All Forum Posts by: Pesi S.

Todd,

Thank you very much for explaining with the above example. This makes it very clear and shows the leveraging effect clearly.

Considering my neighbourhood or state has very limited ROI due to high prices and taxes I am forced to look out of state. Since I am a beginner and don't have much knowledge or experience to deal with multi tenant units I am looking at single family and townhomes. What is the advantage of 10+ multifamily units over single family or town homes ? Are multi family treated as commercial properties ?

Just as in the financial world you have advisors who can advise you, are there any such advisors or companies who can help you to run and grow this like a business and navigate through all this leverage, where and which properties to buy etc. I find the usual real estate brokers don't have the entire package.

Appreciate your guidance on this.

Thanks Todd. What I was referring to the above post was the question on paying full cash for a single property and renting VS putting a down payment and financing by buying multiple properties and renting them.

In the above example I did the comparison between buying and renting over a period  when one buys a single property with full cash ($150K)  and rents it  VS buying 3 properties with close to 35% down payment ($50K each) and rest is financed and renting them.

What I see in the analysis is after 4 years of renting if I decide to sell, then the profit from the single property purchased with full cash down VS the combined profit from the 3 leveraged properties is quite similar. Only if you sell after the 5th year onwards does the combined profit of the 3 leveraged properties shows a better return  over the single cash purchased property. So the question is if one wans to go the leveraged route then they really need to have a long term horizon of say 7 years or so ?

Jim, I did a hypothetical example of paying full cash for a property of say $150 VS putting 35% down and buying 3 of the same properties. What I noticed is that with the multiple properties where you paid only 35% and financed the rest you have to wait till close to the 5th year before the return shows some gain over the one with full cash. Around 10th year it really overtakes the full cash option and shows substantial gain. In below example, In year 4 if I sell I get 33915 as profit in full cash option. In 35% down I get 12773 for 1 property which is 38319 (12773*3).  What is the reason for this ?  It means if you leverage you really need to have a at least 7-10 year holding plan to get a sizable difference.

Full Cash down example

35% down for 1 property.

Need some help with the calculators. If anyone has any suggestions on how they handle these situations please let me know.

Rental property (Buy, Rent for few years and then sell) calculator on biggerpockets have few shortcomings which can skew the analysis on ROI.

1. I could have a one time expense for a particular property which may not occur each year. For example paying the property manager a one time finders fee to find a tenant. You cannot input this data in the calculator

2. I could have expenses which are common and not related to one single property. These could be monthly, yearly, one time. For example I could have a LLC which covers multiple properties and I have yearly fees for this LLC or a single umbrella policy which covers all properties or subscription to sites like Biggerpockets.

3. Depreciation Impact for property and upgrades like appliances etc.

Thanks

So compared to flip rental does indeed give better returns in this case.

Thanks Jim And Chris for your advise and explanations.

Thanks Jim. Just for my benefit, once you start doing this how much leverage should one really take on ? Is there a guiding number or some ratio to avoid getting into trouble in case of market conditions changing. Is there anything to watch out for in leveraging ?

Jim, thanks for your feedback. I am not very familiar with the Refi part and will check it out. I assume it means you need to wait around a year or two generate a positive rental cash flow and appreciation and then take a loan on that equity ? It seems BRRRR is more complicated than just buying and flipping. Are the returns significantly greater in this strategy VS Flipping ?

Thanks

Pesi

Chris, sorry to bother you. One more question. Lets say I decide to sell after 4 years and before selling I want to know what will be my total ROI till date (excluding depreciation and tax as this calculator does not cover that) do I add up the Annualized Total Return from Year 1 to Year 4. So in this case it will be 50.12% (35.81+20.7+15.9+13.5)

Thanks a lot

Pesi

Thank you Chris. That was very well explained. I am clear now on the Annualized Total Returns.