All Forum Posts by: Zach Liu

I am doing the same thing as @Jai Reddy. It is easier to manage your account that way.

I think you did it right. The thing is IRR is very time sensitive and it is hard to predict things for 30 years. I usually use about 3-4% annual inflation rate for calculations that's why I get different result.

@Lee G.

The number looks at the border of good/bad deal, so if it is the best you can get for your area, you may have some decent returns from it.

For income tax, you can calculate your Before Tax Cash Flow and then deduct the income tax so you can see what the After Tax Cash Flow like.

One question for IRR. It should vary based on the years you expect to hold the property, and it should go up and down over the years. with 7% Cap Rate I would expect IRR go up to close to 20% by year 5 - 10, which is the best time to sell or refinance.

The last comment, what price did you use for calculation. If it is the listing price, the real numbers you get may be better so you have better chance to get a good deal. 

@Joe Villeneuve

Hi, no of course you don't tell the seller how much you really think you will make. You tell them with my offer at $*****, I may make this deal work, so you are convincing the seller to sell you at a lower price. If they don't like it, of course they assume you make less. It is just a strategy. I would say it is much better say an answer "no, I can't tell you". 

Yes and here is why.

It is part of  negotiation. Just like when you ask seller how much they made when they owned. You ask about their returns and they will usually tell you or at least they will provide some data so you can figure it out yourselves. They may also tell you how much you should earn if you buy by their price sometimes, like a pro forma estimate. But of course these numbers will be exaggerated to some extent. 

So here comes what you should say. Make a similar calculation and provide the numbers you come up with, and of course you need to be conservative (and of course it is the right thing to do.) So you can tell the seller here is the price that will make the deal work for you. And of course the seller knows his estimate will never happen, so the difference in between will be the room of negotiation for both parties. Then if you can justify your numbers well, he can present for yourself well. 

1, 4-plex is usually considered residential properties which is treated the same as single families by many so comps are usually used for valuation. But it doesn't prevent you from using the Cap. So I would go with the Cap. If the comps show a 4-plex should worth much more than your analytics, probably it won't make you money, aka overvalued.

2, 50% is general and depends on the condition of the properties, tax rate, insurance rate, your management skills etc. Use it as a first look and then go into those categories and have a better estimate. Estimate future large expenses like replace root, HVAC, waterheater, etc and that should be part of expense too. Self-management does not mean 0 fees since you need time and money to manage too. And someday you may not be able to manage yourself, so it is wise to always put 10% in management. My experience is after all these considerations, it will lean towards 50%, if the condition is good, you can lower a little bit.

3, ROI is a good measure, the drawback is it does not take into account the time value of money, like 10% ROI this year is better than 12% ROI next year. Also you need to think about what should be counted as return. You should at least count equity increase and net cash flow. Other good measures are IRR and ROE. They are complementary, so better use many measures to see the complete picture.

Too bad I missed this one. Couldn't leave my work that day. 

I should use a PTO next time!

Inspectors usually charge by units so it is more expensive for a quadraplex than a SFH.

600 sounds reasonable to me. But I would definitely care more about the quality of the work than the cost. Find a good one that you can trust and really care about your property.

Microsoft OneDrive or Google Drive! 

I like OneDrive more. It's not you just save your files online, you have copies on each computer you have, so you will never lose your important files. I like sound sleep at night.

And it is so easy to use, you download a small software, and it is used just like a normal folder in your computer. But everything you save at one place, is sync to your remote drive automatically.

I create a folder for each property and have subfolders like documents/loan/management/insurance/etc. 

You will never lose your file and also have access to the file.

The good part about mentioning you are an investor is that if you make the lender feel you know the game really well, they will treat you like a potential repetitive income source. If you are just a home buyer, they may treat you as a one time customer and do not care about you too much.