All Forum Posts by: Will Barnard

Getting back to the original question, cap rate has nothing to do with single family homes as Mike mentioned. Cap rates are one calculation for valuating commercial properties, not sfr's or even duplex units. It does not matter if it is your own home or a rental. SFR's, regardless of owner occupied or not, are valued based on comps.

A far as a National average of cap rates (even if sfr's were measured that way), would do you absolutely no good. It is the same as NARS (National Assoc. of Realtors) exclaiming the national appreciation average of homes. Who cares! The only thing that matters is what the appreciation rate is for your sfr, in your subdivision, in your town, in your city, etc. There is no need to calcualte national averages even if you were to own 100 homes in each of the 50 states.

As far as creditors coming after retirement accounts, 401k's & defined benefit plans are almost untouchable since 1974 when ERISA (Employee Retirement Income Savings Act) created standards for protecting emplyees retirement savings. I say almost, because there can be circumstances where if you were negligable or voilated a law, the account may be fair game.

Other accounts which are non-ERISA plans such as traditional IRA's, SEP IRA's, Simple IRA's, & KEOGH's are going to vary depending on which state you reside in. A few states have 0 protection while others have full protection. Check with a CPA/tax attorney for your individual location.

As always, and as flipper suggested, consult with a cpa/attorney in regards to these matters as they can get very complicated and trying to go at it by yourself could be a financial and legal disaster.

Thank you Josh!

I have been away for a while and wnated to respond to a few of the past posts.

To be clear Mike, I never said I had only two rentals, I said I only had two of my rentals that are lower income and valued below $100k.
Also, I live in CA but am not and have not been investing here. The duplex of mine you insist on bashing is in Texas, not CA and I do not choose to ignore expenses, I choose to avoid them via the new investments I do and having an exit strategy to move on before the big ones can hit. either way, any misc. expenses that may or may not occur will be minimal and more than covered by the cash flow, tax deductions, and principle reductions. The potential water bill utility expense would be only upon a vacancy in the hot summer months to water the lawns, not always, so this too would be very minimal and probably non-existant. This is my position on the subject, we all have heard yours. It may be valid with your investments and it may be valid with other's investments.

As for the others giving there positive input, like kygregor and grandwally (sorry if I missed anyone else), thank you. It is very true that there is not just ONE style of investing nor is there one formula for identifing a good deal from a bad one. Mike and Tim invest in low end properties, that works for them and their risk/tolerance/headaches/cash flow/etc. - That's great.
I and many others look at investments with much lower expense ratios (within the first 5 years or so) and look to move out and on to other investments. This strategy mixes a cash flow landlord business, with equity building and appreciation/speculation. It is simply another way to go.

My mistake Tim. Your post did not specify you were an insurance adjuster who did the claims of a multitude of clients which averaged the 450k. Either way, that still has nothing to do with my properties. Mike asked for the numbers on my property and I gave them to him. End of story.

I do not have any doubt that your insurance clients had losses, but their specific properties in their specific situations do not affect my property.

As far as your decades of family calcualtions, more power to you. everyone should have some type of calcualtions to consider an investment. I use different calcs. for differnt types of properties, not just a standard 50% rule. This is my choice and I do not push it on you, Mike, or anyone else for that matter.

Hope that makes it more clear. Good luck with your business.

WOW.... This explains a lot right here. I only adjusted on average $450,000 a year in claims resulting from tenant damage that they were contractually obligated not to do....

I see you are also on the MikeOh bandwagon.

I am very sorry to hear that you had to fork out $450k in one year in excessive tenant damages. Perhaps it is time to find better tenants, better management, better areas, or better due diligence. Either way, that figure has nothing to do with my properties or the conversation I was having.

First off, 1st month, 1st year, & even 2nd year will have the same expenses. We are not renting in trashy communities where tenants are prone to demolish the interior. We have yet to encounter a tenant who casued more damage in excess of the security deposit, which by the way, is an amount that meets and often exceeds the monthly rent rate just for that purpose. In addition, it is true that over a ten year period, an eviction may occur, however, that is an expense that can not possibly be determined let alone predicted. The years of positive cash flow will more than compensate any eviction costs. There are no landscaping costs, utility costs (excluding a very small water bill), or maintenance costs associated with this property if a vacancy did occur. There are no office supplies, advertising costs, entity costs (an entity is not necesary for a newbie investing in one or two properties with small amounts of equity, and a seasone dinvestor with many properties, the entity costs of usually $1000 a year is divided between the 8 or so properties they have, the math would be $10 a month, hardly a large figure), no rental registartion fees (potential tenants also pay an application fee to cover the credit check, etc.), and capital expenses are just that - capital expenses, not operating expenses.

This is our world with these particular investments. So I stand by my assessment of the cash flow as I own some myself and consistantly get these figures. Now you mentioned the long term in 7 years or so when the building may not be as new. Point taken. I myself, as well as my advise to clients, is to be on to bigger and better things long before this occurance. The duplex is a stepping stone for a newbie into the market and to build confidence, cash flow, equity, and experience prior to moving up to say an apartment complex. It is also an advantageous way to enter the RE investment world part time, while keeping the W-2 day job, and have the depreciation tax deduction which adds to their cash flow in the form of a lump some at filing time. For you and me as full-time investors, we obviously utilize different (and in my case) more advanced strategies as we gain more experience and knowledge

I am sure you will counter with more points as to how I am miscalculating, however, I gave you my figures and explanations as requested and again, stand by them.

Just to be clear, I am not here to sell this to "newbie investors" In fact, I have had all kinds of investors, both new and seasoned who have purchased this and other investments from my co.

Here it is anyways as posted on my website:

$155,000 Duplex - Currently appraised for $165,000.
Includes builder warranty and is guaranteed to have a minimum of one year lease contracts in each unit prior to investor's 1st months expenses.

Rental Income is $875-$925 per side/per month (we listed the low end)

Gross rents $1750
Taxes $222
Insurance $82
Management $140 (Original placement fees paid for, no other charges)
Repairs $0 (It is new with builder warranty)
Utilities $0 (Tenants pay all as wriiten in contract)
Maintenance $0 (Tenants pay all as written in contract)
Vacancy $0 (we have a variety of new tenants to choose from)
Vacancy $105 (Lets put 6% in there anyways to satisfy you)
Administration Costs $0 (Management handles everything for their 8% monthly fee)
Total Expenses $549 (should be $540 assuming the 6% vacancy reduce management fees, which is why I take vacancy out first as it Does affect the OE)
NOI = $1210
Debt Service = $906
Cash Flow with vacancy assumption = $304 ($152 per door)

You are not trying to give me a hard time, just trying to have me disclose what it is I do? All you do is give people, recently me, a hard time and I do not owe you anything nor do I feel the need to disclose to you what I do. If you want to brag about your few dozen low income rentals, that is your choice. It is not all that important to me tell you how successful I have been. It is fine for you to think I lack experience or knowledge, that is your poor assessment. It reflects more negatively on you than me.

You and I use different strategies. I have no desire to debate with you about who's investing is more profitable, more correct or more successful or who will have more investments or more cash flow some time in the future, as I am not in competion with you. All you speak about are generalities, never once giving precise examples of deals you have done either. I have some properties on my site, if you don't like them, no one is pointing a gun to your head to buy them. If you don't like them, keep quiet.

Your investment business is not the only one in town so stop trying to act like running poor rental units is the only definition of the landlording business, IT IS NOT. Not every one wants to spend their days painting houses, carrying firarms for protection, and dealing with drug dealers and the rest of the scum. Not everyone lives in close proximity to crappy neighborhoods where you CAN buy for 50% of value. Not everyone will "pay dearly" for hiring professionals to manage their properties.

You still have not shown anyone here one pre-construction property over $150k in which they can buy at 50 cents on the dollar. Obvioulsy your Mother never taught you to remain quiet if you have nothing good to say. I grow tired of hearing your negativity.

I have a very professioanl website in which I provide a number of services and information. Your website is an ad to sell your little program which there is no doubt consists of your 50% rule, your 2% rule, how to paint houses yourself, what to expect from the drug dealers living in your rentals, and any other usless generic information.

Everyone in this forum is not required to tell Mr Ohio what type of business they are in and how they operate it. People ask questions, others give answers. You act as the all knowing (which you are not), and consistantly trash other members who answer questions which are not to your opinions. Shame on you. Leave us all alone and keep your negative unprofessional opinions to yourself.

This will be my last response to anything you have to say as I do not intend on wasting any more of my time defending myself from your negative shots.

Josh, I request you jump in here and put a stop to MikeOh's negative comments. All he is concerned about is bashing my business and my opinions. I started off voicing my opinion to answer a question from another member as well as weigh in on some alternative methods to evaluate investments. He continues to attck me, and others personally, which is very unprofessional and not called for. I did not become a member here to be subject to his ridicule and I am sure the other members do not appreciate it either.

Trying to cut corners and skimp on not hiring a good CPA may cost you more than it saves you. Particularly if you plan on having multiple properties, I highly recommend a competant and experienced RE CPA. They may actually increase your bottom line rather than reduce it as Jon said.

I choose a location based on several factors. It must be an area I expect to appreciate (time or forced) and must be in an area that is showing growth in both population, jobs, & economy.

The actual numbers are most important in that it must show the cash flow I am looking for, it must have at least one large upside potential (rent increases, vacancy reduction, add income sources, divide & conquer, etc), and it must be good enough to pass the lender's criteria (dscr, cash flow, etc.)

ROI is important and I look for at least 25% or more. Cash flow depends on the type of commercial unit, some the minimum is greater than on others (my opinion). Banks generally look for a DSCR of 1.25-1.3 these days, however, I lpersonally ook for a minimum of 1.75. Cap rate is also a determining factor as I want a good return on my money. This rate can vary by city, state, property size, and investment type so it will be necessary for you to do your due diligence and determine what rate you persoanlly want in an investment.

Finally, the exit strategy (or multiple exits as it may be) must be considered and evaluated before deciding to buy the investment.