All Forum Posts by: Account Closed

I feel your pain! But have no help to offer.

Very true. I can accept losing money through market risk but hate to be taken advantage of. In the one case where I lost money and felt ripped off, I sued the partners and ended up recovering principal plus legal fees. I would add though that the other thing investors look for is competence as well. I know a lot of well meaning earnest honest people but unless they have competence in the area I want to invest in, I would not place money with them.

@Jay Lee I don't mean to be mean but you were a financial advisor who earned over $500K/yr but yet lost your house, car, credit etc etc? And you were giving people financial advice? Something doesn't sound right here. Without sound financial judgement you will lose what little you have in the real estate game. So be careful.

First of all, 30 years is too long to hold on to these kinds of properties. If your cash flow cannot pay off the mortgage in 10 years or less, its not a good deal. Secondly, what is low income? Rents under $700 generally attract bad tenants. Above 800 is more decent in my experience. I like what @Ed L. said. The middle class is under a lot of pressure and B properties may turn C in 10 years. The C's will likely remain C's. So why not buy properties that hare already depreciated?

As for out of state, everyone has a strong opinion on that, but I own 8 out of state properties. While they have had their share of issues, overall the portfolio is profitable and will pay off in 10 years or less. But you can get burned. I have a good property manager (he is not cheap but he is good) and thats key to the out of state investments. To know what kind of area it is, ask a few property managers, not the seller of the property. They know the scoop on neighborhoods.

I am not posting anymore for @Account Closedbenefit. You cannot argue with religious fanatics. I have not back tracked in any way. If someone posts a "is this a good deal" thread on BP and I respond with a rough opinion based on 50% expense ratio that does not mean I do that blindly on properties I actually purchase. As @J Scott says the actual data seems to suggest 50% is a good rough estimate and a good screening tool. Okay, thats my final word on this thread. I will also not reply any more baiting from Bob.

You left out the most sinister one:

You are a house flipper selling a home turnkey and ant to have above market renter to raise your selling price.

I just wanted to assert to @J Scott that I am by no means saying the 50% "rule" is generally applicable to calculating NOI. It is a good approximation for a certain class of properties. I have developed very detailed cost models that do take into account vacancy (detailed breakdown of those), long term capital improvements, rent increases, insurance cost increases etc etc and for the 700-900$/month properties in the states where I own, the numbers work out very close to 50%. Thats not to say its good for everyone. And totally irrelevant to the debate on CAP rate.

I also stated that Cap rates are not the whole story. And I understand that SFR's cannot always be priced by Cap rate. And I understand that markets determine cap rates.

I still maintain that Cap rate is a good way to compare assets. In the end you pay some capital for an asset (be it SFR, MFR, Stock, Bond, Gold, Tulips or beanie babies). Then that asset will generate some income (or not) and appreciate in value (or not). The total ROI will be combination of the total cash flow plus appreciation. Each asset will come with associated risks on both cash flow and appreciation. Folks, we are investing here. That means the future is basically unknown. So everything we do to predict future returns is based on some estimate or another. Cap rate comparisons are one way. In the end the only thing that matters is how many dollars you started with and how many you ended up with. I think thats something we can all agree on.

@J Scott Very well put. Thats exactly what I have been trying to say. Cap rate is a formula you can use on different assets. Its simply NOI/Purchase price. Nothing more. How NOI is calculated is up to you. It helps me decide where to allocate my capital. Its not the only metric I use. Risk is the flip side of Cap rates. High cap rates are high for a reason. Banks only pay 1% because there is zero principle or interest risk and full liquidity. A T bill held to maturity pays 2% for 10 years with no risk to P+I but less liquidity. Then there are assets which can appreciate as well like stocks and real estate. You can accept lower Cap rates but higher potential capital gain. Or go for high current income. It all depends on what you want. It doesnt negate the basic math.

Dont bother arguing with @Account Closed . I have explained in great detail in earlier threads how cap rate is a viable means of comparing different investments. For Bob this is bordering on a religious conviction that cap rates should be used only in the way he deems appropriate and us lessor mortals have no right to even spell the words on the forum. He keeps challenging people on how to use Cap rate for SFR. The answer: Same way as you do for commercial. I accept that you cannot value SFRs solely on the basis of cap rates. But given a price of a SFR you can certainly use that to calculate your expected cap rate. And then if you know what cap rate you want, you can search for properties that meet your requirement.

Minh L. Fully agree. The first property return was fantastic. 1998 was the ideal time to buy. 2007 was the peak of the cycle and not the best time to buy. That's the point I was making. Bay Area investments returns depend on timing and there is risk. Of course over a long enough period you can't really lose but my horizon is 10 years. You are right that I am in the Midwest properties for less than 3 years. But my financial models are conservative and account for capital reserves so hopefully I will be close to predicted returns. I am also building a portfolio so averages should apply better thank single home. I figure I am already exposed to Bay Area Re with two homes. So l am trying another approach as well. I am all about diversification so even in Re I am trying different things like out of state rentals, private lending, tax liens etc.