All Forum Posts by: Gil Segev

@Gil Segev - the reason you really need to make sure a rental cashflows from day 1 is not so much the money you make off it each month but the padding it provides.  If you calculate $250/month cashflow and you're off by $250 because you can't get the rent you thought or taxes go up or repairs are more than you thought... then you break even.  If you buy something that breaks even and you're off by $250, how long can you afford to lose $250/month?  You'll also have a hard time financing it now and refinancing in the future.  Rentals are a long term play.  They are a GREAT way to generate wealth over many years.  The cashflow component is what will make the difference in being able to hold them long term or needing to sell them after a few years.

@Gil Segev what is your PITI and what expense assumptions are you making?

Possibly! I don't want to discourage you but I think 20-25% for MTR management is more of a going rate for someone that will work to maximize revenue and occupancy. I also think that vacancy would likely be no more than 30 days in a year once you get your first guest moved it. But I think to run realistic #s I would be a little more conservative than what you initially shared. It also might mean you need to be pickier about the property you buy but the strategy is otherwise solid. 

I would try FB groups and see if you can get a second opinion from someone operating MTRs in your market because they'll have the best insight. Jesse Vasquez has an active MTR group that may be a good place to start.

I think that an 8% management fee and 5% vacancy rate is too low for MTR. I have STRs and MTRs and have not seen anything this low. I also would consider that you'll need more than $15k to furnish a 3BR home, likely closer to $20k if you want to get the best pricing. 

I would try connecting with some local MTR operators / managers in Austin to get additional perspective before you move forward. As with anything, a lot of this will depend on your goals. If you're doing MTR short-term and plan on holding onto the property for a long time these numbers may matter a lot less to buy an investment property in a good market.

@Gil Segev Remember that I said how important goals are?

If your goal is to make monthly payments for an anticipated appreciation of 10%, then investing in real estate in strongly appreciating markets is a good idea. I am not sure that Austin is that market but it could be one of them.

You are right that the cash flow markets I invest in appreciate closer to 3% or maybe 4%/year but I don't have to pay anything for it, get the tax benefits and the depreciation, spread my risk across 2 or 3 properties, and because TK providers manage them I have no work and don't need to furnish them.

A CD is a very poor example as it shows that you don't seem to look at all the other aspects residential real estate provides you, regardless of whether in the Austin deal or my deals. My friend Keith summarized it this way:

1. Appreciation. You are aware of that

1. Cash Flow. Your rent income minus all the monthly expenses (mortgage, property tax, insurance, property manager, repairs, vacancy, etc.) leaves you with $600 of residual income. 

1. Loan Paydown. Unlike your own home where you pay this, your tenant pays the monthly principal portion of your loan on this property! That means the balance goes down a little each month which adds equity to your proeprties.

1. Tax Benefit. We’re talking about both the mortgage interest deduction and something called “depreciation” that you can typically use as a tax write-off against your income. 

1. Inflation-Hedge. This fifth way is one that even some advanced investors fail to consider. Just like inflation erodes the value of your lump of savings, it erodes the weight of your mortgage debt balance just the same. Your loan today has its “drag” diluted over time as more & more dollars circulate in an economy. Basically you pay the same amount each month but teh value of that money goes down over time. 

You can add those parts together in % terms and probably end up in the area of 16-20%. 

Funny side note: On the 6% of interest you get from the CD you see as an alternative you have to pay income tax so depending on your income it might only be 5% or even 4%.

In case you really mainly looking for a gain in value, you could also invest in stocks. If you had bought Tesla stock in Jan 2023 and sold it today your $150K would have doubled, so the gain would have been triple your appreciation of the $500K property in Austin.

The appreciation goal is a much shorter-term goal than my cash flow goal, where tenants buy me houses, create long-term passive income, and develop a portfolio I can turn over to my daughter when the time comes.

It's all in the goals you have.

Thanks for sharing the numbers. Here are a few things to consider, in my opinion:

1. Your investment makes relatively small cash flow and depending on how the numbers work out in reality might have negative cash flow.

2. You said you are willing to work with w third party PM for good reasons.

3. I believe your occupancy will fluctuate more and a 95% rate is too optimistic, if you ask me.

4. You are indicating that you are willing to put $105K - $130K into the deal.

5. I don't see the furnishing numbers anymore but I would assume $20K at least.

6. If it were me and I am willing to commit this amount of money I would apply (biased, I know) my OOSTK strategy. It stands for Out-of-State-Turnkey strategy. For $125k - $150K you can buy two properties with $300/month positive cash flow each, making $600/month on the same money, have them managed as LTR and no hope required about market movements.

If we are all here on BP are correct and interest rates will come down in the next 18-24 months, you could refi those two properties and increase cash flow even further.

I even have a way to get you up to three properties for the down payment you are willing to make if you are willing to reduce cash flow a little (still remaining positive)

In my opinion the ratio of rent to purchase price is not good enough in Austin to make it work, even as MTR and with 95% occupancy

 I am not recommending you wait for the market to drop. I'm recommending you buy deeper. I am buying as we speak-- I am not "waiting". The initial entry price is paramount in this.

As for the $520k house, reserve wise forget it with the %s. Just put aside 50% of capex stuff and about 6-8 months of lease time/vacancy from the get. Add a month per 15-18 months to that, and add 10-15% every 3 years to capex. The whole little 2-5% is just a way for people to scrounge or cook up ways to make it look different. You also need to allocate money to furnish the place, no?

Your focus is spot on, you'll get a house. Just don't force the shoe to fit, you will definitely grab one with how active you're going at this and that's all it takes. 

 yea you should get more discount in this market as inventory is adding up

 You're not going to find a bigger fan of Austin than myself. Been here since early 2010s. 

I am very bullish Austin, just I am bearish 2024. Which is why I am saying you can work this a bit harder & why I am getting in, in 2024. I could be entirely wrong though.