All Forum Posts by: Lee G.

Are taxes implications, because they are so specific to the investor, generally excluded in IRR calculations? It would appear to me that this would a fatale variable that would reduce the value of IRR. I realize there is something to be said for consistency in the calculation as you apply to different investment.

@Joseph High. Can you clarify the term "core assets". Would this mean if you had a portfolio, 8-12% would be solid IRR range for most of your portfolio and then maybe add 1-2 high risk/reward investments?

Is there an industry standard on the final cash outflow as far as tax considerations?  Do you assume a 1031 or some alternative calculation?

Ben, I think it speaks to the amaxong power of using leverage. The equity buildup as a result of payoffing off the loan is the main factor increasing Total ROI each year. I have used spreadsheets in the past but to see the increase in ROI of even an average investment is eye opening.

I recently downloaded rental analysis spreadsheet which does a good job of mapping out a year-by-year ROI based on several assumptions. that you must enter. I inserted real-life investment I purchased and currently own, which in hindsight, I probably wouldn't make again, but the learning along the way would justify the purchase in my mind.

On that investment purchase, my ROI in year 1 was calculated at 6.12% per J Scott's spreadsheet (not great!). However by the 5th year, the spreadsheet is showing a 7.5% ROI and by the 10th year, a 10.19% ROI.

How would you grade this investment? 7.5-10% ROI in my book isn't bad (and this is factoring in PM which I also currently handle myself). How would you evaluate or grade an investment that takes several years for the investment to really get going from an ROI standpoint? Is it simply, you would prefer to buy better, but now that you own it and it will return 7.5-10%, it's more of a keeper?

 Great point.  I buy B properties and look for A tenants which reduces the headaches of property management.  With 2017 technologies , I agree that 10% is outdated, especially for the properties I am targeting. 

To clarify, I'm investing in SFRs and only have 3 units (1 under contract which would give me 4).  I should have been clear about that upfront.   When I said "overrated", that doesn't mean I think there is no merit to having it in your calculation. 

I have been looking at it from a cost/benefit standpoint.   With a background as a CPA, being organized is second nature to me as well as dealing with clients and challenging/stressful situations.   Plus, just like being an accountant, the use of technology in managing tenants in 2017 cannot be understated.   I can do the work of 4 accountants who are not organized and who do not have applicable computer skills in my field.    It takes very little effort for me to manage units for the benefit of saving 10% of rents and the uncertainty of the performance of the PM.   That is where I'm coming from.  

That being said, this thread has changed my approach. Last night, I updated my spreadsheet so that both a ROI with and without PM is displayed. Already, there is a piece of mind knowing that I have the option for either way.

 Exactly my original point.  I never said, in all cases, you should manage yourself.  I was making the argument that for the vast majority, PM factoring is overrated.  I'll stand by that.

One side of this argument that has not been mentioned is positive return on investment of meeting the tenants yourself.  I can tell that you appreciate the numbers side of an argument.  I think a number of people in my camp who are good at managing tenants, feel that by them being involved with tenants, it reduces turnover in the properties.   So not only are you saving 10% on rents, but you also save 4-5% on vacancy per year.  I have seen this play out with the same tenant in my property for over 6 years.  I am a disciple of the book "Landlording for Autopilot", which that is the authors goal, to have tenants stay forever thru various strategies.   Do you believe PM are putting this level of care into the average investor's properties?  I would bet no.

Further, you could argue that other money saving solutions could be discovered and implemented if you were involved versus PM.   Such as having the tenant fix something and paying them the difference between what you would be screwed on someone being hired from the outside.  I have implemented these techniques and the tenant becomes more engaged in the property and builds a relationship with me during the process.  Plus, it keeps me in the know and on the ground level which may have positives as well. 

Lastly, the reason I started this thread is that I didn't agree with a host on a recent BP podcast regarding a general statement about PM.   This is not black and white, and worse, I don't think it applies to most of the members and where they will be in their RE investment careers. 

I like your point and mostly agree, except I think where others who are on the same page as me believe the value of property management should to be closer to 5%.  In other words, managing tenants (especially in cases of low turnover) is not as time consuming for us for various reasons.  One guy was managing 40 properties and said it was manageable.  I think I'm in that camp. 

I didn't state this earlier, but one of my favorite real estate books is "Landlording on Autopilot".