All Forum Posts by: Mike M.

Under contract on my first deal in a small town (100k people) in northern California. It is a town that has had steady, slightly above-average growth in comparison to national average for property values, jobs and population over the last 20 years, but nothing crazy like the larger CA markets. After doing the diligence, walkthrough, inspection, speaking with local management companies, the cash-on-cash return year 1 is penciling out to only about 6.5% after some small rent raises and rehabs. I'm financing with 70% loan, but putting almost all of my excess cash down on this even after that, so won't be able to do another deal for a year or two. I'm on the fence whether this is a good deal or not - It's CA, so not expecting crazy cash flow, but it's a smaller town, so won't be gangbusters appreciation that I can bank on (not that most people recommend doing so, but in CA, you have to a little bit). 

Purely from a cash on cash return perspective, for a small town in CA with above-average growth historically and some good market indicators for future growth, is this a good deal or a bad one?

I've been modeling out tons of deals over the past month and refining my model (I'm a newbie and have made a couple offers, but nothing that has stuck yet - fingers crossed on one I'm negotiating price with now). I had an interesting scenario that I've been playing with and have temporarily named it "leveraged inflation increase" until I find out whether there is an existing term out there. 

Here's how it works - Assuming your property is in a market where rents and all of your expenses generally rise with inflation, one thing doesn't change from year to year, which is your mortgage payment. When it first occurred to me and I started modeling I was expecting this to be a slight boost to my cash flow each year by maybe 1-2%, but turns out the year-over-year cash flow increase above the inflation-adjusted cash flow from the prior year is much larger and keeps growing from year to year! Huh?? 

Example (without getting into the weeds on my model):

Year 1 cash flow is $10,000 and inflation is 3% for all years. With 25% down and about 45% expenses (as a % of gross rents)

Year 2 cash flow is $10,525, but the inflation adjusted $10k is just $10,350, so a boost of $165 or 1.25% additional increase in cash flows after factoring in 3% inflation. No big deal.

Year 3 cash flow is $11,000 on the again inflation adjusted $10,670, so a boost of $330 or 2.63%.

Year 4 cash flow is $11,500 on the again inflation adjusted $10,990, so a boost of $510 or 3.79%.

Year 5 cash flow is $12,000 on the again inflation adjusted $11,320, so a boost of $690 or 4.85%.

Year 6 cash flow is $12,540 on the again inflation adjusted $11,660, so a boost of $880 or 5.82%.... See where this is going? 

Not a huge deal, but adds up when you're modeling out future cash flows. Am I way too in the weeds? Has anyone seen this occurrence or have a name for it? 

Thanks for bearing with me... 

Any good recommendations for real estate attorneys in the Cleveland area?

What is a competitive rate for an attorney to review a purchase agreement and other typical services related to closing a transaction? What are the typical services should I have an attorney perform on my first rental purchase? 

Born and raised in Minneapolis/St. Paul, went to school in Milwaukee, lived in Chicago for 9 years, moved to Los Angeles in 2017. I'm a CPA that focuses on tax structuring, due diligence and contract negotiation at an investment firm and have always considered investing in real estate. A few months ago I started reading some real estate investing books and after leaning the basic math I started seeing what it could do for my future wealth projections. I now officially have the itch. 

I'm interested in buy-and-hold rental properties and currently researching markets outside of Los Angeles for one that fits my strategy. I have some capital and a financial/analytical mind, but very little experience in real estate. Would like to begin investing in the next 6 months and buy a few properties per year. Using the 10x rule, I'll say I'd like to retire with 1,000 doors in 25 years. 

Newbie here... 

Just like Mehran Kamari (podcast episode 72), I live in LA and would like to start investing in buy & hold rental properties, but the math simply doesn't seem to work here. I was born, raised and have family in St. Paul/Minneapolis and went to school in Milwaukee, so I have considered looking into those markets and leverage my existing networks to build a team and do my first deal, but I want to be sure I'm focusing on the right market before I go too far down the rabbit hole. Are there any good tools for finding which markets are good for different strategies or comparing different markets?