All Forum Posts by: Blake C.

@Eleena de Lisser

Thanks Eleena,

I was just using Gross rent as one criteria. There are still many people buying in my market to rent it out. One of my main concerns is trying to figure out how to know a market in other markets. So I guess my two main concerns now would be, am I in the right market to invest, and if not, how do you read and determine whether a market is a good one to get into?

Thanks!

Hi All,

I am a new investor and have a few questions that I would greatly appreciate having answered.

We are in a great market right now. I feel like I'm actually picking a not so opportune time to get into buy/hold investments.

my goals are $100,000 in gross rent per year in 10 years.

I plan on making 10-12 purchases and holding. I will be using much of my income to help pay off the properties as closer to that 10 year mark. I plan on having the money all at once before I pay off an individual property and then sort of snowballing into the next property.

My market is HOT. It's doing great and I get a little nervous about buying and holding.

As for now, I am thinking doing 20% down on a 30yr.

I understand the argument of "who cares if you buy now or in a recession when you are looking at holding for 10 years/15yrs/30 etc.".

What are your thoughts? Would it be better to wait for another correction? Would it be better to hedge and buy a couple per year?

Thanks for any advice!

@Paul Wurster

Great advice! I didn't know you could do that to a loan without refinancing??

@Paul Wurster

True statement Paul! Maybe I should have expressed my goals a little clearer. With 100k in yearly income, I'll need $8,000 per month in cashflow to make that happy. I don't want to own too many places, so if the average rental here is $800-$1,000 I guess I need roughly 8-10 rentals, so If I do a 30year note, it would be 20 years behind. I do plan on putting more of my own money into the properties to pay down the note quicker, for those next 10 years.

@Leon D. and @William Brace

I actually totally agree with you. Leon, where you say Cash flow is the name of the game. Is it? I know that's one aspect. I agree on the 30 year, or even on the 20 year. 15 year simply DOESN'T work where I live with rentals unless you just steal something. I used that as an example to see where one's past experience and logic would come in. So your logic with a 30 year, is simply to increase your COC return? I'm guessing you will also be able to benefit from appreciation as well as slight principal paydown.

My only thought was with the 30yr, you aren't building equity, (I was thinking if you get in a pinch it would be tough to sell BUT you said you put 25% down so that should solve or at least buffer that problem). My other thoughts was, I'd like to just have them all paid off asap, so I guess that's why you bring up the "no prepayment" penalty. Other thoughts are if it sits vacant a while (which I don't see happening here), then you are over leveraged.

Thanks for these answers! I appreciate every perspective. Any other thoughts?

Aaron,

Thanks for the reply.

It's a condo so that's why It may be that COC return is lower due to condo fees etc.

Price: 135,000

Down Pmt: 20% (27k)

15 yr loan @ 5.5%

Monthly Rent $1,300

Condo Fee $255 per month

Yearly Maintenance $750 (exterior is taken care of in condo fee)

Insurance $15 per month (Exterior insurance covered in condo fee)

Taxes (about 1.7% of sales price per year.) so: $2,295 per year.

***I'm here to learn so any explanation or new point of view is greatly appreciated.

When I look at this scenario I get roughly a -6% cash on cash return.

UNLESS I take into consideration a 2% appreciation per year and the first years principal paydown of: $4,768.41. Then I'm looking at the negative cashflow of: -1,594 +paydown of 4,768.41 and appreciation of 2% at $2,700 for a total of: $5,874 and my down payment was $27,000 so would that be an effective return of 5874/27k ? giving me 21.7% return?

Paying cash with the above scenario (obviously taking out the loan) I'm seeing a COC return of: 6.66%

If you take into consideration the 2% appreciation, I guess it's 8.66% effectively.

Please let me know if and where my logic is skewed.

Thanks in advance.

I am sure this question has been asked 1,000 times so if someone wants to direct me in the right place, I would be very appreciative.

In my town, a normal Cash on cash return is around 6-7% if you are paying cash. There is a good bit of appreciation potential. If you were to put 20% on a 15 year note, you could RARELY cash flow it. It's usually slightly negative.

My question:

I am a conservative fella so I like looking at paying cash for a property, which will give me potential appreciation, and i'd have raw cash flow.

What I am starting to take into consideration, is if I were to say put 20% down on a 100k rental, and I earn 1,000 cash flow, that's a 5% annual COC return. But if it appraises by even 1%, that's an extray $1,000 in equity, bringing my effective return to 10% ($1,000 cash flow and $1,000 appreciation), also, if I amortize it over 15years, I could have another $2,000 paid down in principal (just using a round guestimated number) putting me at $4,000 added in wealthy with $20k put down, giving me a 20% return, effectively.

Am I looking at this correctly?

The thing about my town is you can ALWAYS rent out these rentals so not much fear of vacancy.

My goal is to get to $100,000 in passive income in 10 years.

Does anyone have some suggestions to help me understand what I am doing a bit better so that I can make a more informed decision. BTW, I'm a realtor as well so that helps in terms of shaving off 2-3% commission when purchasing.

Thanks in advance.