All Forum Posts by: Matt McCurdy

Is the midwest looking to you guys as a great new place to look? I know the cost is on the low side for houses. BP podcast has talked about it a ton in the last few months. The rents are still close to the 1% rule. But how do you guys see the midwest for appreciation in the next 3-8 ish years? 

Hello, my name is Ethan. I'm 22 years old. I want to save up and buy my first property but idk what the best way to save that money is. Should I use a traditional bank account? Should I invest my money in bonds/stocks? If not I looked on Vanguards website and they had a short-term Roth IRA. That I can set up for a personal goal. (Which depends on how much money I need to save up for) I was thinking about doing that for about 3ish years. I would like to save up for a down payment on a duplex. I can put aside about $130 each week. idk if that will change anything or not.

So my questions are

1. Where should I save my money?

2. How much money do I need for a duplex? (USA, Iowa area)

Set aside enough for a 20% down with sufficient reserves. Normally, I suggest aiming for $45k+ if you are looking at $140k+ deals. Note that anything under $100k loan amount will be hard to find financing. 

The greatest secret to business is learning how to be an exceptional Operator. This is the person who ensures the implementation of the overall strategy of the business.

In the mobile home park investing niche, I have found a near-limitless opportunity in underperforming parks. There are several reasons why they are underperforming, but I want to focus on the opportunity it creates. If you know how to maximize your communities you can repeat that strategy over and over again. This could be rent collection, filling vacancies etc etc

Being a savvy Operator coupled with Seller Financing removed 99% of your barriers and allows you to repeat it over and over again.

Recap:

Learn to operate communities at an effective level.

Learn creative financing to lower the barriers of entry and increase ROI.

 I can tell you have never filled out a maintenance/cap ex cost spreadsheet because “Even if you included $100 per month in maintenance/repairs” is no where close for 2 units.   It may no cover just the two kitchens.  The apartment complex (large unit counts with own maintenance staff) cannot even achieve that maintenance/cap ex.   

“I know a PM that will do 7%”.  Is this all inclusive.  Does it cover placing a new tenant, lease renewals, at least property inspections per year?   I would be shocked if you can get a competent Pm to manage those units at $50.75/month ($750 * 0.07) per unit. 

“$125k property is actually showing better appreciation than the properties that are $300k+”. Numbers do not lie.  The $300k+ property has experienced the better historical LONG TERM appreciation as evidenced by it being higher priced.  However I thought I would look deeper so I looked up the appreciation of Cedar Rapids on NeighborhhodScout.  It showed 1 out of 10 nationally for last 5 years, 10 years, and since 2000.  That is a rare trifecta of poor long term appreciation. Since 2000, 2.36% annual appreciation.  Its average residential property value has fallen in inflation adjusted dollars.  Being an investor you may be doing better than average appreciation but my point still applies. 

As I indicated, the 50% rule is typically aggressive at that rent point.   You may make some modest return but residential RE even with use of PM is not passive.  The return needs to justify the effort.  The return needs to have ability to noticeably improve life.  Does this property meet that criteria for you?

I wish you the best.  

I purchased a multi-unit in Los Angeles this past May 2023 and I am definitely cash flowing on that property. It was an REO purchase and I'm cash flowing net, approximately $1800. I purchased another property in the Palm Springs area that I converted into an STR which is also cash flowing.

Yes, there are absolutely cash=flowing properties out there but they are not low-hanging fruit.  You won't find these properties every time you go into Zillow.  One has to look and dig and search for these properties.  

I agree that there is no standard on estimating expenses but the closest thing to a standard is the 50% rule. I find in low rent markets (Midwest) or high HOA markets (Florida condos) that the 50% rule is aggressive and expenses are likely to exceed 50%.

Cash flow projection using 50% rule:

1450 - 725 (expenses at 50%) - $739 (mortgage) = ($14).  You could have reduced mortgage slightly with 30 year term and likely would reflect some small amount of positive cash flow but still I would refer to both cases as being cash neutral. 

Now the issues:

- at that rent point, $725 unit, the 50% rule likely is not enough to cover actual expenses

- that rent point, $725/unit, reflects poor historical rent grow.  The implication is cash flow is  unlikely to improve significantly better than inflation.   If so, this property is going to be very slow to provide decent cash flow  

- at that price, $125k, it shows poor historical appreciation.  This property likely will not appreciate faster than inflation which implies in inflation adjusted dollars there is no appreciation.  
- residential RE even with the use of a PM is not passive.  It must make money to justify the effort.  The goal is not to own property, the goal is to make money.

 I do believe by taking an active role, you can make money on this purchase.  Self manage, save ~10%.  Do your own maintenance items and reduce maintenance/cap ex costs.  It will be difficult to scale to life changing with the active role, but you can learn a lot.

I do not post to beat you up. I post to give you and other readers something to ponder. I believe everyone needs to start and I commend you for that. I also think it is important to educate on the journey. I hope pondering my points provides items to consider and that they are at least evaluated for likely validity for future acquisitions.

good luck and learn as much as you can with this purchase