All Forum Posts by: Amaan Davis

I've arranged a meeting with a Real Estate lawyer, Dana Kyle to discuss the local and state laws of wholesaling in New Mexico (currently stationed here) which is how I plan to get my foot in the door due to lack of funds. I've deduced that wholesalers generally have a bad name as far as providing actual "deals" due to not knowing their market and underestimating rehab costs which I'm going to work hard and make my strongpoint by studying J Scott's book and learning as I go.

What are some of the questions you guys as experienced investors believe I should add to my list of "must asks". She charges about $280 an hour and I'm definitely planning on using one single hour very wisely so I'd definitely like to get the most bang for my buck. Yes I know, invest in yourself, but keep in mind this is the only lawyer I have contacted and I don't have too much extra cash laying around to "shop around" for hours on end nor to sit and have pointless conversation trying to come up with questions. Any help building a list of questions and I am forever grateful. Looking to add to whatever I come up with as well as any experienced input from here. Thanks ahead of time!

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Originally posted by @Frank Jiang:

NPV, DCF, and IRR all tell you the same thing in whether or not a potential investment is a good one compared to either another opportunity or against the cost of borrowing. The difference between them is which metric they compare at the end. IRR compares the rates of return, NPV and DCF compare the final dollar amount. So doing the IRR as I mentioned above would be your first step. It would tell you whether this project can beat a loan if you need to take one out and it tells you if it can beat your current potential investments. NPV answers "exactly how much in dollars does it beat those other projects by?"

Very helpful! I'll start looking into IRR harder. Thank you for taking the time out of your day to explain it a little more in depth

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Originally posted by @Frank Jiang:

Originally posted by @Amaan Davis:

Don't be frustrated, it's very confusing. NPV and IRR are two sides of the same coin. You need to kind of simultaneously one in order to understand the other. I think if you spend some time reading up on IRR, the DCF questions will clarify themselves to you a bit.

The question you described, you'd be:

- Finding what you called growth rate (in reality the IRR of a potential investment). Applying this growth rate against the dollar amount that would need to be invested.

- Finding the discount rate of your portfolio (another way to say IRR of your current investments). Applying that rate against the same dollar amount.

Because you're doing the same second step, you can actually skip doing the DCF analysis and just compare the rates directly.

So what is the difference in NPV and IRR? Sorry for all the questions I just want a good hold on it. It seems to be that DFC is basically a comparison of one investment compared to your current portfolio back tracked from future value to determine if the present value of the potential investment provides good match to your current portfolio based on your requirement as an investor?

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Originally posted by @Frank Jiang:

Kudos for studying the Finance side!

Discounted Cash Flow is actually a very confusing subject if you only consider it in isolation. It's confusing because of exactly the questions you asked. What do these rates mean and where do they come from? I would recommend taking a short break from DCF and first familiarizing yourself with the concept of IRR (Internal Rate of Return). The IRR of a cash flow stream is the rate of return necessary to obtain a 0 Net Present Value of Cashflow (0 DCF) and is a much simpler comparison to make between investments.

Let's say you have a very simple cash flow stream, you pay $100 in year 0 and get $110 back in year 1. The IRR of this cash flow stream 10%. This is a much easier way to compare investments because now the only thing you have to consider is: if your other investments make more than 10%, don't invest! Reinvest in those instead. If your other investments make less than 10%, consider investing!

Inflation is also now included on both sides of the comparison. You also look at each comparison in isolation. Deciding whether or not to invest your cashflow from gains into another property would be its own IRR comparison of the return on that property against the rest of your portfolio.

PM me if you have questions!

Thank you for the quick reply! This does seem more simplified which I've also read on but I'm a bit anxious and I tend to want to learn it all and get frustrated about what I don't know.

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Hello BPers. I'm a young investor trying to understand the education side better before going after my first deal.

I've been reading Frank Gallinelli's book about the key things everything investor needs to understand about cash flow and ice reached the DCF portion. I've been reading as much as I can to try to understand the math behind it and how it can actually help me determine if a deal is a good investment and I'm a little confused.

So growth rate is the number you utilize after looking at different numbers of other real estate that has been sold in the past to determine the rate that the market can potentially grow assuming the growth is still an upwards growth pattern?

And discount rate is the added percentile of other types of investments if your money were to be there instead?

And to better understand the comparison between the two, when you do the math if the discounted rate still allows a positive difference based on the determine growth rate then the investment should be considered?

How does this work with inflation? And this doesn't seem to account for the fact that this is assuming your money stays in that investment ONLY. What if my cash flow is invested into another property for greater returns?

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very inspiring

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Very inspirational. I can't wait to make this post. I'll try to learn from your mistakes. Which part of Georgia are you investing in? I'm in the military and I'm learning for when I get out and I plan to invest in the Douglas and Lithia Springs area in 2016 once I've hopefully gotten out early.

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Originally posted by @Tim W.:

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$100/door would put me at 30 units a month just to cover my bills. Im assuming appreciation and cashout can help with some but then you just owe more money and have higher NOI on that property. You can offset that with more properties generating $100-200 cashflow but it seems cyclical.

Hi, I'm a new investor so don't quote me, but from what I'm understanding here is that your suggesting appreciation means you owe more on the property?

If your property appreciates because you did repairs to increase quality of living you can (and should anyways) raise rents every year at a small amount at a time.

If your investment strategy is to settle for $100 a door and it takes 30 doors to replace your income you might want to run some different numbers depending on what type of property your looking at.

With a single family home depending on your area you can do the math to see how you can get more than $100. But even $100 after ALL expenses and taxes etc is still positive cash flow into your pocket. Maybe only $100 but this is only one unit.

If you have a four plex you should definitely pull in more than that a door or I wouldn't even take the deal if your looking for a buy and hold strategy.

Forgive me if I'm wrong but I'm a little confused.

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Originally posted by @Matthew A Rodriguez:

Then you would have 2k in credit card debt. A lot of people get no deals on their first campaign and a lot of people get discouraged when they get no deals. They then quit almost before they get started. $2,000 at an average 18% making minimum payments will cost you $1,116.00 in interest. Nice CoC for your credit card company.

I can agree with that. I personally would just save the money up than attach too many things to my credit. When I start investing I personally am going to take a different approach.

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All Forum Posts by: Amaan Davis

Amaan Davis has started 3 posts and replied 14 times.

Post: New to BP from Las Cruces, NM

Post: First Sit-Down w/ Real Estate Lawyer

Post: Questions about DCF

Post: Questions about DCF

Post: Questions about DCF

Post: Questions about DCF

Post: Sold! House flip $83,000 in Profit

Post: My first rent check!

Post: How does small positive cashflow turn into real money?

Post: if i spent 2grand on my credit card to market