All Forum Posts by: Stuart M.

Because in the right area that wreck can easily get you $1k a month in rent whereas the appreciation you are hoping for might never happen.

@Stuart M.

Hi Stuart. I'll probably be one of the only few that will lean towards House 2 approach.

I've been buying houses in Brooklyn, NY for the last 20 years. It's your House 2 on steroids.

Results are incredible. Real Example:

Year 2000:

Purchase Price: $140k, $21k down and $7k Closing, $119k Mortgage

Rent: 2 Units at $500 each per month

Cash Flow: ZERO

Repairs: $40k

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Year 2017

Current Value: $1 Million

Profit if Sold: $1 Million minus $40k Repairs minus $21k down minus $7k Closing minus $80k Mortgage Balance minus $50k in Commissions minus $35k Seller's Closing Costs = $767k profit on $21k down plus $7k Closing plus $40k in repairs = $767k / $68k = 1,128% ROI just on Appreciation and Mortgage Reduction.

Current Rents are $1,850 for Unit 1, $1,900 for Unit 2. Cash Flow is approximately $2.5k per month

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I started getting Cash Flow in Year 3 with the above property.

I used the Equity to Buy other properties. In fact, all other properties came from the Equity of the previous properties.

Some call it luck. I did this 8 times in 20 years. Virtually all properties are similar to this one.

I will say that I was also a highly paid Programmer when I graduated College in 1997 and didn't need the Cash Flow to put food on the table.

BUT, I will also say that if you don't need the cash flow, you can get into these kinds of lucrative properties.

You can't just do the numbers. You need to assess the long term effects of economics as well as other external scenarios like Climate Change.

I'm not sure about Boca Raton or where you are planning on investing finally.

Florida will deal with Rising Sea Levels, but 2017 was devastating in terms of Hurricanes. Prices will be in the next 30 years will depend on what Florida does to counteract Climate Change, if anything can be done. If anything, you will have to take into account higher increasing Hurricane Insurance over the future years.

That's also the beauty with doing a long term analysis. It makes you think of the future. I normally put together a 10 year projection and take into account all the effects of future Economics and other things like Climate.

Just like a Squirrel who has to put away nuts for the winter, if that little animal didn't think of the future, he'd starve to death before the Spring!  

Two cents
1. You are assuming 30 year / forever hold period which isn’t true for many people for many reasons
2 you are also assuming that if the heater broke, you have additional funds to fix them - if the property is not cash flowing, any unexpected maintenance/ longer vacancy will force you to put in more money which is not sustainable- positive cash flow helps u survive these downturns for a longer period and makes a huge difference in your ability to hold it forever

"I'd like to hear other opinions."   Really.

Cash flow is important because unlike investors that are already filthy rich most of us use our income to put food on the table and pay our bills. Pretty hard to do when your income is zero.

Investor....speculator. There actually is a small difference that most speculators refuse to acknowledge. Most are defensive when this is pointed out.

Happy New Year! I am a novice compared to the other folks in here...so here is my opinion and some questions that need to be answered first...next your analysis seems to be skewed to the results you want.  How did you get to only $25k down on 2nd property? Why isn't it the typical 20-25% down? Next, what about upkeep costs on 2nd property? Next, what about if I were to say I could get 2 or 3 units using the same $500k value that will generate lot more then the single property in your 2nd scenario. I just think there are too many moving parts that should be defined first. 

Lastly, I would spread out my risk, rather then putting everything in one property. Again, only my novice opinion.

Like many have said, there are a lot of benefits to Section 8 tenants- they tend to be lower turnover, you're always paid on time and payments are insured by the government. 

In my experience as a former property manager, Section 8 has different and additional paperwork - you use their lease agreement, and repairs become complicated as they have specific requirements such as how many inches from the ceiling a smoke detector can be placed. Your property manager will have to relay all of that to the handyman, and in my experience, handymen get annoyed as they don't see the logic in those specific requirements. Additionally, Section 8 does yearly inspections ( a good thing in my opinion) and will send a repairs list to you that sometimes involves very trivial repairs (cabinet hinge loose, etc). Overall, I don't think these slight annoyances should mean that you preclude an entire class of potential tenants, but they're something to consider.

@Stuart M.

I got a chuckle reading your post. You may want to consider sticking to subjects you know something about.

Canada is definatly not one of those subjects.

It was funny though.

No problem. I know funds like Blackstone and now DoubleLine are coming out with mortgage products, but those are usually higher rate mortgages that traditional banks wouldn't do because they aren't guaranteed by Fannie/Freddie. 

Very possible there's a new product I'm not familiar with, just don't see how it would work in practice. If it's 0.25% cheaper than 30 year bank financing, doesn't seem like something the hedge fund could easily securitize or raise capital for to hold.

Hello BP, I was wondering if you saw rent prices drop during the recession? For example if you buy a property now and in a few years the market drops will we see rent prices follow this trend, will they stay stable or will they increase? 

Thanks guys!