All Forum Posts by: Francis Dinh

@Robert Schumacher

@Francis Dinh

Hi Robert.

That sounds like a great deal!

But keep in mind not everyone, which may include the OP, can qualify for that kind of deal.

I've been in the business for 2 decades and have $20 Million of Investment Properties in Brooklyn with Partners. I don't expect a single individual to buy like I do and I try to break it all down, which inevitably means that you need to find Partners for those deals since Brooklyn properties are generally over $1 Million each.

While I am not advising anyone to buy in a Particular Strategy, at least half of my properties were initially Negative Cash Flowing. I tend to have to add value to them like House Hacking it with an extra unit that I stayed in to make it at least break even.

In NYC, if you can NOT pay rent and live, you are doing GREAT! Today, there is huge protests about the "Rent is too Damn High." So when you can buy a place and not have to worry about Rent, consider yourself luck in NYC and I suspect, SF.

All my properties, including the ones that I started out with Negative Cash Flows, are doing FANTASTIC. For instance, I bought a property for $140k in the year 2000. That has a Negative Cash Flow for about 3 or 4 years. It's now worth $1 Million 17 years later. I originally put down $28k and renovated it for $40k. That's $68k invested. If I sold it today, I would put in my pockets $895k, that's a profit of $827k from an Investment of $68k. The ROI on that increase is 1,216% ($827k / $68k) over 17 years = 71% PER YEAR, not including about $2.5k in cash flow PER MONTH today! Not bad for a $68k Investment.

Francis, I forgot to answer the other question you had. You asked if it was better to use a 30 year fixed. It's easy to do the same calculations since I have a spreadsheet developed. I'm going to assume that for the 30 year fixed, it's at a higher interest. Let's just say 4% instead of 3.8%. So here is the spreadsheet with that small change:

See how quick it is for me to make a change on a spreadsheet and let it recalc all the numbers? Now, you will have a Negative Cash Flow for 5 Years, and most of it is barely a Negative Cash Flow.

NOW, to appease anyone who is totally disgusted at Negative Cash Flow, all we need to do is add a higher Down Payment and then you no longer have a Negative Cash Flow. So.... let's do 30% down.

Here is the new spreadsheet:

Good Buy Negative Cash Flow.

These spreadsheets are POWERFUL. I would advise everyone who doesn't know how to do them to PLEASE run your own spreadsheets and answer the what if questions.

The above spreadsheet answers the question, What do I need to do in order to make this Investment Cash Flow on Day 1.

I also want the reader of this post to realize that Cash Flow is NOT about the Investment, It's actually more about the INVESTOR. Basically any property can Cash Flow if you don't have a Mortgage. Having a Mortgage is dependent on the Investor, not the Investment.

Hopefully all these spreadsheets didn't put anyone to sleep! :)

@Francis Dinh

Hi Francis, I'm not sure you understand the calculations, especially in the Table called "Breakdown Over Time."

The problem I find in BP is that most people just don't understand these calculations.

It's an Internal Rate of Return Calculation broken down by what the selling price of the house would be at the time, based on the Value of the house which is dependent on the Capitalization Rate and the NOI.

In other words, those calculations projects your rents and expenses out for 20 years, as well as calculates the Value by using a 3% appreciation Rate, which is extremely low.

It then seems to add all of it together and spits out an IRR of 9.24%

The problem is that the majority of Investors anywhere, not just here on BP, just doesn't really understand that kind of calculation.

Funny, but this is the kind of calculations that I really think all Investors need to know.

What you would really need to know is not if this is a negative cash flow or not, but can you carry the $347 per month loss until the time it break even in cash flow, which those calculations don't tell you.

Then, if you can do that, by the 20th Year, taking everything into account, including the negative cash flow for that short period of time (I can calculate it but am pressed for time when you would break even on cash flow), it would be the equivalent of putting your money into a Savings Account at the rate of 9.24%

Now, that's not bad as an Investment.

Also, the 3% Appreciation Rate may be far below what is the historic rate in that area so it could be way off and that would mean you get a much greater return.

ANYWAY.... my views are very much out of the mainstream but that's because I fully understand all of the numbers you posted. Most people can't get beyond the negative cash flow so they don't see the entire picture that you are presenting.

Francis Dinh Only way to buy right is to buy closer to the 1% rule. That means you need to buy closer to $175k. You must at least have positive Cashflow or you will be throwing money into a money pit, year after year, hoping for a good return.

Either get it cheaper or be able to raise the rent closer to $2,400/month. If the numbers don't work, move on until they do. Everything is over valued all over, that means we are near the top, if you ask me.

I only buy properties that Cashflow. Appreciation is an unexpected/unplanned bonus. If you start thinking about Cashflow first, you will get that appreciation. It's just a matter of finding the right one. Sometimes there are no Cashflow deals. If anything keep building purchase money, and wait till the market drops out, then buy up the market

Francis Dinh this a Negatively Cashflowing property. You are losing a lot of money upfront. If the market crashes, which we are looking at trying to anticipate right now, you will end up underwater, as you will not be able to sustain that rate of annual growth. Also, this is no where near the 1% rule.

You are hoping appreciation WILL happen, but nothing is guaranteed. If you are playing the appreciation game, you are gambling. You're holding and praying the market moves up, in the meantime you are losing money every month and every year. Also this projects rents to go up, what happens if they stay the same or fall a little bit. There is no room for error on this deal, no wiggle room for the unseen.

Personally I will not buy a negatively Cashflowing property