All Forum Posts by: Account Closed

@John Allen

Being an active investor has made me a lot more money much more quickly than my passive investments. This also required me to build a business, quit my job, and take on a greater sense of responsibility than my hands off investment. I would say that greater involvement necessitates a higher level of skill and expertise. Some would say there is more "risk" as well.

If doing all of those things until you can do them well sounds appealing to you, I would take the active route. The revenue generated from your projects today would fuel an accelerated transition into passive vehicles in the near future too.

@John Corey mentions a certain "temperament". I would strongly agree. You've gotta have guts, a bit of scrap, and a certain fearlessness about you should things go badly. Which they will on varying scale, day in and day out.

Welcome @Jeff P.

Tons of good stuff available out of state. Choosing the right market is probably the most important factor! There are still a handful of undiscovered markets that offer returns that might beat your expectations.

Having a strong management team is key too, get some good referrals once you pick a market.

Good luck-

2 cash buyers is certainly a very small list- it might take a bit of luck to get one of them to buy this property.

You should look up some methods to fast-track your cash buyers list. Perhaps buy data on cash buyers in your market and use some digital/phone based marketing to build your list to 100 or more real quick. 

@Seth Levey 

Residential financing for non owner occ properties and commercial financing are right around the same interest rates right now, mid to high 4's is what we're seeing. 3.5 is even low for an owner occupant rate. I would guess 3.75 is attainable. 

Your maintenance and repairs are a bit low, but that might be offset by the fact that your insurance may be a tiny bit high (or may not be).

Regardless of all this- the cash on cash returns on this property are WAY too low. Low returns like this may be worth considering in a low market, where you can confidently expect significant appreciation... but in a market like 2019's, you're not safe to assume that. 

I would strongly recommend entering a different market if you want to be a cash flow investor in this market phase.

OR, sell stuff. Or short term rentals. Some sort of alternative strategy. 

The rental upside you describe helps, but I honestly think you should be shooting for 15%+ returns. I aim for 20%+ personally just to be safe.

@Prince Conley Net ROI of 8.79% with financing???? That's way too low.

In smaller MFR and SFR there are still select markets all over the country (and I'm sure some not too far from you) where you can get a 10 cap or a 20% cash on cash return (based on a pro forma with a 5% vac and 10% maintenance reserve + actual expenses). With a hyperconservative pro forma you can still get a 15% ROI, especially with lending getting cheaper.

Do not settle for low cash flow in such a high market where prices and the economy are expected to soften in the near future. Go get a 100-110k duplex that rents for 1500/mo in a C+ neighborhood, in a different market if need be. Sit on it for a  few months and see how you do, then buy some more just like it as long as we're at the peak as we are now.

@Samuel Iwu

The same theory is maintained regardless of the situation- even with the rehab property. It doesn't matter how cheap you get the deal or how much equity you have- you'll always be in a better position with leverage (unless the property has a very low market value). 

@Pope Lake 

This sounds a bit overly complicated for such a small deal. A good property manager is well worth the 8-10% you pay them. A good rental property should cash flow substantially after paying for a good property manager. 

I say if you're going to reap the benefits of partnership as a starting investor, look for benefits that are unique and not easily offered to you. Good [enough] management for an SFR is easy to find, and not worth trading equity for in my opinion. As a new investor, maybe trade equity for funds that allow you to scale. Or a unique skill set someone brings to help scale your little business. Don't trade it for a commodity service.

@Samuel Iwu

What you're illustrating in your first post is just the benefit of compounding returns on dollars invested. I don't agree that buying cash is the best way to do this if you can effectively leverage the entirety of your investment funds. The key here is actually being able to place all of your funds in good investment property.

I just ran some numbers through my pro forma, and a property that's an 11% Cap rate has a cash on cash ROI of 25%+ with current commercial financing terms through a major bank.

If you buy 100k worth of property with cash:

You get an 11% rate of return.

You get to take home the sum of your net operating income.

If you buy 500k worth of property, with 100k cash down + financing:

You get a 27% rate of return after your mortgage payment is made.

You get to write off the interest on your mortgage payment.

You are paying off your debt and increasing your equity position over time, further adding to your returns. 

It's kind of a no brainer to me. The only challenge is that it may be harder to find 500k worth of GOOD high cash flow property than is to find 100k.

@Matt Hudson so happy @Jay Hinrichs mentioned the "BRRR Koolaid".

I have no idea why anyone would ever go through the trouble of finding a deal at way below market to basically flip it, but rather than sell it to realize that lovely chunk of equity gain... keep it just to cash flow minimally? It's a highly idealistic method that doesn't scale. 

You're digging in the wrong mine my friend. Go flip 10 of these great equity properties, make half a mill, and go throw that at 2m+ worth of high yielding rental property that doesn't come with a fat project associated. 

Nashville is hot market! Hot markets don't really cash flow in 2019. Watch our for the D class "paper tigers" Jay speaks of... but not every cash cow is going to underperform in reality. There are still markets with properties that offer high cash flow which are actually viable. 

Just please please please don't be one of the BRRR people

@Alexander Johnson I don't think you're going to find great cash flow property in your particular market these days, at least in SFR rentals. From what I remember, the rent to value ratio just isn't there.

For SFR, I recommend aiming for 250$/mo net on a financed SFR, in good condition, with a purchase price between 50-75k. This net includes all operating expenses and an additional 15% reserve for vacancy and maintenance. This usually comes out to a 20+% cash on cash return.

I wouldn't settle for too much less in this market. You're overpaying for everything, so expect higher cash flow than most to offset the fact that near term appreciation probably isn't going to be a thing... and depreciation may be if the economy changes direction.