All Forum Posts by: Johann Jells

Exactly!!!  When I plug a "1% rule" cashflowing property for $250k into my model with expenses and a modest 5% appreciation, at end of year one monthly cashflow is $407,  paydown is $760, and appreciation is $1090.  Focusing on cashflow is the tail wagging the dog. Living off your rentals and getting rich off them can be in conflict.

 I think that's inverted. Mortgage reduction is the potatoes not the gravy. It's guaranteed in the whole deal and what makes RE intrinsically different from equities. As I said upthread, a 15 year note and 25% down yields a 9.7% annual rate in mortgage reduction. That would be considered great over 15 years on Wall Street, that's Bernie Madoff territory!  but then you get to add cashflow and appreciation on top. 

Appreciation is where you make the real money, and cashflow is the sweetener. The problem in the discussion is all the people who want to quit the dayjob and focus on cashflow. It's a distraction. It's like flipping houses and thinking you're an investor when you're actually just working for a living and not building wealth. Chasing cashflow can have you trading long term gains for short term cash.

FWIW, the "Total ROI" spreadsheet model I'm working on shows that you can make serious money even in a negative cashflow property if it's in a high appreciation area, but you need deep pockets to keep at it. The tax implications are pretty interesting if you have excess cashflow from other properties. I've been trying to figure out why so many people invest in money losing condos in my city, they can't all be idiots.

I"m still working on it. If anybody is a spreadsheet genius and interested in this kind of analysis,  a critical eye would be welcome, I'm something of a spreadsheet newby. PM me.

I've been saying this for years. the return on a 15 year 25% down note is about 9.7% even on zero cashflow & appreciation.

Good luck figuring out that in NJ!!! Because most cities revalue on a schedule rather than a "rolling reval" like you describe, the assessment on the tax record can have no obvious relation to FMV. Until the recent reval here, properties were assessed at less than 1/4 FMV., and the official tax rate was over 7%! Confuses the hell out of less knowledgeable property owners, many who should have appealed didn't because it "looked" like they were under assessed. It's a nasty bit of business.

Can you explain that? Seems to me cashflow is the function of debt, while CoC is a simple snapshot of your monthly return on cash Investment, that ignores appreciation and debt issues.

All these metrics depend on info. Something like GRM is very useful when you know little about a property you're sizing up. Hard to do a full IRR at that stage.

@Sheila Gonzalez  "Tenant friendly" really only becomes an issue if you've made a mistake in your renter. I've been here 22 years and have never had a serious problem with a tenant I chose. I've done very well here, beyond my wildest dreams!

This stuff is what gives landlords a bad name, because only someone willing to be scumbag buys these properties. The person willing to be a slumlord, harass tenants and break laws. The ethical landlord says "I can't make money here, pass". There's no cage match between landlords and tenants in an open market with enough inventory.  

A sane government would tie increasing rent protections with removing density zoning, so the problem of low inventory will go away. Check out this block in my city, prewar rent controlled 56 units on the left, conforming 2 families on the right with 8 homes. This is why there's not enough housing!

Nathan, don't you think it might best to never talk about cashflow on BP in dollars at all, ever, only cash on cash returns?  There's too many variables to talking about cashflow that make it meaningless and merely symbolic. As has been said here many times, one can maximize cashflow by paying cash, but that's usually a poor plan.

Same. Generally, high rents go along with high taxes. High taxes and low rents is not a sustainable situation.

 If you stop and think about the disasters caused by doctors actually prescribing unneeded drugs or performing unnecessary surgeries, you'll realize they're taking no risks. The stories of doctors who are actually dangerous to their patients are rampant. The medical profession is VERY reluctant to police it's own.