All Forum Posts by: Andrey Y.

When you say more conservative/less leverage, you simply mean putting a higher amount down (say 25-50% vs 0-20%)? Just trying to make sure I'm understanding.

I am fairly young, so I GUESS I am comfy with a moderate to high risk. Given this market with high costs but also high appreciation, I think even paying value or above value should not be a huge risk in the longer term. That said, I think striking a balance is important. In a upswining (more seller's) market, does it make sense to purchase 1 property putting a higher amount down, then just waiting for a downswing in prices, or better in the long term to pound out 2-3 deals in a few months and invest that way?

I appreciate the input!

Also, can you ask your last question another way?

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Originally posted by @J Scott:

Originally posted by @Account Closed:

FOLKS Demand that that thread includes @J Scott's explanation of how $1, 000 financed on a $1, 000, 000 property @ 15% results in a $50, 000 reduction of NOI!!!!

Here's the math you've been demanding for two days (I figured you could do it yourself, but clearly not)...

First, I never said anything about 15% interest rate (you're making that up for some reason). I said I was providing an "extreme" example, and here's EXACTLY the example I proposed (cut and paste from the post you keep referring to):

Now, here's the math you weren't able to figure out yourself:

Start with a $1M asset that generates $15,000 gross monthly income with a 44.4% expense ratio (including vacancy and capex). That gives you $100K in NOI, for a 10% cash on cash return unleveraged. (THIS IS THE FIRST SCENARIO ABOVE)

Now, invest $999K into the exact same asset ($1000 financed) with the following loan terms:

- 30 year fully amortized loan

- 5000% interest rate (remember, I said it was an "extreme" example)

Your NOI goes from $100K to $50K and your cash on cash return drops from 10% to 5%. (THIS IS THE SECOND EXAMPLE ABOVE THAT YOU CLAIMED COULDN'T MATHEMATICALLY EXIST).

As you can see, the negative leverage (extreme negative leverage in this case) reduces your NOI and your COC by 50%. You now have $1000 to that you need to invest and generate $50K per year just to match the first (unleveraged) scenario.

And THAT is an example where leverage hurts your profits, thus refuting your assertion that leverage will ALWAYS increase profits.

In other words, you are wrong.

BOOM goes the dynamite! (As Mark Cuban from Shark Tank would say).

@J Scott, what would you do in my case that I presented in this thread? I realize you aren't from Hawaii but I'm sure have dealt with a similar market. Feel free to PM me if it is easier :)

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You guys are killing me! ;) I wanted to spark a general discussion were most people can come to a basic understanding of a concept that is easily known by pros and helpful to a newbie like me. I think the point of this thread was carried elsewhere due to an unhealthy sense of pride and adult ADHD.

3 Votes

Originally posted by @Brandon Sturgill:

@Andrey Y. As you can see, there are brilliant minds here on BP. @J Scott is one of the most knowledgeable individuals I have interacted with a learned a ton from him (thanks J!) But what we often do on BP is bypass the basic question you had,,,which was what is the best use of your money to start investing...right? Think about this:

What is your risk tolerance?

What is available in your market?

What is your long-term goal?

What is your available cash?

What type of return do you need?

How active do you want to be in managing properties?

This is just the tip of the iceberg...I like single family homes because they are affordable, available in my market, command good rents, and have less maintenance of people and facilities than multifamily.

I think I already addressed most of these questions.

To reiterate, risk tolerance is moderate.

What is available, long term goal, available cash, these were touched on in my original post.

I need a 8-12% compounded return at least, including cash flow and potential appreciation.

I can be very active only for a couple years, thereafter pretty hands-off is ideal.

There was a lot of back and forth in the thread regarding some math concepts, but I was looking for an 'if you were me' type suggestion giving the still high demand and prices relative to rental income.

0 Votes

Now that I am thoroughly confused...

In all seriousness though, what J Scott mentioned regarding 'cost of capital', isn't it

just what I outlined above, ie. paying cash vs. paying 20% and financing the rest? Just just assume here that no appreciation or depreciation for simplicity.

I guess a better question, for those that have been at this a while, and I would especially like to hear from Hawaii-based investors, would you go the put down 20% and finance the rest, and try to get several properties for the purposes of getting feet wet quicker, or meticulously plan 1 or 2 deal, paying 50-100% cash upfront?

Much thanks for the feedback!

0 Votes

Could you briefly expand on what you mean by, 'don't overleverage'. Much thanks!

Originally posted by @Account Closed:

Originally posted by @Andrey Y.:

For the most part, buy and hold investing is tricky in Hawaii when demand is high and rental income is not great compared to purchase prices in a currently seller's market.

You'll always make more profit by using leverage. Just don't overleverage.

For Hawaii don't look at rent to market value. Look at rent growth. With appreciation running 9% and rents increasing at 6% rents will never match some flyover ratio. THANK GOD!

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First of all, I really do appreciate all the helpful guides and discussions on here to help educate a new REI such as myself.

We can all invision the statement "It is better to purchase 5 properties at 20% down, and finance the rest, than purchase 1 similar property cash."

I realize there are many variables such as long term goals and market, but I am trying to get your opinion on this. This is for BUY and HOLD type investing. If you had the cash, would you start with putting 20-30% down on a single property, and look for several more in the coming months?

For the most part, buy and hold investing is tricky in Hawaii when demand is high and rental income is not great compared to purchase prices in a currently seller's market.

0 Votes

All Forum Posts by: Andrey Y.

Andrey Y. has started 114 posts and replied 1827 times.

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