All Forum Posts by: Dan H.

You "investment opportunity" is a 10% return which typically is only maintainable with risk.  However I will also point out that I expect my REIs to have better than 10% annual return on my initial investment (including the equity gain).  To word it differently I would not purchase a property that I did not believe would achieve 10% annual return on my initial investment over the long term. 

In Cal appreciation has virtually no impact on taxes (prop 13).  

Your statement on actual ROI being determined after selling is one of the few statements you have made that I mostly agree with but I am not a CPA or accountant and question what the return is when there is no longer is any initial investment in the investment. Only 2 of my units have any initial investment still in the properties. Sounds like you have purchased your units without any initial investment which is outstanding but virtually impossible in So Cal.

Good luck

Your first point seems to ignore that the equity gain on the unit has been 36% annually ($6k/month). If you were just calculating return from cash flow I suspect you were generous but that would be added to the 36% from appreciation. She could refinance at 70% LTV and remove 70% of the appreciation if she desired.

I see nothing in the investing definition that states the expectation has to be based on anything including solid business practices.  You seem to have a special calculator and a special dictionary.  

I invest in San Diego and expect REI appreciation. I believe virtually everyone investing in San Fran is expecting appreciation. Between my family and my REIs we have purchased in San Diego in 1969, 1977, 1992, 1997, 1999, 2004, 2012, 2013, and 2014. Each and every one of them has appreciated at a rate that has exceeded inflation for the initial investment. Look at the statistics for San Diego appreciation. Recognize that if purchased at 75% LTV the appreciation on the REI is to be multiplied by 4 for appreciation on initial investment. Some of these properties were purchased near market highs (1992, 2004) and at one point depreciated. For every single duration (1, 3, 5, 10, 20, 30, 40, 50 years) from today going back at least 50 years San Diego has appreciated (look it up). I suspect San Fran is similar but with greater appreciation. History indicates that if I am not forced to sell on a down cycle the REI will appreciate. Speculation were no one who owns today has been incorrect is not much speculation. It is using historical data to realize the certainty of equity increase. I do not look at speculation as a dirty word. I just do not think there is as much risk investing for appreciation in San Diego or San Fran as you seem to believe and the stats back my view.

I know of many areas in the nation that at one time cash flowed that the properties are now virtually worthless and cannot be rented.  All you need to do is find a town that is declining in population to find such areas.  

Your property appears to be a very good investment.  The property from the above list purchased in 2012 was purchased for $302.5k and has had better equity gain than your return and has cash flowed nicely since day 1 (it is a duplex - 2 tenants to manage).  The property that you first commented on has had equity increase return about equivalent to your example (assuming cash flow neutral since purchased: initially negative cash flow but now positive).  

It seems cash flow is working well for you which is great. Appreciation in So Cal and San Fran has worked well for many investors. Different paths leading to success in REI.

Good luck

In my market the small multi families (2 to 4 units) have a huge discrepancy between what shows on the MLS and what the properties sell for. I tell people when looking at duplexes to quads only look at the closed sales when looking for what to offer (fortunately if you make a mistake here but are getting conventional financing the appraiser will find the mistake but it could cost you a few thousand). Even with the recent interest rate hikes the duplex to quads that have sold in my market area cash flow when using conservative expense estimates (to me conservative expense estimates are $300/unit detached cap expense, ~$100/month maintenance per unit, and vacancy at 5% of rent). My units so far have done better than the maintenance expense and vacancy estimate but the cap expenses I do not have enough data but I suspect to be fairly accurate for my units.

Good Luck

I realize the initial topic and I thought it was answered that it is tough to get cash flow in San Francisco without having a large equity position but ...

I do not know where you get your definition of "investor" but I fear it is the same location that you got the calculator that showed 2-3% equity gain on a property that in high probability had >36% annual equity gain on initial investment (>36% annual equity return on initial investment if financed at 75% LTV).

I simply entered "investor definition" into google and the definition that came up was "a person or organization that puts money into financial schemes, property, etc. with the expectation of achieving a profit." There is nothing implied in the term about risk, speculation, etc. So people who invest in REI for appreciation are investors by at least the #1 definition provided by Google.

If you believe cash flow REI does not have associated risks than you have a narrow view. Ask Mike Butler how cash flow in Detroit worked for him through the housing crisis. This is not to pick on Mike Butler as I like his book and think he did a lot of things well but was in the wrong cash flow market at the wrong time.

Best REI returns in recent times (last 1-8 years) have been in the high appreciation markets. This does not necessarily mean that the trend will continue. However, the best REI returns for last 50 years have been in the high appreciation markets. Again it does not necessarily mean the trend will continue. But history indicates the best return going forward is likely to be in the high appreciation markets (but nothing is guaranteed).

Good luck with your high cash flow properties.

 Her property has more than doubled in value in 8 years.  How do you calculate that at 2-3% equity return?   I do not have time to calculate with perfect accuracy but using rule of 72 I show an 9+% annual return on the appreciation versus purchase price.  If you are subtracting off for initial poor cash flow it was not clear in your post.  

If she financed it upon initial purchase at a 75% LTV her equity return on initial cash jumps to 36+% annual return. I suspect there is no slow REI appreciation market that can match those REI returns.

Also, unlike cash flow, the tax consequences of appreciation can be put off indefinitely.   As there is no tax for taking out appreciation unless you sell without a 1031 exchange.  So her appreciation has likely been 36+% tax free.

I agree that there are some (few) investments that could have had better return since 2008 but $6k month of appreciation tax free for managing a single property/tenant I would consider a great low effort return (it is a homerun). 

If it was 2008 and I knew this was going to be the return I would have purchased the unit and been very happy.  That was a great investment especially if it was financed. 

$30k/month in REI income is possible but few investors achieve that level of income. I have been doing REI for more than a decade and am not close to $30k/month of cash flow REI income. Even adding appreciation I have not reached $30k/month for an entire year. My family has been doing REI investing since the late 70s and they have not hit that level of monthly cash flow.

I do believe it is possible but the number of people who obtain that level of cash flow is a small percentage.  I do not desire to rain on your parade/goal but to add a reality perspective. 

I think having a lofty goal is good but it will require a lot of work and some luck will not hurt.  

Good luck

I agree with @Jose Guevarra that it would not be something I would look to try unless I have a lot of experience managing properties (I have a fair amount of experience and yet I would not consider it).  You will need a trusted team.

I also mostly agree with the sentiment of @Gustavo Munoz Castro as I believe the rent will not cover the cap expenses on most long term rental units in Mexico even with a huge labor cost decrease.  I suspect most units will cost money every month to own.  Maybe a real high end unit (on the beach for example) may be different.

You need to determine if the appreciation will be able to offset the losses to make it worth it.  Make sure you thoroughly check everything out.  Also realize currency fluctuations can add a risk factor.

Good luck 

the same book that @Account Closed referenced (Landlording on Auto Pilot) suggests referring to you as the property manager.  I would think that as a house hacker this could be a bigger advantage.  Note it allows an unknown party (the fictitious owner) to be the bad guy.  

Another suggestion is to use Zillow rental manager to list the property.  It will automatically post to multiple rental sites as well as provide HTML for a nice looking Craigslist post (but you need to post manually to Craigslist).  

Good luck

I had 2 of my units plus a car port all have leaks.  This rain is needed but it has shown some areas that have required attention.  So far none of the 3 has required a new roof so I do not have a recommendation for a roofing contractor but I do share some of your pain.  

Both the units were leaking at facia and not through the shingles.  The handyman repaired using Henry's. The car port is a little worse as some sub roof plywood will need to be replaced as the roof apparently has been leaking for a while but the wood has been able to absorb the leakage without it dripping through because the rain prior to this year has been so minimal.  Fortunately the car port is single sheet asphalt roof and does not require a roofer.  

If you have asphalt shingle and need a new roof (I hope you do not need a new roof) you may want to look into the steel roofs.  It will cost more up front but will last longer and be more fire safe which can be important in San Diego. 

Good luck. 

 I think you are spot on with the supply being an issue.  Also I accidentally indicated PB but the family duplex is in MB (2 blocks north of the roller coaster).  In MB maybe 90% of beach front is short-term rental.  The unit west of ours and across from ours are both short-term rental so maybe about 50% short term rental 1.5 blocks from ocean.  That is a lot of supply.  We need about 50% rental rate for the year to be even with long term rental.  Summer we are near 100% but winter is ~25% making our overall performance about a wash due to management costs associated with the short-term rentals.