All Forum Posts by: Roshan K.

 depends we are at 10 to 15% of gross..  so a 450k new build makes us 45 to 80k sometimes we do better and make 20%.. but its volume of course. and VERY predictable our budgets rarely change as much as 5k per house.. unlike rehabs and all the surprises you encounter. 

In upper end high dollar deals we hit a 2.2 mil sale price gross and netted 30%  that's my best ever.. or a once in a 10 year deal.

and if you put leverage into these the % profits are usually on an APR COC in the 80 to mid to 100 % apr range..

so for me what we like to think is a well qualified borrower I need say 50k in cash for a 500k build and they bake in the interest reserves which is included in my build costs so I have no monthly payments to make.. and we make 45 to 100k in 9 months.. 

@Roshan K.

Maybe it's me, but I don't see many postings that specifically state that you can make money just on Mortgage Balance Reduction. I see at least 70% to 80% of the articles posting that generally has a calculation that deals with ONE and ONLY One time frame, which is the initial purchase, and if the calculation for that specific initial time worked, hey... then it's a good deal.

So, the 1% rule, a Calculation of Cash on Cash Return, a single calculation on Cap Rate, etc.... these are all calculations based on one initial time frame.

BTW... these calculations are MISLEADING at best.

Take for instance, you buy a property that meets 10% CoCR. Example, you pay $10,000 out of your pocket for a $100,000 property that then generates $10k in Cash Flow per year.

That sound GREAT for most people as a CALCULATION. BUT.... let's say the 2nd Year of your Buy and Hold investment, you had to sell for whatever reason.

HOWEVER, there will be associated Selling Expenses like Commission.

Let's say the selling Expenses is $10k. So if you buy and made $10k in Cash Flow for the first year and you sold in the 2nd year but paid $10k in closing costs, you effectively made ZERO..... a BAD DEAL.

Your Cash on Cash Return calculation does not take that into account.

If Investors on this forum don't take into account ALL the future Cash Flows of a targeted holding period..... they are not doing a full and comprehensive analysis. I personally don't know WHAT they are doing other than getting some calculation for an initial time frame which is at best misleading.

To really make the point between Cash Flow and Appreciation, I really recommend several podcasts here in BiggerPockets, there are PLENTY including:

1) Cash Flow VS Appreciation | Real Estate Investing Basics

2) Many others but I would like to mention @Russell Brazil and @Jay Hinrichs Podcasts as well.

NOTE: Cash Flow VS Appreciation is a "REAL ESTATE INVESTING BASICs". Watch the first podcast and I am sure those who are "Cash Flow" is everything and "Appreciation" is gambling, I'm hoping you will start to understand that Cash Flow is just a very minor part of the Real Estate wealth generator.

@Thuy Pham-Satrappe

I ONLY buy 2-4 small MF, all in a very HIGHLY appreciating market, Brooklyn, NYC.

I have been doing this for the last 21 years.

In many cases, the cash flow starts out as ZERO.

HOWEVER, if you only want to do a calculation of the original purchase cash flow, you will tend to miss the whole strategy about investing in very large Metros like NYC.

When I bought one of my first properties 21 years ago, it was at Zero Cash Flow and rents were $500 per apt.

Today, that same 2 Unit building rents for $1,900 per apt and cash flows around $3k per month.

With the increased cash flow, the building's Valuation moved up from the original purchase price of $140k to $1.1 Million today.

Another missed profit generator in Real Estate seems to be the Mortgage Balance Reduction of a Fixed Rate Mortgage.

I think this is missed almost 95% of the time and I rarely see any postings about the Mort. Bal. Reduction as a profit generator.

Today, I buy buildings in the $1.5 to $2 Million price range. Even if I used a $1 Million Mortgage, had ZERO cash flow and ZERO appreciation, I will still make a Million dollars when the Mortgage Balance falls to zero. That is PURELY Math and pretty much GUARANTEED in the kinds of Markets like NYC as Real Estate values RARELY fall. If they every do, it bounces back and always goes higher.

BUT, again.... I implore the readers of this post to NOTE that I said you can get ZERO cash flow, Zero APPRECIATION and you will still make a Million dollars.

I'm completely baffled why, on a Real Estate forum like this, there are very little postings or articles that even mention the Mortgage Balance Reduction as a profit generator.

@Michael Ealy, thank you SO much for your post.  It was super helpful and very meaningful coming from someone who has acquired as many units as you have!

Yes, after all expenses including PITI, property management, misc expenses and repairs, I put $1200 in my pocket for This 4plex. It is on a conventional 30 year fixed. Current debt ratio is 70%, with current cash reserves of $500K. But I would like to invest in another which looks like I can get to cash flow similarly. So cash reserves would reduce some.

It’s also very helpful to know you are purchasing now.  Its basically dollar cost averaging, which people understand in the stock market.  Anyhow those same engineers told me not to buy When the market was down...too risky.  So, don’t buy when it’s down, don’t buy when it’s high.  I guess, just buy when it’s just right.  🤣😂

Thank you for your post!

@Roshan K. Yep, you are correct. And now that you mention it my number with my bank is $4m. At that point they will spread the loan out across other banks. Here is Topeka, most of my SFH are $50k in purchase price so $4m does feel quite far off.

I agree with @Cassi Justiz I think you need to define how local, local is.  I bank with a local bank.  They have 2 office here in town, they keep all their loans in house and thus can call all the shots.  Below are the advantages I have experienced from maintaining a good working relationship.

1. I have found a properties on Saturdays for which I wanted to make an offer.  My banker has shown up that same day and provided a proof of funds letter.

2. I really dislike professional appraisals for my SFHs.  Nearly 100% of the time the appraisal comes back, to the penny, what I offered.  I don't want to pay $450 for that information.  Because of my relationship with my bank I have told them I'm not interested in paying for those and so they do an in house appraisal that costs me nothing.

3. They run pre-forclosure deals by me for which they are the owners of the note.

4. There are no limits to the number of loans they will provide me, Assuming our math looks good.

Just my thoughts.

It depends on how local your "local bank" really is. Also, this applies more for commercial underwriting than for conventional. Conventional loans are still going to have to meet the fannie/freddie criteria, where commercial underwriting has a ton of flexibility and no universal standards. 

There is a local banker that I work with that calls his own shots. It's a one branch bank and he oversees all commercial lending for that bank. He makes all decisions up to a certain dollar amount, and if over that then he has to get a second signature. No board, no committee, no mystery underwriters. He has one in-office underwriter and one loan processor, so they can be fully transparent the whole way through the process. I think that's the kind of local bank the gurus refer to. They can have a loan fully processed and ready to close in 3-5 business days depending on the borrower.  

@Matt McConkey Thanks!  I told Light House I was using the money to buy a house.  I simply gave them the listing for one of the ten houses I bought that was on the market and they approved it.

They are incredibly easy to work with.  It was so easy in fact I actually worried it was a scam at first.  I will be using them again for sure.