All Forum Posts by: V.G Jason
V.G Jason has started 15 posts and replied 3397 times.
Post: Seeking advice for investing in University Place/Rice/Museum District area
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Quote from @Ann Vo:
Quote from @V.G Jason:
Quote from @Ann Vo:
Quote from @V.G Jason:
None of this stuff cash flows "great". Cash flow is a function of leverage in the deal.
It's a pretty solid store of value. And they'll grow faster than the median of Houston, but not as much as same neighborhood properties due to being multi family. I own in this areas, but always SFH. Been excellent experience, albeit short.
I own heights, memorial park, rice/West U and some acres home. Did barbell esque approach in Houston.
Can you help explain more on the "grow faster" if it were SFH? Why don't multi-family grow as quickly in this area? Another question is what does renting SFHs in this area look like? Long-term multi-year tenants or shorter 30-90 day tenants? Also, would love to learn more about your barbell-esque approach in Houston. Do you mainly invest in A areas and high priced properties only?
Thanks in advance!
Then to address the other questions.
I usually buy higher end properties, in the cities I buy, using a 1.33-1.5 DSCR and the lower end properties ideally with as little down so likely something to fulfill 1x DSCR but I bid deep and barely win. Again, barely win. I keep it 80/20 or 60/40 on ratio of primo:path of progress. Really depends on city. Austin, Houston, it's 80/20. Savannah and Knoxville it's 60/40, for example. Among other cities.
That's for LTRs/I rent usually long term(1 year leases, then 2 year offers if great tenants.
For any STRs it's usually sub 40% LTV as cash flow is highly volatile. Ideally closer to 20% and I buy excellent properties in excellent areas as these are real stores of value that can cash flow sometimes greater in a year than 3 LTRs. So capital concentration is the net input and I am grateful for these. I also (rarely) visit these. My Oregon one went from a risky but possibly great investment to arguably our family's favorite.
I rent usually long term(1 year leases, then 2 year offers if great tenants)
When you say you only do sub 40% LTV on STRs, do you mean you put down 60% or more on these properties?
And thanks for sharing your approach on rental terms.
Post: My Brother’s Scared Home Prices Will Drop – What Can You Do to Mitigate That Risk
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The answer is simple you buy right.
You do that by paying an appropriate price for a house that you add immediate value to, has consistent & persistent rental demand, and then have enough capital to weather the yo-yo aspect for at least 7 years. If you didn't buy with those conditions, then you are at a higher risk and likely can't survive it.
Post: Seeking advice for investing in University Place/Rice/Museum District area
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Quote from @Ann Vo:
Quote from @V.G Jason:
None of this stuff cash flows "great". Cash flow is a function of leverage in the deal.
It's a pretty solid store of value. And they'll grow faster than the median of Houston, but not as much as same neighborhood properties due to being multi family. I own in this areas, but always SFH. Been excellent experience, albeit short.
I own heights, memorial park, rice/West U and some acres home. Did barbell esque approach in Houston.
Can you help explain more on the "grow faster" if it were SFH? Why don't multi-family grow as quickly in this area? Another question is what does renting SFHs in this area look like? Long-term multi-year tenants or shorter 30-90 day tenants? Also, would love to learn more about your barbell-esque approach in Houston. Do you mainly invest in A areas and high priced properties only?
Thanks in advance!
Then to address the other questions.
I usually buy higher end properties, in the cities I buy, using a 1.33-1.5 DSCR and the lower end properties ideally with as little down so likely something to fulfill 1x DSCR but I bid deep and barely win. Again, barely win. I keep it 80/20 or 60/40 on ratio of primo:path of progress. Really depends on city. Austin, Houston, it's 80/20. Savannah and Knoxville it's 60/40, for example. Among other cities.
That's for LTRs/I rent usually long term(1 year leases, then 2 year offers if great tenants.
For any STRs it's usually sub 40% LTV as cash flow is highly volatile. Ideally closer to 20% and I buy excellent properties in excellent areas as these are real stores of value that can cash flow sometimes greater in a year than 3 LTRs. So capital concentration is the net input and I am grateful for these. I also (rarely) visit these. My Oregon one went from a risky but possibly great investment to arguably our family's favorite.
I rent usually long term(1 year leases, then 2 year offers if great tenants)
Post: Seeking advice for investing in University Place/Rice/Museum District area
- Investor
- Posts 3,448
- Votes 3,528
Quote from @Ann Vo:
Quote from @V.G Jason:
None of this stuff cash flows "great". Cash flow is a function of leverage in the deal.
It's a pretty solid store of value. And they'll grow faster than the median of Houston, but not as much as same neighborhood properties due to being multi family. I own in this areas, but always SFH. Been excellent experience, albeit short.
I own heights, memorial park, rice/West U and some acres home. Did barbell esque approach in Houston.
Can you help explain more on the "grow faster" if it were SFH? Why don't multi-family grow as quickly in this area? Another question is what does renting SFHs in this area look like? Long-term multi-year tenants or shorter 30-90 day tenants? Also, would love to learn more about your barbell-esque approach in Houston. Do you mainly invest in A areas and high priced properties only?
Thanks in advance!
Sure, what do you think attains a higher bid for a property in that area or really in any area a single family house or a multi-family? Put things into perspective, do you think a single individual willing to live with 2-3 others will catch a higher bid, an investor looking to rent ou 2-4 units, or a family of 4 looking to move in?
Likely the latter, so almost always, a SFH will gain in value versus a 2-4 MF in the same area.
Nothing cash flows at current rates cause currency debasement made the long end follow the short end back in 2020 and you got b2b years of 20% appreciation. It's more unaffordable to buy a house relative to the population than it was in the Great Depression.
You put more down or buy entirely distressed. You lose a lot of deals. It's really the only way. I'm doing this in Austin, among other cities, and it's maybe a .025% win rate, but when it wins these are goldmines. And it's truly one of the best investments one can make with capital and leverage. When done without this diligence it can still win out, but you need time on your side which means a lot of capital and mental power to withstand the headwinds physical RE poses.
Post: Seeking advice for investing in University Place/Rice/Museum District area
- Investor
- Posts 3,448
- Votes 3,528
None of this stuff cash flows "great". Cash flow is a function of leverage in the deal.
It's a pretty solid store of value. And they'll grow faster than the median of Houston, but not as much as same neighborhood properties due to being multi family. I own in this areas, but always SFH. Been excellent experience, albeit short.
I own heights, memorial park, rice/West U and some acres home. Did barbell esque approach in Houston.
Post: How do people continue investing after exhausting conventional loans?
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Quote from @Jason Eyerly:
Quote from @V.G Jason:
Quote from @Jason Eyerly:
As I'm reading biggerpockets books and such I understand conventional, FHA, VA, investment property (second home), and DSCR loans. But I feel like you, can exhaust these pretty quick. So say you're house hacking with an FHA and have an investment loan on another. How do folks keep investing, growing, and acquiring? A nicer multifamily is a million dollars, a DSCR wants 20-25% down which is a heck of a payment to come up with. There's lots of info on getting your firs property or two, but then what?
I'm a forward thinker. It helps me ensure the steps I'm taking now help me later. It's helped me plan (and execute) my career path significantly to get me here!
My point is it's a great problem to have.
If you've maxed out conventional, it means you have quite a portfolio. Assuming you did it properly, you won't worry about the funding you'll just worry about the house & price.
Post: How do people continue investing after exhausting conventional loans?
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Quote from @Jason Eyerly:
As I'm reading biggerpockets books and such I understand conventional, FHA, VA, investment property (second home), and DSCR loans. But I feel like you, can exhaust these pretty quick. So say you're house hacking with an FHA and have an investment loan on another. How do folks keep investing, growing, and acquiring? A nicer multifamily is a million dollars, a DSCR wants 20-25% down which is a heck of a payment to come up with. There's lots of info on getting your firs property or two, but then what?
Post: Why markets with low appreciation grow your net worth twice as fast
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Quote from @Mike D.:
Quote from @V.G Jason:
Quote from @Mike D.:
Quote from @Sean Martin:
Quote from @Mike D.:
Quote from @James Hamling:
Quote from @V.G Jason:
Quote from @James Hamling:
Quote from @V.G Jason:
Quote from @Mike D.:
Quote from @V.G Jason:
Quote from @Dan H.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Here are the issues:
1) you already have demonstrated multiple times that you do not know how to calculate ROE. Anything you say on this matter has lost its credibility.
2) you already indicated that your cash flow analysis in the high appreciating markets (maybe all markets) included OO purchases in determining the property value. This perturbs your property cost upwards significantly that increases your negative cash flow calculation.
The underwriting results are only as good as the underwriting inputs and algorithm. Both your numbers and algorithm need work.
I could use virtually any reasonable leveraged LTV you desire and show a purchase from 2000 or 2010 in my market would crush the low appreciating markets. My market would have better cash flow and better appreciation over the hold.
Good luck
Fair points.
The other thing to really discount is this tunnel vision view of ROE. ROE isn't why you invest, it's apart of why you invest. You don't invest for CoC, just cash flow, or just appreciation. You invest in physical RE with multiple things on the horizon; store of value, value add, utility, tax benefits. Those in some shape or form are appreciation, cash flow, and intrinsic value.
If the focus of ROE is on real estate-- you're best off with value adds in primo areas. And re-financing. Those fixes alone are a huge uptick in ROE.
Putting a new bathroom and bedroom in the hood Memphis or primo Memphis will cost you marginally the same, but the ROE is noticeably different. So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE.
The cash flow and debt paydown are simply functions of LTV and for that I'll continue to say if you want to buy low hanging fruits, go for it. Physical RE is very hard, pay me to wear the risk or let me buy scarcity. I'd take capital almost anywhere else then there in RE-- I want quality!
You can certainly get high returns with value adds, but this post is about passive investing.
Regarding this: "So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE."
What you're missing is that you aren't going to be able to invest in these high appreciation areas without a very significant down payment--otherwise you take on major negative cashflow--and that lowers ROE by increasing the denominator side. The appreciation will not typically come close to making up for it and my initial example shows why and how. If you are willing and able to deal with negative cashflow, that's another story, but most investors are not.
Also, if investing in a true warzone area in a declining city, yes, the depreciation diminishes ROE. This argument might apply to certain areas of say Detroit or Gary Indiana and I would not advise investing there for that reason. By capturing modest appreciation in a growing area of say Indianapolis or Memphis, you do come out ahead.
No, I do get that. That's why I keep telling you my cash has options. Rather go to equities than go to bottom feeder places.
Physical RE is hard and nasty, if I'm going through this pain, I better be getting those characteristics I've mentioned above. Otherwise, it's onto equities, timber, oil, Bitcoin, etc.
Gary, Indiana isn't worth it.
There is nothing "passive" about being a Landlord.
And ever so more true the lower the price/quality class get's.
VOO is "passive".
I can invest from the bath-tub. Monitor at will or, never at all. And liquidate with the swipe of a button.
Agreed, I should've stopped at that point.
"Passive".
That doesn't exist and sure as heck does not in Gary, Indiana. If anything, you want passive. Your best bet is actually again better properties in better cities.
This whole post and OP is really, at it's heart, a case of over-complicating and under-comprehending.
When look at cash-flow in a relation to equity accrual in a property, as you get more equity that rate will go down.
So more returns = lower %.
I don't understand why he has not grasped this yet. This function of the math is why nobody uses this as any kind of metric for gaging if a deal is good or not.
It speaks to just 1 thing, the cash-flow. And ignores every other profit gaining metric an investment will hold. And it gives false readings or false notions because let's say a property is racking up huge appreciation, well that % is gonna drop off a cliff. Is making $48k a year on appreciation a bad thing? That's profit!
The only thing I come back to is it's weird and bizarre to me. I can't find a single way it's anything of use or value to a solo investor.
Now if I have LP's who are staked for 5yrs, yup, it matters to them. But that's comparing apples to hand grenades. And still, it's still only showing 1 singular return metric. It's a way to gauge JUST the cash-flow and to lend context of the cash-flow.
Which is why we, in JV's, show that along side the other metrics, and then an aggregate return. Which get's the the # that matters end of day, ROI.
Okay James, on page 6 of the thread you're taking some steps to understanding the basic terms of this debate, but you aren't yet there. I'm not sure if there's a lot of point in writing this because I think you're mostly here for egotistical reasons, i.e. to blow hot air and be a troll, and whatever I write that's of substance will likely be ignored by you. This is really mostly for other people who are getting distracted and confused by your posts.
Folks, James doesn't know what he's talking about. Somebody actually just PMed me out of the blue to warn me about him, that he talks loudly but has no clue what he's saying. I've been here saying something that I know is controversial, but there's real substance behind it. I have never shown myself to be a flashy braggart or troll on this board. I go out of my way to make posts of substance. This guy is not doing that.
James is now getting around to an understanding of one version of what ROE is in real estate. This is a guy who puts himself forth as an expert and says people like me aren't even worthy of learning from him. He's got a lot of cajones to say stuff like this but there isn't much of substance underneath it. He's now has gotten past the idea that we're talking about ROE in the context of corporate valuation and he's gotten around to one definition of what it is in real estate, which is cashflow divided by equity. I'm quite familiar with various ways of valuing returns and I believe this is the definition used by Lane Kawaoka in The Wealth Elevator and some others. There is another way of doing it too that's used by Gary Keller where you take all returns--cashflow, appreciation, and principal paydown--over equity. That's the version I've been using. James has filled up posts and posts saying this concept doesn't exist, using other versions of it, and blustering and babbling and running off at the mouth. He's taken one small step toward getting it now.
Regarding the importance of both ROI and ROE, Gary Keller says this. That's the guy from Keller Williams, an extremely successful investor. I'm pretty sure he knows what he's talking about. James just found out about ROE yesterday. It's fine, we're all here to learn, but instead of being humble he just attacks anyone who knows stuff he doesn't because he's threatened. Anyway, from Gary Keller: "Keep track of what is happening with your money. Know what condition it's in and how well it is being paid. You need to keep track of your ROI for each of your properties and for your entire portfolio. You will see what annual return you are receiving on the money you have invested (your return on investment) and will track the annual return you are receiving on your equity. I call this second number your ROE (return on equity). You want to know both your ROI and your ROE. The difference is that ROI shows what you are earning annually on the money you initially invested, while ROE shows what you are earning annually on all the equity you have." James only knows how to do ROI. His knowledge is incomplete.
Few will actually read through all these posts, fewer will actually do the math in them, but those that do will find that what I said is of real substance. They may not agree with it but it should give food for thought because it has been carefully thought through. That's the spirit that this is written in, thinking things through and starting a dialog. I'm not here hurling insults, being full of myself, or telling others they aren't worthy. Let people who truly want to understand read and decide what they think.
Yeah, it's no doubt one of the best books about real estate, especially that last chapter where he models out different ways of building a huge portfolio is next level stuff.
Something gives me a sneaky suspicion you guys are the same people. Or if not, very closely connected.
Yeah, have you ever seen us both in the same place at once?
Post: Did anyone attend the "Short Term Rental" conference in Nashville last week?
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Quote from @Ken Boone:
Quote from @V.G Jason:
Quote from @Ken Boone:
Quote from @Todd Goedeke:
@Ken Boone tell us what we’re just two actionable items you learned and will implement.
Since you are clearly bent against the guy and the conference I am not going to take the time digging in to the details. It was a firehose of information and I can't wait to get the recordings to I can go back and watch them again.
1) I learned several techniques when sending out emails on my distribution list to gain a higher level return on them landing in the inbox vs the spam box.
2) I learned several things to go back and analyze on my website to help increase user hold time.
3) I also learned several items to help with my social media.
4) The time I spent with two of my software vendors gave me some invaluable insight.
5) I learned some new strategies in creative financing that I previously were not exposed to.
6) I made connections with people operating in the new market I just purchased a property in.
And much much more.
All that is just too vague outside of 6. Give some real definition behind it, and 6 doesn't really do anything but you learned some of your competition. Which in your case could be really bad or really good.
Without that, from what I summarize you just got told things AI or Google could've told you.
Whatever man. Summarize what you want. I don't need to prove anything. The conference was worth my time and money and everyone I met at the conference felt the same way.
Much like you don't have to prove it, I don't have to believe your post had any substance. It looked like a ****** AI post of what happened. AI would give more substance. If those were the outcomes of this conference, you got played. Get over yourself.
Post: Why markets with low appreciation grow your net worth twice as fast
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Quote from @Mike D.:
Quote from @Sean Martin:
Quote from @Mike D.:
Quote from @James Hamling:
Quote from @V.G Jason:
Quote from @James Hamling:
Quote from @V.G Jason:
Quote from @Mike D.:
Quote from @V.G Jason:
Quote from @Dan H.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Here are the issues:
1) you already have demonstrated multiple times that you do not know how to calculate ROE. Anything you say on this matter has lost its credibility.
2) you already indicated that your cash flow analysis in the high appreciating markets (maybe all markets) included OO purchases in determining the property value. This perturbs your property cost upwards significantly that increases your negative cash flow calculation.
The underwriting results are only as good as the underwriting inputs and algorithm. Both your numbers and algorithm need work.
I could use virtually any reasonable leveraged LTV you desire and show a purchase from 2000 or 2010 in my market would crush the low appreciating markets. My market would have better cash flow and better appreciation over the hold.
Good luck
Fair points.
The other thing to really discount is this tunnel vision view of ROE. ROE isn't why you invest, it's apart of why you invest. You don't invest for CoC, just cash flow, or just appreciation. You invest in physical RE with multiple things on the horizon; store of value, value add, utility, tax benefits. Those in some shape or form are appreciation, cash flow, and intrinsic value.
If the focus of ROE is on real estate-- you're best off with value adds in primo areas. And re-financing. Those fixes alone are a huge uptick in ROE.
Putting a new bathroom and bedroom in the hood Memphis or primo Memphis will cost you marginally the same, but the ROE is noticeably different. So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE.
The cash flow and debt paydown are simply functions of LTV and for that I'll continue to say if you want to buy low hanging fruits, go for it. Physical RE is very hard, pay me to wear the risk or let me buy scarcity. I'd take capital almost anywhere else then there in RE-- I want quality!
You can certainly get high returns with value adds, but this post is about passive investing.
Regarding this: "So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE."
What you're missing is that you aren't going to be able to invest in these high appreciation areas without a very significant down payment--otherwise you take on major negative cashflow--and that lowers ROE by increasing the denominator side. The appreciation will not typically come close to making up for it and my initial example shows why and how. If you are willing and able to deal with negative cashflow, that's another story, but most investors are not.
Also, if investing in a true warzone area in a declining city, yes, the depreciation diminishes ROE. This argument might apply to certain areas of say Detroit or Gary Indiana and I would not advise investing there for that reason. By capturing modest appreciation in a growing area of say Indianapolis or Memphis, you do come out ahead.
No, I do get that. That's why I keep telling you my cash has options. Rather go to equities than go to bottom feeder places.
Physical RE is hard and nasty, if I'm going through this pain, I better be getting those characteristics I've mentioned above. Otherwise, it's onto equities, timber, oil, Bitcoin, etc.
Gary, Indiana isn't worth it.
There is nothing "passive" about being a Landlord.
And ever so more true the lower the price/quality class get's.
VOO is "passive".
I can invest from the bath-tub. Monitor at will or, never at all. And liquidate with the swipe of a button.
Agreed, I should've stopped at that point.
"Passive".
That doesn't exist and sure as heck does not in Gary, Indiana. If anything, you want passive. Your best bet is actually again better properties in better cities.
This whole post and OP is really, at it's heart, a case of over-complicating and under-comprehending.
When look at cash-flow in a relation to equity accrual in a property, as you get more equity that rate will go down.
So more returns = lower %.
I don't understand why he has not grasped this yet. This function of the math is why nobody uses this as any kind of metric for gaging if a deal is good or not.
It speaks to just 1 thing, the cash-flow. And ignores every other profit gaining metric an investment will hold. And it gives false readings or false notions because let's say a property is racking up huge appreciation, well that % is gonna drop off a cliff. Is making $48k a year on appreciation a bad thing? That's profit!
The only thing I come back to is it's weird and bizarre to me. I can't find a single way it's anything of use or value to a solo investor.
Now if I have LP's who are staked for 5yrs, yup, it matters to them. But that's comparing apples to hand grenades. And still, it's still only showing 1 singular return metric. It's a way to gauge JUST the cash-flow and to lend context of the cash-flow.
Which is why we, in JV's, show that along side the other metrics, and then an aggregate return. Which get's the the # that matters end of day, ROI.
Okay James, on page 6 of the thread you're taking some steps to understanding the basic terms of this debate, but you aren't yet there. I'm not sure if there's a lot of point in writing this because I think you're mostly here for egotistical reasons, i.e. to blow hot air and be a troll, and whatever I write that's of substance will likely be ignored by you. This is really mostly for other people who are getting distracted and confused by your posts.
Folks, James doesn't know what he's talking about. Somebody actually just PMed me out of the blue to warn me about him, that he talks loudly but has no clue what he's saying. I've been here saying something that I know is controversial, but there's real substance behind it. I have never shown myself to be a flashy braggart or troll on this board. I go out of my way to make posts of substance. This guy is not doing that.
James is now getting around to an understanding of one version of what ROE is in real estate. This is a guy who puts himself forth as an expert and says people like me aren't even worthy of learning from him. He's got a lot of cajones to say stuff like this but there isn't much of substance underneath it. He's now has gotten past the idea that we're talking about ROE in the context of corporate valuation and he's gotten around to one definition of what it is in real estate, which is cashflow divided by equity. I'm quite familiar with various ways of valuing returns and I believe this is the definition used by Lane Kawaoka in The Wealth Elevator and some others. There is another way of doing it too that's used by Gary Keller where you take all returns--cashflow, appreciation, and principal paydown--over equity. That's the version I've been using. James has filled up posts and posts saying this concept doesn't exist, using other versions of it, and blustering and babbling and running off at the mouth. He's taken one small step toward getting it now.
Regarding the importance of both ROI and ROE, Gary Keller says this. That's the guy from Keller Williams, an extremely successful investor. I'm pretty sure he knows what he's talking about. James just found out about ROE yesterday. It's fine, we're all here to learn, but instead of being humble he just attacks anyone who knows stuff he doesn't because he's threatened. Anyway, from Gary Keller: "Keep track of what is happening with your money. Know what condition it's in and how well it is being paid. You need to keep track of your ROI for each of your properties and for your entire portfolio. You will see what annual return you are receiving on the money you have invested (your return on investment) and will track the annual return you are receiving on your equity. I call this second number your ROE (return on equity). You want to know both your ROI and your ROE. The difference is that ROI shows what you are earning annually on the money you initially invested, while ROE shows what you are earning annually on all the equity you have." James only knows how to do ROI. His knowledge is incomplete.
Few will actually read through all these posts, fewer will actually do the math in them, but those that do will find that what I said is of real substance. They may not agree with it but it should give food for thought because it has been carefully thought through. That's the spirit that this is written in, thinking things through and starting a dialog. I'm not here hurling insults, being full of myself, or telling others they aren't worthy. Let people who truly want to understand read and decide what they think.
Yeah, it's no doubt one of the best books about real estate, especially that last chapter where he models out different ways of building a huge portfolio is next level stuff.
Something gives me a sneaky suspicion you guys are the same people. Or if not, very closely connected.