All Forum Posts by: Jon Kelly

Very timely post... A classic debate that will always continue. The best answer is to do either. 

When starting out focusing on cash flow makes a lot of sense. It's less risky and easier to scale. Over time you may want to transition to focusing on appreciation. It most cases you will be dealing with higher class of tenants, generate wealth quicker (if it moves in the right direction) and great tax advantages to scale to larger properties. 

@Blake Ramsey I don't think asking Buyers/Sellers market helps you in any way. You can find or create deals in any market. You'll end up doing a lot of research and it doesn't really help you (unless you're a real estate agent). 

You're doing the right thing by analyzing properties. How many have you analyzed? If often takes a while to find a good deal. 

@Hemal Adani referrals to the Turnkey company (or any company in REI) is your best friend

@Bruce D. Bolton Paying off debt early usually comes down to a personal choice. Does it give you "peace of mind" to own it free and clear? Or, are you comfortable with some leverage and using that money to earn more? 

The financially sound way to think about this is to compare the cost of your debt vs. the potential return on another investment. If your loan is ~4% then why pay it off early? Why not take that money and buy another investment property and earn 10%+? 

Debt isn't a bad thing as long as you put it to use. If you use it to overspend on new cars, vacations, etc. you may run into issues. 

@Wyatt Pfeifer I agree with the other posts. You need to define what makes a good deal for you. Is it monthly cashflow? COC return? IRR? Or, a combination of those metrics?

Your deal shows $116/mo in cashflow and 23% COC return. Normally, I would accept this because I like at least $100/mo in cashflow (after reserves) and 12%+ COC return. HOWEVER, I don't like the $121/mo in reserves for vacancies and maintenance. Unless this property has been completely renovated you will easily eat through the $121/mo in reserves...

I would only do this deal if it appraises higher and you can pull more cash out, or find a way to reduce expenses.

If you're assuming $1,100 in rent and only $121/mo in reserves, how do you end up with only $116/mo in cashflow? I'd be curious to see your other assumptions. 

@Rebecca E. I agree with the other two posts. (1) Nobody really knows and (2) It really doesn't matter. 

It's better to spend more time finding a market and analyzing deals than it is researching what may or may not happen with the macro environment.

If you invest for cashflow you are much more protected against a market crash than those that invest for appreciation. 

Be conservative in your underwriting and stick to your metrics that make a good deal for you (e.g. $200/mo in cashflow or 12% COC, etc.)

@Tammy Lewis You can either finance all 3-5 properties in one loan or finance them individually. 

If you finance individually you should consider conventional loans. Pro: Conventional will offer the lowest interest rate. Con: You will pay for closing costs on each individual property 

If you finance all properties at once you will be seeking a commercial / portfolio loan. Pro: lower closing costs because this will be one loan. Con: higher interest rate than conventional lending. 

I would discuss both options with lender(s). 

Whatever you do, DO NOT let this decision slow you down. Either financing option is great. 

@William K. both at the same time. You receive the money faster. There's no benefit to doing one at a time. 

@Jesse Rodriguez Most people feel that way on their first or first several properties. It's natural to be scared about something you've never done before? 

How do you get over the fear? By doing. As you gain experience the fear will subside. You'll begin to understand what your worst case scenario looks like and realize it's not so bad. 

Be conservative in your underwriting and account for longer rehab times and higher costs.