All Forum Posts by: Allan C.

@Joe Villeneuve why would you sell instead of cash out refi when you reach your disposition hurdle - you create transaction inefficiencies that erode your profit for no substantive benefit.

@Ryan Thomson Every single business opportunity eventually reaches market efficiency where returns are eroded by competition and regulation. The name of the game is to be first in the game or to establish a competitive advantage.

You are asking the right questions.

@Malikah Planas one additional consideration to add - you pursue partnerships a LLC may enable easier accounting.

@Brian Brown I believe markets are efficient, which means investors are only willing to pay what the property is worth. Cap rates only tell the story for an instantaneous moment in time, and investments are measured over multiples years (and with multiple metrics)

If you factored in all the costs, including opportunity costs, the Internal Rate of Return (IRR) for many rental properties will be relatively similar. Low cap properties indicate higher likelihood of appreciation and lower effort to manage, and vice versa for higher cap….but when all is said and done over the years after discounting future cash flows - the IRRs will be a lot closer than the cap rates indicate.

It just depends on your effort/pain tolerance. You’ll always have the two opposing crowds on BP who argue which is better between high vs low cap.

@Andy Verge build a cost recovery clause into your future lease agreements if you’re on the hook for utilities.

@Joe T. There are commercial lenders that have 15 yr and 30 yr fixed rate loans that are competitive with agency or other commercial loan products. There are many threads on this forum that provide lists of these lenders.

while cap rates do not traditionally apply to 4 or less units, people purchasing multifamilies are looking for a return on investment, thus a cap rate is pragmatically applicable. Whether you benchmark the property to sale value, rental yield, NOI or some other economic factor, other investors are doing the same thing.

CA income properties are often priced on reliable performance and expectation of future appreciation, thus NOI vs purchase price is expected to be <4%. The more desirable the area the lower the ratio.

@Erin Estes you have good ideals but if you applied your logic to other commodities then the residents of AZ will not be getting too far without the transportation fuels shipped from other states.

@Jack Jiang I'll provide the contrarian views based on my experience. First, don't get out of CA as others suggest. If you have good W2 income you'll see your wealth accelerate faster in CA once you get into REI. Second, I would ditch the TH. As you noted the appreciation is worse than for SFH or MF, and you'll get stuck with increasing HOAs that don't add value.

Third, I would not pursue the ADU route if you have a high income and demanding W2. You are in a good financial position because of your primary job, so it's likely better you keep your bed focused on doing that well and passively investing in RE. Doing large value-add plays are good when you have experience or more time to give. Doesn't seem to be the right fit for your situation.

House hacking a 4-plex is an option if you don’t mind more shared walls and mixed income neighbors. Otherwise, get into syndications as a LP to build up your equity position to buy nicer assets down the line.

The key to winning in CA is time and patience. Early years of owning a property are ugly from a cash flow perspective.

@Jason Kleve add her but don’t make her pay if you plan to gift the money back. Incremental income increases your tax obligation.