All Forum Posts by: Allan C.

@Brock Mogensen while capex items are one off, you should include amortized capex in your return estimates so that you have a better portrayal of Long term returns. Simply divide the capital expenditure by service life.

@Kenny Kim what was original term of your loan and how many years do you have remaining? You shouldn’t make a decision until you factor all the variables, including refi costs and loan size.

I think it’s less likely to make sense if you are only 5 years into a 30 yr term, but you’ll need to run the numbers and have good use for incremental CF generation. I personally wouldn’t give up 3% interest unless I’m half way though the loan term.

@Mark H. Porter I agree that Capex is not the same as Expense, but why do you suggest that Capex is not a factor for calculating returns?

Capex certainly affects cash flow, and it will ultimately be accounted for in depreciation. If you are calculating your return correctly (ie. IRR), then Capex accounting will be important.

@Luke Davis Google Voice.

Not sure if others above are using the GV app, but you can have multiple phone lines run through the app, thus no need for more than one cell phone. The app also has text and voicemail features, so should cover everything you need.

Let's put aside covid implications for a moment. Most who advise to not buy in a high cost location and only buy CF properties likely do not have deep experience in high cost locations. As others noted, if you have the liquidity to manage a few years of negative CF while maintaining adequate reserves, then buying in the bay can be a significant wealth generator. There is a separate thread at the moment with proponents of high appreciation markets.

I disagree with the notion that you cannot monetize appreciation until you dispose an asset. When rental demand exceeds supply, the marginal investor is buying property at current market rates, thus will be the future market maker for rent. Therefore if you purchased at any lower price than the marginal investor, you'll capture rental income growth with appreciation. 

In high cost markets, you have to analyze your investment on an IRR basis, not simple CoC. Your cash flow realization will be uneven, so you'll need to account for time value of money.

You'll also want to diversify your investments, so having a mix of appreciation plays with cash-flow assets will be ideal. 

Covid implications in mind, buying in the bay is a different issue, but there's no need to rehash all those view points again on this thread.

@Ashley Garner returns are proportional to risk and effort. 14% is great if low risk and low risk and low effort.

You haven’t provided enough information (ie. your underwriting assumptions) for anyone to provide meaningful feedback.

@Jimmy Lieu if you know what you’re doing then you’ll save some overhead cost, but if you’re asking the question then by definition you don’t have enough experience to cut out the GC. If your scope of work only involves two trades or less you can try to act as GC to learn the ropes for future benefit.

Don’t forget that if you have to pull permits, that takes time and other know-how to draft proper plans. Time = money, so think about where your time is best spent.

@Erin O'Connor Smith I don't think there is much value gained for the cost on an apt building. If this were a SFH it's also debatable whether it adds much value unless you have a modern floor plan and floor to ceiling windows.

Just look at recent sales on zillow in west LA and you can verify comps for yourself.

@Andrey Y. The confusion arises because people mean different things when they say "return". Most folks on BP only calculate CoC and not IRR, hence cannot differentiate why cap rate and returns mean different things. While not common practice, you can calculate a cap rate on anything - whether it's a SFH, tri, 100+ or a donut shop - it's just a different terminology depending on business. Don't be a semantics bully.

A 4 cap property will return you 4% on a full cash purchase, but that is TODAY’s cash flow. Often reasons why properties sell for low caps is an investor’s valuation of FUTURE cash flow (including appreciation).

If an investor is properly discounting future cash flows, the IRR on a Low cap property may be similar to the IRR on a high cap property (after adjusting for risk and effort). So I agree with you that buying low cap is a great strategy if you have liquidity and want to reduce risk.

But you aren’t helping to educate folks when you don’t make your thinking fully visible and communicate in non-constructive manners.

@Mike L. You can secure agency debt under LLC but I will require a $1M loan