less just a year ago. 

In conclusion: This property would have solid cash flow, but is it too risky to be buying a house at this much of a premium? My fear is 5 years down the line when I go to sell it, I will be taking a loss. Also this house appears to be in good condition, if that helps. 

Thank you Bigger Pockets community!! 

-Dan