All Forum Posts by: Marc Alexander

"As long as you're comparing ROI against your initial cost basis then you will always be able to see which is the best performer."

There is no way 5% beats 15% if you compare apples to apples by looking at the cost basis when calculating ROI. Cost basis being the key phrase here. 15% is always a bigger piece of the pie than 5%. The only way I'd want the 5% is if we were comparing debt, then I'll take the lesser of the two.

There are a lot of things I don't agree with when comparing REI to stocks, but it seems the main point of your reply was centered around only needing 20% of property value in order to buy 100% of the property.  My response is that you can do the same with stocks, its called leverage.  Leverage is a common tool people use in the stock market to enter a position they don't have capital for.  Similar to what we do with a with a mortgage when buying RE.  

Also, you can gain/lose money quickly in both markets.  Much more so with stocks IMO due to the high volatility, but that is another topic.

Using your last analogy; I would take a 15% ROI over a 5% return all day long.  As long as you're comparing ROI against your initial cost basis then you will always be able to see which is the best performer.

How are you measuring your "money" if you aren't comparing it against your original investment?  

If you invest $200k in a property that nets $1k of cash flow per month, it sounds great on the surface.  You can say you're making $1k per month, but when you compare that $1k return against the initial $200k investment its only ~6% .  That is why percentages are very important.

Using your $50k example, I would be looking for at least a 25% COC return ($1,050.00/mo)for my $50k investment. If I can't get that type of return then I won't go after the deal. I use that ratio for all my capital. It doesn't matter if I am going to deploy $100k or $10k, I want to see the same >25% ROI regardless of the initial investment amount. Using this method I am guaranteed to hit my target of X cashflow against my specific capital value.

Just looking at monthly cash flow in a vacuum, without monitoring how much of a return you're making on your initial investment, I don't understand how you can measure progress.

I am not following your logic...

Tell me how using % to measure ROI is completely backwards?

 I am learning so much with every deal.  

25% is the lowest down payment I can get for an investment property.

I focus on % return because I want to get the most return for my capital. Using just dollars can be deceiving.  Say you are getting $2k a month cash flow... which sounds great, but how much capital did you need to deploy in order to generate that return?  If it was $100k then that 2% and a really ****** COC return... 

I have a limited amount of REI capital and I would like to deploy it @ better than 20% COC return.  Using very simple math you can figure out it will take X properties @ Y% return in order to meet my financial goal.

Just updating for my future reference or anyone else interested...

I am about to close on another deal next Monday for a duplex that will generate ~$1k per month cash flow once both units are filled. MPI & taxes are less than $400/mo and it will gross ~ $1400 in rents per month. Tenants pay all utilities. @ 25% down, thats a more than 35% COC return.

Very happy with how things are progressing so far!  Originally was expecting/hoping to be able to purchase 1 property per year.  So far Im ahead of schedule @ 2 properties in the first year and everything still seems to be moving in the right direction.

this wasn't a very big purchase.  all in for under $40k.  

Most properties on my radar are double that amount just for the 25% down

Just an update for myself and anyone reading.

After the inspection I was able to negotiate another $12k off my original offer.  At that price point, closing costs are roughly 20% of the purchase price, which makes the choice of financing or buying cash an easy one.

The good news is, my monthly revenue will go up almost $200, but my COC % drops to 17%... still not bad.

I closed on the property last week and I'm already looking for the next investment!