How do I know if I am doing well in real estate investing?

How do I know if I am doing well in real estate investing?

Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
Hello friends, Hope everyone has a good thanksgiving! So, I started in real estate investing about 3 years ago. I currently have 4 units , two singles and a duplex. All properties are in Norristown PA 1) My duplex cash flows approx $600/month and cost me all in $87k 2) Singles about $300/month. and each cost me all in a total of $90k each That being said, I am having difficulty measuring if I am on the right track to doing well. I look at properties in somewhat below decent neighborhoods in Philadelphia that cost above $150k . Rent is lower there because taxes are lower significantly and after some analysis cash flow on these 150k-250k duplex’s and triplexes are between 400-700. So in Norristown I am paying significantly less for about the same cash flow . What I do not understand is how people make money on these houses I speak about above. I wonder because I would like to buy in these Philadelphia neighborhoods because they have a better chance of appreciation and resale down the line. But if I finance a 200k house my monthly payment would be around $1000/month, about $1300 after taxes and insurance. So if I have a duplex in Philly and get on the higher end of rents $900 per unit I could cash flow 300-500 depending on expenses. So I guess my question are: 1) Am I making the right move when investing in Norristown where can buy two duplex’s for the price of one in Philadelphia? 2) I know this is hard to answer, but how would I begin figuring out if I am making good investments in my market? Any advice would be greatly appreciated, thank you for your time !
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y

It's an easy answer.  Keep doing what you're doing.  It's working.

I have only one question.  When you refer to "..cost me in total...", what are you including in that "total"?

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y

    It's an easy answer.  Keep doing what you're doing.  It's working.

    I have only one question.  When you refer to "..cost me in total...", what are you including in that "total"?

  • Real Estate Agent · Philadelphia, PA · Member since 2015 · 76 posts · 25 votes
    7y

    I would say, in the simplest of forms, if your properties are cash flowing and you are getting closer/working towards your end goal, then you are on the right track. That seems to be the case here.

    While I am unfamiliar with the investment market in Norristown, I think you pretty much answered your own question. You may be able to get two duplexes for the price of one in Norristown, but you may not see the same appreciation play that you can potentially get in Philly. Also, Philly has a ton of neighborhoods at all sorts of price points, which opens up a lot of different investing options to suit whatever it is you are looking for. 

  • Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    7y

    This is a question that intrigues me.   how much do folks make? What is considered to be sucess?  I would assume that we would need to be making more than the interest rates banks pay ( easy) but then what? 

    In the commercial world there are all sorts of metrics to use to find out what your property is doing, but even then.... i am so curious ....  what  metrics do folks use?  I dont think number of doors is a metric that is useful? 

    I am deep in learning about the Internal Rate of Return or IRR which seems to me to be one good way of comparing properties.... :)

    It will be interesting to read what others think. 

  • Over the Rainbow · Member since 2016 · 65 posts · 35 votes
    7y

    An interesting book "The Millionaire Real Estate Investor" by Gary Keller answered this question for me regarding 'moving in the right direction'. The game millionaires play, at least according to his book, is the "Net Worth Game". Is your Net Worth increasing? I'd say it is according to your post. That is a very high level overview of course, and of course doesn't count the expenses that go into it. But if you can make more than you spend (coming in vs going out), and keep what you make and grow it, you're on the right track. Does your money make you money? If the answer is yes, you are on the right track. Just my $.2c

  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    @Douglas Gratz my first suggestion is that you determine success. Don't compare yourself to others to define whether you are getting ahead.

    What are your goals? Why? When?

    You really should put pen to paper and define what success looks like for you and when you hope to get there so you have something to aim for. Podcast #305 was a great episode where a guy created financial freedom (or at least the ability for financial freedom) by purchasing five houses. FIVE! Meanwhile, there are people with 100 rentals that are working like dogs every day to keep their empire growing.

    Not all markets cash flow. I'm in an area where it's almost impossible to buy a single-family home and get it to cash flow. The only way to make it work is to buy the property at a steep discount, which typically means a foreclosure or a private sale from someone that lets the property go cheap.

    If you want to move into a nicer community but properties don't pencil out, try looking for multi-family rentals. Those tend to generate a better return.

    The DIY Landlord Book4.7247 Reviews
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Nathan Gesner:

    @Douglas Gratz my first suggestion is that you determine success. Don't compare yourself to others to define whether you are getting ahead.

    What are your goals? Why? When?

    You really should put pen to paper and define what success looks like for you and when you hope to get there so you have something to aim for. Podcast #305 was a great episode where a guy created financial freedom (or at least the ability for financial freedom) by purchasing five houses. FIVE! Meanwhile, there are people with 100 rentals that are working like dogs every day to keep their empire growing.

    Not all markets cash flow. I'm in an area where it's almost impossible to buy a single-family home and get it to cash flow. The only way to make it work is to buy the property at a steep discount, which typically means a foreclosure or a private sale from someone that lets the property go cheap.

    If you want to move into a nicer community but properties don't pencil out, try looking for multi-family rentals. Those tend to generate a better return.

     "I regret that I have but one vote to give to this post"

    If I could have voted 5 times here, once for each paragraph, I would have.

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y

    @Joe Villeneuve I am including the purchase price +  the cost to fix it up 

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y

    @Nathan Gesner thank you for that response, I never concidered the “how do I define success” according to my goals and such.

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y

    @Nick Brown I mean my properties are cash flowing, but I guess what I mean by the right direction , I am more so thinking of the future.

    I am buying in areas I know will most likely not appreciate well. It’s kind of a lower class area, but it’s an interesting bad area as taxes are very large, $3,000 a year compared to $1000 or less in the lower class neighborhoods in Philaphia. So norristown is a bad area with an alright school district.

    So in regards to the future, I say I am not sure if I am heading in the right direction , because I am thinking of my ability to re-sell these properties when it’s time to trade up, if this type of neighborhoods rents will hold In bad times, etc etc 

    My cash flow is high because of this risk I guess and I pretty much am answering my own question here.

    Thank you 

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y
    @Douglas Gratz. The easiest ways to determine if you’re doing well or not is to calculate cash in cash returns and Internal rate of return and see if the numbers you get are acceptable to you and your goals. If you are getting 6 percent Cash on cash return, many people would say that’s to low, but it’s all a preference.
  • Member since 2018 · 3 posts · 0 votes
    7y
    @Douglas Gratz I own a triplex in Norristown as well. I am also looking to start picking up more as well. That area has a high rental price vs the purchase price due to the amount of section 8, people qualify for a large voucher, so it keeps prices in the whole district fairly high.
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Douglas Gratz:

    @Joe Villeneuve I am including the purchase price +  the cost to fix it up 

     Then your analysis is wrong.

    First, the cost to you isn't purchase price and cost to rehab, unless you paid cash for ALL of that.  The cost to you is what you personally had to pay...as in your cash.  Why?

    If this property is cash flowing positive for you, then you're not the one buying the property and paying off the rehab costs...your tenant is (don't forget to send them a Christmas card...and thank them).

    So, when you analyze this deal for returns on your investment, and compare it to the other options you listed here, compare your CoCReturns...along with the cash flows.  

    When you are looking for cash flow, the total cost of the property (buy, interest, rehab, etc...) isn't equal to the total cost to you.

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y

    @Caleb Heimsoth my cash on cash returns are pretty high.

    On my duplex , I just refinanced I am making a 72% CoC. I spent 87k on purchase and rehab and got 77k in my refi. With a cash flow of $600/month I come up with $7,200/10,000 = 72%

    On my singles I am around 20%. So I assume those numbers are pretty good? 

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y
    Originally posted by @Douglas Gratz:

    @Caleb Heimsoth my cash on cash returns are pretty high.

    On my duplex , I just refinanced I am making a 72% CoC. I spent 87k on purchase and rehab and got 77k in my refi. With a cash flow of $600/month I come up with $7,200/10,000 = 72%

    On my singles I am around 20%. So I assume those numbers are pretty good? 

    Yes those are very good.  Assuming you hit those numbers long term.  

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y

    @Chris Royle finally someone from my area. How are you? How long have you been into rentals if I may ask? And do you think the properties I mentioned above are doing good. All bought and rehabbed for under 90k and cashfkow about 300 on my singles and 600 on my duplex?

    Also, I got those at auction and am afraid I got really good deals on them. As I search for more, I feel that buying duplex’s and up, that I am not going to get them for that cheap often. What do you think is a good price to pay for duplex’s 1800sqfr-2300sqft? Better yet what do you think I could sell a 1700sqft 3bed and 1 bed duplex for? What do you think the market value is? 

    I’d appreciate any insight, as these were my first few properties and I am not sure if I got good prices on them? 

    Last thing, where else around Norristown do you invest and  find good to buy to receive decent cash flow with a positive outlook/appreciation in the future ?

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y

    @Joe Villeneuve I am a little lost on your last comment. I did pay all cash upfront. So I bought them at auction and then rehabbed them. To use the duplex I spent 87k to do all that, after refi, the bank gave me 77k . After paying all expenses each month I can pockets 600/month . So my CoC is 72% . You said above I am analizing this wrong, do you still stand by that or were you confused with my explanation ?

    What did you mean when you said “When you are looking for cash flow, the total cost of the property (buy, interest, rehab, etc...) isn't equal to the total cost to you.”

  • Member since 2018 · 3 posts · 0 votes
    7y

    @Douglas Gratz

    I've owned the Norristown property for about 2.5 years and that was my first and, so far, only rental.  My dad owns a couple SFRs up in Levittown area.  I can tell you that mine makes about as much gross revenue as both of his combined and the property cost significantly less to acquire.  My dad and brother are looking to start buying in Norristown for this reason.

    I'm a little confused what you are looking for exactly and why you are questioning a 'good deal'. It sounds like the properties are doing well - any positive cash flow is likely 'success', especially in that low of a purchase price point. As I am looking at more properties lately, I'm having trouble understanding how to purchasing them at a retail price and still cash flow, which it seems you are looking for estimates on what someone would pay. I would assume a buyer would be looking at cap rate for that estimate since appreciation is nil. The numbers you are quoting are basically right in the range I want. Your only issue is that you didn't get all of the repair cost back in the refi - if you had gotten all 90k back, your CoC is infinite.

    As for the properties in Philly, I completely agree.  I have no idea how those make sense unless you are just trying to park a bunch of cash somewhere from a 1031, etc.  Most of what I see advertised all the time is someone offering a turnkey rental - so they bought the property, fixed it, and will do all the property maintenance but want you to essentially cash them out and take on the future risk. 

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Douglas Gratz:

    @Joe Villeneuve I am a little lost on your last comment. I did pay all cash upfront. So I bought them at auction and then rehabbed them. To use the duplex I spent 87k to do all that, after refi, the bank gave me 77k . After paying all expenses each month I can pockets 600/month . So my CoC is 72% . You said above I am analizing this wrong, do you still stand by that or were you confused with my explanation ?

    My comment doesn't change based on the following math: You put up $87k in cash, the bank gave you back $77k, so you have only $10k in the deal.

    What did you mean when you said “When you are looking for cash flow, the total cost of the property (buy, interest, rehab, etc...) isn't equal to the total cost to you.”

     My Let me answer this with a question of my own.  "How much did this property cost you...so far"?

  • Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y
    So the tenants are paying off your property( Mortgage) , all the expenses ,and your getting around 300 bucks *per unit in your back pocket ? dude ..I don’t know what more you could expect ! Your doing fine .just KEEP doing it over and over and you’ll be wealthy in short order . Appreciation is icing on the cake not the goal . Too many people are chasing appreciation and will find themselves in trouble in the next downturn . You just keep on looking at cashflow and repeating the process .
  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y
    Originally posted by @Joe Villeneuve:
    Originally posted by @Douglas Gratz:

    @Joe Villeneuve I am a little lost on your last comment. I did pay all cash upfront. So I bought them at auction and then rehabbed them. To use the duplex I spent 87k to do all that, after refi, the bank gave me 77k . After paying all expenses each month I can pockets 600/month . So my CoC is 72% . You said above I am analizing this wrong, do you still stand by that or were you confused with my explanation ?

    My comment doesn't change based on the following math: You put up $87k in cash, the bank gave you back $77k, so you have only $10k in the deal.

    What did you mean when you said “When you are looking for cash flow, the total cost of the property (buy, interest, rehab, etc...) isn't equal to the total cost to you.”

     My Let me answer this with a question of my own.  "How much did this property cost you...so far"?

    To use the duplex for this, I spent 87k and it’s all done and is rented out , we aren’t including my monthly expenses when you asked me I’m assuming.

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Douglas Gratz:
    Originally posted by @Joe Villeneuve:
    Originally posted by @Douglas Gratz:

    @Joe Villeneuve I am a little lost on your last comment. I did pay all cash upfront. So I bought them at auction and then rehabbed them. To use the duplex I spent 87k to do all that, after refi, the bank gave me 77k . After paying all expenses each month I can pockets 600/month . So my CoC is 72% . You said above I am analizing this wrong, do you still stand by that or were you confused with my explanation ?

    My comment doesn't change based on the following math: You put up $87k in cash, the bank gave you back $77k, so you have only $10k in the deal.

    What did you mean when you said “When you are looking for cash flow, the total cost of the property (buy, interest, rehab, etc...) isn't equal to the total cost to you.”

     My Let me answer this with a question of my own.  "How much did this property cost you...so far"?

    To use the duplex for this, I spent 87k and it’s all done and is rented out , we aren’t including my monthly expenses when you asked me I’m assuming.

     By my calculations, you've only spent $10k...since you got $77k back from the bank.

  • Rental Property Investor · Philadelphia, PA · Member since 2016 · 82 posts · 22 votes
    7y

    @Douglas Gratz Are you setting aside future capex costs and maintenance reserves in your expenses or just:

    gross rent - (mortgage + insurance + taxes) ?

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y

    @Andrew K. yeah I set aside 10% a month from rent for maintenance , I do not have capex in my sheet because s it’s all brand new inside so I don’t plant on having to dish out money until warranties expire.

    But yeah I put all my expenses in , from the guy who leases my places , gets 1 month, I make that a monthly expense , I set a side 10% for maintenance , I set $25 a month for extermination and so on....I list it all expenses and I reinvest a portion of my cash flow for vacancy reserves

  • Member since 2018 · 3 posts · 0 votes
    7y

    @Douglas Gratz i m just thinking that if gross rent is under mortgage then insurance and taxes charges will be a port of full cost.

    Also i m searching a good investment in India and somebody told me that there are good opportunities in Chennai. is anyone here who can help me further to take a final decision to share thoughts about this and "Is it right that “DLF Chennai” also offering new schemes on “Cybercity Chennai - Phase 3.0” for commercial offices?"

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    7y

    @Palal Mishra I’m not sure I understood what you just said. Butcny mortgage payment is 922 and includes taxes and insurance

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