All Forum Posts by: Matt McCurdy

Quote from @Dan H.:

Quote from @Matt McCurdy:

I'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!

I'm here to tell you I'm still finding cash flowing deals in my market.

Here's an example:

Up/Down Duplex

Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)

Total Rent: $1,450/mo.

$125k purchase price (20% down) @ 7.5% over 25 year term: $739

Property Taxes: $125/mo

Insurance: $175/mo (in 500 year floodplain)

Net Cashflow: $411/mo*

Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Is anyone seeing better cash flow in their markets?

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   

Full disclosure, I have enough rental properties that I've pivoted from buying and I'm helping other investors over the next couple of years via my Brokerage and 1-4 unit coaching. 

I don't take offense to your challenge, but one thing is certain broad stokes via percentages can get you in trouble very fast. The devil is in the details and mostly all of your quick math assumptions are incorrect. $125k property is actually showing better appreciation than the properties that are $300k+. Real estate is hyperlocal. Rent and price appreciation has been keeping up with inflation (most of the time reaching higher than inflation). The properties PITI, Property taxes, and insurance would be ~$1k per month. Even if you included $100 per month in maintenance/repairs and $100 in property management (I know a PM that will do 7%) you'd still be cashflowing ~$250 per month. 12% CoC return based on 20% down. Not great, but the main point I was trying to illustrate is many think they need to buy property earning a 0% CoC return to "get their foot in the door" to real estate. This is simply not true, at least in my market.

Sorry, I'm as south as Iowa City, but predominately invest in Cedar Rapids market.

Quote from @Logan M.:

I believe one of the most difficult parts of real estate is scaling your purchases and management. It feels like a constant cart before the horse but I have become better at scaling over time, today own and operate 194 units mainly in the manufactured home space but we have more than a dozen single-family homes, a motel, and an apartment complex.

I have myself in a CEO position but I also fill the position of sales and acquisitions. I deal with development opportunities where I can and synergies between local businesses.

Then I have my operations manager who handles most of the day-to-day management of the properties, and they manage some of our contractors and managers.

Our model is a little different than large parks because we have regional managers that cover multiple communities vs a single one.

The pain point right now is mainly having consistently qualified contractors and filling vacant spaces as quickly as we can. I have some investors who have bought homes to be sold in a few of my communities that I need to sell and unfortunately, that falls on me.

What other structures are we seeing that allow for effective scale? 

What have you done to make effective hires?

Any other feedback would be great!

I’ve been successful in hiring 1099 contractors to do specialized work, so the team is bigger, but more effective. I’d also think about creating a sales position that is based on commission. If he/she sells great! If he/she doesn’t, they don’t make money. I have some good success with having one guy be part time in that position.

Quote from @Kristen Williams:

BP pulled my request to find help with my inquiry. I own a PM and can elaborate with contact. 

Hi Kristen,

I sent you a direct message. 

This is a great list Jonathan! 

I'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!

I'm here to tell you I'm still finding cash flowing deals in my market.

Here's an example:

Up/Down Duplex

Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)

Total Rent: $1,450/mo.

$125k purchase price (20% down) @ 7.5% over 25 year term: $739

Property Taxes: $125/mo

Insurance: $175/mo (in 500 year floodplain)

Net Cashflow: $411/mo*

Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Is anyone seeing better cash flow in their markets?

I'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!

I'm here to tell you can still find cash flowing properties in my market (Cedar Rapids, Iowa), although a bit harder than it has been, but if you have the right agent to uncover deals they are out there.

Here's an example that is for sale now:

Up/Down Duplex

Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)

Total Rent: $1,450/mo.

$125k purchase price (20% down) @ 7.5% over 25 year term: $739

Property Taxes: $125/mo

Insurance: $175/mo (in 500 year floodplain)

Net Cashflow: $411/mo*

Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Reach out if this duplex intrigues you or if you'd like to explore investing in Cedar Rapids more. There's another 4 plex with intriguing upside on the market now. I also have several off-market deals coming up.

*Some deferred maintenance needs fixed, which I would estimate would be less than $5k worth of work that may reduce your cashflow if it's included in the loan or require more cash invested at closing.

Disclosure: I'm a licensed real estate broker in the State of Iowa. Scottsman Real Estate https://scottsmanrealestate.com/

@Jared Galde I'll be there and I'd be interested in learning how to leverage my SFH portfolio to cater to this niche. I'll look for your booth!

Higher interest rates are certainly dampening "great deals" or even good/average deals. The question becomes: does an investor risk going after a low cashflowing deal now in "hopes" of getting a better cashflow in the future and/or appreciation? I think the answer may surprise some, but I'm a big believer in looking at it case-by-case. I purchased a package of 22 SFH's last March, when I thought rates would go lower (they've gone higher). It was more of an equity purchase than a cashflow investment. Would I have done this deal earlier in my investment journey? NO! Did it make sense now? Absolutely! In my brokerage and coaching businesses, I find 50% of my time is being spent saving investors from themselves.

Unfortunately, I only work in the Cedar Rapids market.  Check the Facebook group "Quad Cities Real Estate Investors" I can do some more research and interview some if you'd like a broker that plays in the space all day.