All Forum Posts by: Ryan Bissell

Sorry, but I don't see how that answers my question.  I asked if there is a disadvantage to buying with actual cash first to capture a deal quickly, and then financing afterward.

Suppose you're just getting started, looking for your first investment property.  You stumble upon what you believe is a killer deal, and you don't want to lose it.  But maybe you are literally so new at the game that you aren't even pre-qualified with a bank yet.  Nor have you established yourself with any HMLs.

Maybe you happen to have just enough cash to buy said property, free and clear.  But it was never your intention to sink most of your capital into 1 property, you intended to leverage your way into several, in your first year.

Is there any disadvantage in paying in cash, before you've lined up financing?  Will banks look upon such a loan differently, than they would a  loan that they originated during closing?

I'm new at this too, but one thing I've recently learned is: don't replace things that you don't have to. To use your example of kitchen cabinets: in your hypothetical photos, where you see they "need to be replaced", make sure they actually *need* to be replaced. If it's an older property, and the cabinets just look dated but otherwise are completely functional, then just paint them.

Over-improving is the kiss of death to your ROI during the 'Rental' phase of your BRRRRR...R.

Thank you for the reply, @Brenden Mitchum.

We are looking to move for personal reasons.  That decision made, I'm just trying to decide what to do with my current home.  I think the default option (for most people) is to roll their realized equity from the sale of their old home into their new one.  I could definitely do that, but since I've recently gotten the real estate bug, I was just considering converting it to a rental, as another option.  If I pulled the equity out of it, I would not expect it to cash-flow (because as its loan currently stands, it would only generate $345/month.  Any kind of cash-out refinancing would reduce that.)

1031'ing my $200K of equity into a large investment property is an intriguing idea! However, since I've never owned an investment property, the idea of starting with something as bold as an apartment complex sounds very intimidating.  I think I'd love to be there some day, just not sure such a big bet is appropriate for a complete beginner.  Maybe a 4-plex would be a better start for me?

Hi, I am a new BP ... person.  I've just recently gotten the idea to invest in Real Estate.  I intend for my focus to be Buy & Hold, with the eventual aim of maximizing cash flow as a source of passive income.  I've educated myself a little bit on property analysis.

I expect my first rental property will be the house I'm currently living in.  So, I decided to "run the numbers" on it, to see how well it might perform for me.  But, the problem in my head is that I can think of multiple ways to characterize my investment in it, and I'm not sure which way is correct.  (Or, maybe they are both wrong, and some 3rd way is correct?)

Here are the deets: I bought it 19 years ago, for $200K.  If I believe Zillow, it has a market rent estimate of $1800, and is worth $300K.   My mortgage payoff is currently $85K.

FIRST CHARACTERIZATION: Completely ignore the nearly $330K of PITI that I've paid in the past 18 years as an unrelated sunk cost. Pretend that I'm buying this property waaaaay under market for $85K, with no money down, no closing costs, and $10K of make-ready (out-of-pocket). If I refinance that remaining $85K at 4.25% for 30 years, and factor in all my known expenses, and assume 6% vacancy & 7% management, then:

• cash flow $4150/year ($345/mo)
• CoCR 41.5%
• ROI 72.27%
• Cap rate 10.79%  (ridiculous, because assumes $85K market value)

SECOND CHARACTERIZATION: Recognize the cost of the property is $300K, but I have a $215K down-payment.  (Everything else the same as the above.)  Then:

• cash flow $4150/year  ($345/mo)
• CoCR 1.84%
• ROI 4.87%
• Cap rate 3.06%

As you can see, these both result in the same cash flow.  But the performance metrics look vastly different.  The problem in my head is that I care about the metrics, since the point is to decide how good this property is.  To me, the second characterization feels more honest considering the property since the day it was built.  But its CoCR (which I think is the metric I care most about) seems pathetic.

I guess I would summarize my questions as:

1. What is the right way to analyze a property that shifts from personal residence to cash flow investment, after decades of principal paydown?

2. Is my projected cashflow as depressing as it seems?  (Works out to be just 19% of gross rent.)