All Forum Posts by: Chad Lopes

@Brandon Pearsons 

The math would tell you that as long as you have positive leverage and you can reinvest at the same rate (meaning that your net return is > cost of debt), you should always take the cash flow vs. paying down principal. That being said, I really think you have to balance your desire for the cash flow and to acquire more properties with the benefits of not being over levered. Since I have a day job and am not reliant on real estate to pay bills, I am willing to take more of a risk because if I have a hiccup for a couple of months, I can pay the notes on my properties with income from my job. That being said, I pick cash flow (B/C, not D) all day.

@Mike F. I appreciate your comments, but you can essentially build net worth through cash flow properties as long as you put the cash flow in the right investments. The #1 issue I have with appreciation investors is the fact that a significant component of your model is built on on a forecast (housing price movements) that no one can predict and the average investor is not going to be wise enough to pick the right areas and houses for appreciation (look no further than 2008-2010 period). I am not advocating buying D properties, but the certainty of cash flows that comes with B and C properties (if you have a good game plan) is much higher and more controllable than the certainty of appreciation.

I would also add that equity from rental properties can often be fictitious particularly when you consider the equity build required to pay selling costs. Also selling a rental is not as easy as an owner occupied. Valuations are all over the place. Cash flow is in your pocket today and can be reinvested tomorrow.

A bad commercial deal can bankrupt you, a bad residential deal and you're still on your feet

I was researching how to analyze a sfr deal and came across the 2 percent rule on BP which then led to 50 percent rule which then led to a true gold mine of information from people like @Jay Hinrichs and others who post regularly and probably don't realize the following they have. This site is a gold mine and I look forward to contributing as much as I have learned.

1999 Dodge Durango. I read an article once that said the new car high only lasts 9 days. I remind myself of that every time I get the urge for a new one.

All the advice here has been great. One thing I would add and ask myself, can I sell this property if needed for my entry price. If the answer is no (i.e, C-D properties), then I need to be comfortable holding for 10-20 years. If the answer is yes, then you can think shorter term. I am a buy and hold, but always think about "what if I needed to sell?".

Not sure how many properties they allow but I know some investors where they have covered over 50 properties, so my guess is that they have a pretty high threshold.

Foremost is a good company to work with (they are a Farmers sub). As previous people have stated, be very specific around what you are looking for. For example, when I look for insurance, I am looking for bare bones policies which means market value coverage (not replacement cost), high deductible of $5,000, no rent loss coverage. I go with $500K liability. After dropping all the extras I noticed that many of my premiums were cut by a third. It's all about what you are looking for though. Some people want more protection.

you also aren't factoring in the depreciation tax shield during your hold term among other things

Bryan, your analysis is way off. You aren't factoring in debt pay down which often can bring your total return over 20%. No index fund in the world can match that.