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All Forum Posts by: Dan H.
Dan H. has started 29 posts and replied 6085 times.
Post: I'm considering employing the Live-In Flip strategy over the next 10 years - Advice?
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
I want to preface I am not a financial advisor, CPA, tax advisor, etc. Check everything with your trusted expert.
I have some questions/comments for you to ponder (no need to answer on BP, just think if they apply to you):
- is your unit that you currently live in rent controlled? How much is it below market rent?
- how much cheaper is it to rent than to live in a purchased property? It is my belief that Los Angeles has large cash flow negative when using accurate expense estimates. How negative is the property's cash flow if using the 50% expense rule. Note at purchase with typical rent to value ratio, the property tax alone is ~20% of rent.
- Is the primary reason for the live in flip 2 year plan to not pay the gains? If so, have you considered 1031 exchange?
- What happens if at 2 years for some reason it does not make sense to sell? What could cause such a situation? Believe it or not the two conditions most likely to result in this is exact opposites. One is that RE prices have fallen to where the profit is poor. The other is prices have risen so much with an associated increase in rents that the prop 13 discount is large.
- Accelerated depreciation is not available on an OO. If you want the quickest tax write off, it is tough to beat. My Net Income Tax Savings using Bonus Depreciation for accelerated depreciation studies competed in 2024 was $256K.
- Your plan has constraint on scaling that does not exist with other options. If a rehab takes 4 months but you have to wait 2 years, that impacts the ability to scale. In addition, you can only OO one property at a time as a primary. That also impacts ability to scale.
Discuss your plan with your trusted financial/tax advisor. There are a lot of options to consider especially if write offs is a primary motivation. Cost segregation, 1031, 2 of 5, standard depreciation, RE professional, STR "loophole", stepped up basis, prop 13 in CA, etc.
Good luck
Post: The Myth of Cash Flow
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luck
I've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.
Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.
I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine.
Is your lane creating deceitful posts? You left out significant expenses like maintenance/cap ex and vacancy to provide an inaccurate forecast on cash flow. I point it out and your response if "whatever dude ..." Not something along the lines that in your haste you let out some significant expenses or that admits the number is not an accurate even half a$$ attempt at a rough true cash flow number. I am not even stating your deceptive post was intentional but with you not owning up to the expenses that were not included, I am starting to question if for some reason you intentionally posted numbers that did not depict all expenses.
I want people to post corrections to such erroneous posts with so that newbies do not see similar numbers and think that the referenced property is good cash flow.
Again I am not stating anything about the quality of the investment. it could be a very good investment as I do not have the information to provided an educated thought on that. However, you did provide your cash flow calculation and it clearly was deficient some significant expenses and using your own numbers was not significant cash flow (Assuming that you do not consider $145/month unit with not all expenses included significant cash flow). It needs other sources of return to be a good investment and it may have those.
Good luck
Whatever you say dude. These are real numbers. If you want to call them deceit, knock yourself out. I've only been doing this for 40+ years. What do I know.
Best of luck in whatever you do.
>I've only been doing this for 40+ years. What do I know.
Apparently not how to include maintenance/sap ex or vacancy in your cash flow numbers.>These are real numbers. If you want to call them deceit, knock yourself out.
What is your definition of real numbers? I think most of us would state that any cash flow numbers that are missing maintenance/cap ex and vacancy are not accurate numbers. So if it was accidentally omitted then it is a mistake, but that you keep claiming these are real numbers without maintenance/cap ex and vacancy (as well as various other expenses) leads me to lean toward deceit.
However, you look at it, $145/unit per month not including vacancy, maintenance/cap ex, and various other expenses makes the OP's case. Your example clearly does not have positive cash flow when properly allocating for all expenses. I do not understand how this is not apparent to someone who has been doing this for 40+ (BTW i have been in REI longer, but I suspect most people do not need 40+ years to see that with complete expense estimates the $145/month per unit is negative).
Hopefully you did not purchase this primarily on the cash flow.
Good luck
Do you have anything better to do than bother me? Go away and do as you wish. I do not get into online pissing matches. Do whatever you want. Believe whatever you want. If you need help, which you may, feel free to text the Bigger Pockets support line. 720-902-8552
What I desire is to provide new RE investors real/accurate information. If someone posts cash flow numbers missing obvious expenses like maintenance/cap ex and vacancy, I think it is important to point it out. This can save a new RE investors from making a big mistake.
What I find interesting is that you still post as though those numbers could represent an accurate cash flow estimate. If you had indicated that the actual cash flow should include maintenance/cap ex, vacancy, and other expenses that would have been nice.
Instead you act like your numbers represent a best estimate of cash flow which is clearly not the case. The $145/month per unit will be negative when including real expense estimates. You have made the OP's case for him.
I do not know your issue. Clearly your calculations left off significant expenses and is not a best calculation of the cash flow. This is obvious even to new RE investors reading this thread, which is/was my intent (to protect the new investors from misinformation).
Have a great day.
Post: The Myth of Cash Flow
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luck
I've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.
Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.
I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine.
Is your lane creating deceitful posts? You left out significant expenses like maintenance/cap ex and vacancy to provide an inaccurate forecast on cash flow. I point it out and your response if "whatever dude ..." Not something along the lines that in your haste you let out some significant expenses or that admits the number is not an accurate even half a$$ attempt at a rough true cash flow number. I am not even stating your deceptive post was intentional but with you not owning up to the expenses that were not included, I am starting to question if for some reason you intentionally posted numbers that did not depict all expenses.
I want people to post corrections to such erroneous posts with so that newbies do not see similar numbers and think that the referenced property is good cash flow.
Again I am not stating anything about the quality of the investment. it could be a very good investment as I do not have the information to provided an educated thought on that. However, you did provide your cash flow calculation and it clearly was deficient some significant expenses and using your own numbers was not significant cash flow (Assuming that you do not consider $145/month unit with not all expenses included significant cash flow). It needs other sources of return to be a good investment and it may have those.
Good luck
Whatever you say dude. These are real numbers. If you want to call them deceit, knock yourself out. I've only been doing this for 40+ years. What do I know.
Best of luck in whatever you do.
>I've only been doing this for 40+ years. What do I know.
Apparently not how to include maintenance/sap ex or vacancy in your cash flow numbers.>These are real numbers. If you want to call them deceit, knock yourself out.
What is your definition of real numbers? I think most of us would state that any cash flow numbers that are missing maintenance/cap ex and vacancy are not accurate numbers. So if it was accidentally omitted then it is a mistake, but that you keep claiming these are real numbers without maintenance/cap ex and vacancy (as well as various other expenses) leads me to lean toward deceit.
However, you look at it, $145/unit per month not including vacancy, maintenance/cap ex, and various other expenses makes the OP's case. Your example clearly does not have positive cash flow when properly allocating for all expenses. I do not understand how this is not apparent to someone who has been doing this for 40+ (BTW i have been in REI longer, but I suspect most people do not need 40+ years to see that with complete expense estimates the $145/month per unit is negative).
Hopefully you did not purchase this primarily on the cash flow.
Good luck
Post: Top 10 Cities where Home Prices will Crash in 2025
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
My family has been an RE investor since the 1970s. I have never heard of Reventure prior to this post. Did a google search and then looked at the "About us" in hopes to find out how long they have existed. The about us does not list the year of founding or much other info about their history.
It certainly is not Core Logic, Case Shiller, NeithborhoodScout, Zillow, Redfin, Property Hub, etc.
This is not stating anything about the accuracy of their forecast except that I suspect they have no significant track record that would provide the capability to analyze their forecasts.
Core logic regularly (monthly?) provides a list of a few locations that they believe are most likely to fall in price. They even provide a percentage of probability for the forecast.
Florida, Texas, and Colorado cities make up the list.
Next year we can see how accurate the forecast was.
I personally would take properties in most of those cities over many midwest cities for a long term hold (10+ years). A single year forecast has very little interest to me and my long term RE investment strategy.
Best wishes
Post: San Diego County leads nation in the largest increase in credit card delinquencies
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
In San Diego city the average SFH costs over $1m. At 80% LTV that is over $800k of debt. I am a bit surprised that the per capita debt is not higher in CA.
I suspect most of the higher per capita debt will be in markets with high housing costs because housing in those markets make up the majority of debt.
I looked up average credit card debt by state. Ca credit card debt ($6222) was slightly above the national average ($6194). If CA income ($81,225 in 2023 - 7th highest in nation) to credit card debt is used, CA credit card debt is lower than a very large percentage of states.
https://www.cnbc.com/select/average-credit-card-balance-by-s...
https://www.statsamerica.org/sip/rank_list.aspx?rank_label=p...
As it relates to RE, the large CA cities have both delinquency and eviction rates near the lowest in the country.
Nothing unexpected in any of the data. Nothing to concern CA RE investors
Best wishes
Post: Trying to switch property managers but existing one won't respond
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
I had a PM (Vacasa) a few years ago that was not responding to inquiries on my 2 STRs. After months of poor response, I emailed my representative that I was terminating their contract per the contract. I owner blocked the calendar of any reservations starting the day of the termination. Still no response. I indicated I would be changing the locks on that day. Finally I got a phone inquiry if there was anything they could do to stay as the PM. Even when he asked he worded it something like I suspect there is nothing we can do to keep you as a client but we want to keep you as a client. I basically laughed. I had my data that I do not have at this time. Something like 30 inquiries without response. Something like an average of over 3 inquiries on a subject to get any response.
Vacasa acquired me as a client by purchasing the PM company that was my PM. I initially had a representative that was responsive but the Vacasa rate did not reduce as the market rates reduced. Our representative was changed to someone that would not respond. This was happening even though they were charging me over market rate. When they indicated they would reduce the rate they were charging me, many months after they indicated they would do this they still had not reduced the rate.
Basically I fired them without giving them any opportunity to have any say in their firing. If they had booked over my blackout 1) their combo would not have worked 2) the police would have been called to evict the vacasa squatter clients. 3) those vacasa guests would likely have left horrendous reviews for Vacasa.
Fortunately vacasa knew there was nothing to keep managing the units. However, I also believe that they never paid me for the period that they over charged me versus the PM fee that they stated they would charge. Avoid Vacasa.
Your property is in Ohio which is LL friendly. If your new PM cannot handle this for you in that market, I suggest you find another PM. One that can handle this and get it done. It is a simple test of the PM to see that they are capable of handling a small issue.
Good luck
Post: What's your go-to strategy for finding investment properties?
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
I believe that the easiest good way to find RE is via networking. The easiest way to network is to go to RE related meet ups and to participate on RE social media such as Bigger Pockets.
If you have the budget, SEO is outstanding because the buyers come to you. Note this differentiates it from methods such as mailers. cold calling, driving for dollars, etc. Note a physically distressed property does not imply a motivated seller.
Note sometimes market rate properties present opportunities due to obscure value adds or alternative rental models. I recently made an offer on a property that at retail had projected STR income of over 20% of the purchase cost. Anyone can purchase properties with this projected STR rent to purchase cost if they identify the right market and the right property.
Good luck
Post: The Myth of Cash Flow
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
Quote from @Louis Beese:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luck
I've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.
Good luck
How has your insurance been in Gulf Shores over the last few years? We've been seeing big increases after hurricane Sally in 2020 and the latest Florida storms keep driving rates up.
We sold gulf shores a year or 2 after getting hit by hurricanes in consecutive years close to 20 years ago. Even though my San Diego properties have done great, I occasionally have seller’s remorse. Our duplex was in the ~25% still on the sand (did not get red tagged). In San Diego there are only a couple properties on the sand and no duplexes. If there was a duplex on the sand, it would cost 8 digits.
But I do not miss the crazy insurance costs or the crazy increasing property taxes (ca limits prop tax increase to 2% annually).
It was an awesome property. I was in the area about 10 years ago and stopped by. The driftwood hang downs that my mom (RIP) had created were still on each unit. I was surprised (they were probably 15 years old at the time, out in the weather 24/7, and different owners have different tastes).
Post: Appraisal comes back lower than asking, seller is not willing to return deposit
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
Quote from @Jinglei Shen:
Hi Sasha,
Thank you for your response. My agent has found the financing contingency states that if financing is not obtained due to a low appraisal, the contract is void, the EMD must be returned to the buyer. The title company replied that when a contract is cancelled, they do not assume anything for the same reason. what they need is a signed agreement between seller and buyer telling them who gets the EMD. if there is no agreement, they will continue to hold funds until there is a mutual signed agreement. Seller is not willing to sign the agreement, he is being very difficult now.
Your thought is appreciated.
CA has the same rule about both parties signing to release funds, but the seller cannot sell the property without cancelling the contract. Even accepting first position offers can open the seller to being sued (never heard of it happening).
Verify that the seller cannot sell the property without the contract being released (both parties signing). If this is the case, your seller should want to release the Earnest Deposit. In addition, you can threaten that you will sign the release if it is done in the next 2 weeks otherwise you will not be signing it. In CA thiswould hold the property in limbo.
In CA the buyer has a position of power due to the seller not being able to sell the property if it is under contract.
Good luck
Post: The Myth of Cash Flow
- Investor
- Poway, CA
- Posts 6,203
- Votes 7,188
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Dan H.:
Quote from @Calvin Thomas:
Quote from @Collin Hays:
I got a chance to read this over lunch today, and it really hit home some excellent points about investing in real estate. Thought I would pass it along.
Not sure what Andrew is smoking, but I can give you a real world example in NJ (NYC suburb - I don't know too much about MO, but I can use NJ since we just purchased another three family.
Price 700,000
Taxes - $11k (rounded)
Insurance - $1700.00 (rounded)
Water - $100.00 (rounded)
Common Electric - $50.00 (rounded)
We can use his 7% with 20% down.
Payments - $4,930.68
Apt 1 - 2 bedroom - $2,000.00
Apt 2 - 2 bedroom - $2,050.00
Apt 3 - 1 bedroom - $1,800.00
Total income - $5,850.00
Total expenses - -$4,930.68
==========================
NET $1,019.32 x 12 = $12,231.84
The cashflow "myth" is bullsh!t. I closed last week.
Of course, we manage ourselves, so even if you take off 10%, it's still a healthy return. We don't buy SFH's, as that's just a waste of time, money, and resources. Mixed-use and MFH are key.
Realistic sustained maintenance/cap ex, vacancy, uncollected rent, PM (if your time is worth anything then it should be reflected), Misc and your cash flow is significantly reduced/gone. I think yr underwriting is why you believe cash flow myth is BS.
Good luck
I've been doing this since the late 1970's. I am pretty sure on my numbers. It obvious, you've not read that we have our own team; which we already manage several hundred doors. However, believe whatever you wish. My numbers are real life actuals. Cap-Ex would happen anywhere, and that is where reserves come in. Everything else is in line. I made a mistake on the water, it's $100 a month, not a year.
I interpret “payment” to be piti. If payment includes your maintenance team, materials, cap ex allocation, asset protection, book keeping, etc then I think further breakout would helped clarify.
I do not see any maintenance/cap ex, vacancy,, bookkeeping, asset protection, PM reflected. 100 units, 1000 units, 100,000 units, own maintenance team or not, Your post does not reflect an actual estimate of cash flow without reflecting an estimate of expenses. Your cash flow after allcating for all sustaining expenses is less than reflected. Even having your own maintenance team has a cost.
I do believe with your own maintenance team, your maintenance/cap ex will be less but having w2 employees means additional bookkeeping and those pesky charges (SS, workman’s comp, unemployment, etc).
Your post does not provide an accurate representation and could have benefitted by details like that you have your own maintenance team due to having a large number of units.
$340/month per unit without reflecting those additional expenses is thin. It would not be worth the risk/effort for my if that cash flow was the primary source of the return.. I once had insurance go from below $1k/year to $6k a year in 3 years Over $400/month increase of a single expense item (Gulf Shores, ~20 Years ago, we made 2 large claims in consecutive years due to hurricanes). Fortunately my underwriting includes an estimate of all expenditures and had solid (more than $450/month) cash flow.
Good luck
I guess we look at things differently. In all of our buildings, we calculate the monthly gross costs and reconcile monthly. I used a real world example, as the building closed last week and already had tenants; which they are month-to-month, and raised 4% effective April 1st (NJ is a guaranteed renewal State).
There are no CapEx expenses at this time. We keep 20% in reserves per building to cover these potential issues at a later date. Again, third time, there is no management fees as we self manage, but I included a 10% fee in my breakdown above in case someone brought this up (I.E. you).
Not sure what you mean about bookkeeping or asset protection. Book keeping is done by our CPA, and we are not charged an additional fee for new buildings. Asset protection, that called insurance; which was included in the breakdown. One can purchase in an LLC or potentially transfer into an LLC once the deal has closed (check with a lawyer first). The LLC protection isn't truly protected unless more than one party owns the building. Again, check with an attorney.
All expected expenses are listed and are rounded up (listed above). One cannot plan for the unknown, but this is why people need to have significant savings or lines of credit to handle the what happens in life.
I viewed the insurance to be property insurance (fire, etc) and not asset protection. If it is inclusive of asset protection that was not clear.
I do not see maintenance expense, vacancy, uncollected rent, or evictions reflected anywhere.
Even if you have a CPA already working other efforts for you, they are not doing additional work without charging you. CPAs are not cheap. If you have W2 employees as you suggested by stating you have maintenance crew, that requires bookkeeping (payroll). Even using dedicated independent contractors as your maintenance crew requires book keeping (bills receivable, payment, bookkeeping to track expenses for tax purposes and warranty claims, etc.).
Having a reserve for cap ex, but not allocating any estimate for the cap ex cost means that your cash flow estimate does not include cap ex. Note I am not stating that you do not have the reserves or assets to cover cap ex (only that you have not allocated it in your expense estimates).
Your cash flow estimate is missing some very obvious expenses that will consume virtually all of that cash flow. However, even if that was an accurate cash flow estimate ($340/month per unit (which if I include your PM estimate gets lowered to $145/month after including your PM allocation)), that is very thin margin (but it is not an accurate expense estimate as I already demonstrated so in actuality is smaller).
At $145/month (including PM allocation) to make a modest (far from able to live comfortably on) $50K year would require 28 units. Using cash flow with accurate expense estimates would require many times this number of units to have $50K/year cash flow. I suspect to get cash flow from those units of $50K/year with accurate expense estimates likely would require over 100 units. This would be a lot of work even with the use of a PM.
I do not know why you invest in RE. I invest in RE to live a life of comfort that allows me to do what I want and to give money to who I want. If that purchase is relying on cash flow for its primary return, it will be challenging to achieve this goal with that type of purchases.
I do not know that this property is not in a great appreciation area or has a good/great value add. I am not judging the quality of the investment. What I am saying is that your subject property does not make a good case about cash flow not being substantial (the cash flow on that property is poor but cash flow alone does not dictate the quality of the investment).
BTW I have properties that I consider to have poor cash flow (but my underwriting includes best estimate of sustained expenses), but are still good/great investments.
Good luck
Whatever you say dude. Stay in your lane, and I'll stay in mine.
Is your lane creating deceitful posts? You left out significant expenses like maintenance/cap ex and vacancy to provide an inaccurate forecast on cash flow. I point it out and your response if "whatever dude ..." Not something along the lines that in your haste you let out some significant expenses or that admits the number is not an accurate even half a$$ attempt at a rough true cash flow number. I am not even stating your deceptive post was intentional but with you not owning up to the expenses that were not included, I am starting to question if for some reason you intentionally posted numbers that did not depict all expenses.
I want people to post corrections to such erroneous posts with so that newbies do not see similar numbers and think that the referenced property is good cash flow.
Again I am not stating anything about the quality of the investment. it could be a very good investment as I do not have the information to provided an educated thought on that. However, you did provide your cash flow calculation and it clearly was deficient some significant expenses and using your own numbers was not significant cash flow (Assuming that you do not consider $145/month unit with not all expenses included significant cash flow). It needs other sources of return to be a good investment and it may have those.
Good luck