All Forum Posts by: Allan Smith

You'll need to know how to run comps if you plan on buying properties regularly. That's the process of looking at comparable sales to see what the value is of the house or land.

I'm currently trying to figure out if it's worth selling some rentals, and what should be my target ROI in replacement properties. ROE has been my primary metric. I understand that this is calculated as

profit / (FMV - loan balance)

In other words, how much profit it generates compared to the equity in the property from appreciation. In my mind, ROE can be compared to CoC ROI in a would-be replacement property. if your ROE is 5%, and you can get a 10% COC return with a 20% down payment on another property, you've doubled how hard your money/equity is working for you.

All that is simple enough. What I'm trying to decide is if it's worth it to trade up for a 6% CoC. or 7. 10 would be worth it for sure I'd say.
@kim 

@Kim Hopkinsundefined

I think ROE is the best metric for benchmarking a rental you've had a while. I have a rental in Nashville with a 3% ROE because it's tripled in value in 7 years. That seems really low.

So as I look for a replacement property, what metrics should I use? What would be the minimum you'd have to make it worth the effort of trading up? For example, 3.1% CoC return would technically be a better return, but hardly worth all that trouble of finding property, 1031e, and so on.

I should add, the main reason I'm considering selling is to trade up into better assets. It's a C class property and while my small prop mgmt company does it in house, I'd prefer to have fewer tenants, paying more rent each, in fewer more expensive units. 

They might be trying to take care of the first lien, or they might be trying to make sure that you have plenty of cash in the game so that you don't walk away from the loan. It's a sort of security. I see no point in 40% down payments. Leverage is a big part of the power of real estate, so I would just get a bank loan at 20%. Unless the interest rate is that great of a deal then maybe you want to go ahead and do the large down payment. Learning on the Fly is fine to some degree, but the more you know what you're doing the smoother things go. And asking what the seller finance terms are is not learning. That's just starting the negotiations.

Every state has dozens of good cash flow cities. Just research the ones you like. Some of the more important metrics would be population growth and unemployment. 

Talk to the local lenders. Ideally the small banks that have a commercial lending dept.

No the city will not finance the land.

there's usually a long drawn out process buying property from cities and counties.

FHA will not lend to an LLC. If you transfer ownership to an llc, you would be breaking agreement with lender and ethically and legally need to acquire new financing.

Most managers and landlords I know charge both. I charge a refundable deposit, which will help cover me if their pet leaves the house with damages. And then the monthly pet rent is more to cover General wear and tear over the years. It's another occupant in the house and the longer they are there, the more it will show.

The type of loan you get has almost nothing to do with what type of renting in the city or county allows you to do. For example, in my city, we have to get permits for short-term rentals. But again it does not matter what type of loan I have.