First Deals Analysis

[Cynthia Dufresne]

Good morning, all!

We are both residential appraisers working the NE Florida markets looking to transition over the LONG term to replacing our modest annual income through small/mighty single-family by buying in the path of progress where prices appear to be somewhat undervalued relative to long-term upside potential. In addition, the deals will be based on long-term rental outlook, but we are going to see how a mid-term rental strategy pans out for the higher cash flow in the short term.

Our current housing situation is that we are house hacking by house-sitting for our snowbird mom (so we basically have no housing payments), and we are looking to stay that way until we have to move (5-10 years?).

I am using Dave Meyer's 10% Target spreadsheet to analyze our first deal(s), and I love it. HOWEVER, my question is: given our goals/strategy, when analyzing returns for potential deals on the single-family rentals, along with a relatively low cash-on-cash return of roughly 1-2% should we allow ourselves to consider/count on 1) modest appreciation growth of only 3% year over year, 2) expense increases mirroring the current CPI of 3.5% and 3) low rental upside of only 1% (or even 0% given current market conditions).

For example, if a deal gives a TOTAL return of roughly 15% year over year for 10 years but only starts out at about 1% cash flow via long-term rents, is this a good idea? This would be done by leveraging private funding for down payments that will be payment free for two years but then paid out with a balloon payment plus interest on the back end via a tax excluded sale of our current rental property in two years, giving us a very large payment of tax-free income.

Thoughts? Too much cash outlay? Acceptable, lower risk strategy?

Thank you!

[Robin Simon]

Its certainly hard to cash flow significantly in the current environment (high rates, high values etc) - I tend to think though that just "doing" a first deal even if it doesn't make too much is valuable versus getting stuck in analysis paralysis - the learning from the experience of actual doing it generally is 10X + even a ton of courses, info, spreadsheets etc