All Forum Posts by: Melissa U.

If $4000 is 3 years cash flow this is probably not a good deal.

I have a minimum cash flow requirement of about $4000/year due to the cost of things like roof, HVAC, vacancy, painting etc.

Have you penciled the deal out to make sure it makes sense?

This is Bay Area investing. :( Homes here are long-term equity plays, and the numbers make less and less sense every day. I haven't been able to find anything lucrative for a year.

My .02 - wait this market out, or put your cash into cash flowing properties out of state. The market is cyclical, the administration is very unpredictable, and the Bay Area is at record home levels again. Even the surrounding areas (Fairfield, Tracy, Gilroy) are pretty nuts right now. If you want to buy and live in Bay Area, just hold tight.

Aloha @Melissa U.

Just a few thoughts on your original post (plus a few assumptions):

-I think $92 a month for the vacancy rate is a little high.  If managed right, you won't see a vacancy for 1-3 year.  If you do, it'll be filled in 2 weeks.  When the market adjusts it may take 4 weeks to fill.

-If the property is a condo, you may not have any additional insurance costs, depending on the building's policy coverage.

-Removing those two doesn't make a big difference in your bottom line, but it does help.

-With $60k, you should be able to find a unit that will at least break even each month.

A few general thoughts:

-A 20 year timeline/commitment to the Hawaii market can work out well for you.  The key will be moving into bigger properties over the years, at key times, and into properties that meet specific criteria that fit your long-term strategic plan.  It is completely possible to start with a condo and end up with a small (<10 units) apartment building in 20 years, or even less.  It is possible to turn your $60k into close to $500k in that 20 years.

-Tax records are a good start at analyzing appreciation on Oahu, but are slightly lacking in accuracy and recency. But through MLS, it would be fairly easy to get exact appreciation rates for a specific building.

-I believe Oahu has 2 more years of steady price appreciation (about 10% cumulative).  Beyond that, it's unclear.  But historically, the market will likely adjust two years from now.  For reference, in the last recession, prices declined 10%-20% depending on the area and property type.  That's not annual, but cumulative.  A price decrease is a price decrease, but compared to most of the country, that is pretty amazing.

-Who wins, cash flow or appreciation?  I don't know.  But what I do know, very very well, is how to make money in Hawaii's market.  From a management and strategic perspective, turning $60k into $500k in Hawaii is not easy, but it's also not hard, with the right guidance.

I'm in the same boat, $13/mo cashflow sounds waayyyy low. Your repair budget sounds thin, but I'm also in a market that averages higher on the repair side since we have older buildings. Ideally you build in a cushion to your numbers so you have padding when months are rough and extra profit on quiet months. You'll be negative for an entire year or more if you have one major maintenance item come up.

That said, a ton of people post on here about appreciation plays. I see you're in California, where that's much more common, but that's an inherently more risky strategy. As a first purchase I'd suggest that this is a deal that requires more advanced knowledge about the market and local REI strategy unless you have a clear and easy way to force appreciation and/or raise rents out of the gate and get some margins.

 Kudos for knowing and having all your numbers in place but I personally wouldn't purchase a property that would only cash flow $13/month AND have minimal appreciation expected.

@Melissa U. I would agree with others, unless you are making a speculative appreciation play then this deal is not a good one.  Where is it located?

Equity in a property does not increase cash flow. With cash opportunity valued at 10% you are negative on your potential investment to the tune of $487/month.

Cash value of 60K @ 10% = $500/month

$500 - $13 = $487/month negative cash flow.