All Forum Posts by: Brian Kloft

Quote from @Lucia Rushton:

Quote from @Brian Kloft:

Quote from @Lucia Rushton:

@Brian Kloft to piggy back on your post. Also in todays market why would one buy a 5% CAP when their interest rate is 7.5% for example. They are negatively geared from day one.

As always just my opinion and not written by Ai

 That is the beauty of real estate. Every person and situation can be unique. I would consider paying a 5 cap for a property with lots of upside and value add. Example I am looking at a triplex at $300k but it only had rents of about $1850. It ends up being a 5 cap.  However I know what I can renovate each of the units for and all three units are paying approx half of market after being fixed up. After fixing them up I can get about $1200-1,300/month each thus a new gross rent amount of around $3,750. After adding in renovation costs I get around a 10 cap. Also if you are unlike most on here and can pay cash it can still look like a great opportunity. 

Historically we don't apply Cap rates to under 5 units as the landlord traditionally does not have operating expenses except perhaps PM, once all units are filled, hence CAP rate doesn't apply. The calculation is strictly Gross Rent collection minus PITI if applicable.

As always just my opinion and not written by Ai.

I agree that most people buying and selling under 5 units don't do cap rates but I would not say it is because they don't have operating expenses. They still have the same expenses. Rather most sellers don't keep good or any books so they don't know what their expenses are and most buyers of these units don't understand or know how to evaluate based on cap rates. My background is in commercial (retail and office) multi tenant real estate. When I started my PM company many years ago we quickly expanded from commercial to SFR as an explosive opportunity was available to me. Fast forward to a few years ago and we saw an opportunity to buy some 2-5 unit properties on the Oregon Coast. I use a cap rate to evaluate them as well. I just have to use my judgement and experience to determine what the expenses are going to be with whatever I can get from the seller, which is usually just whatever utility bills the property pays for. However some properties have landscaping and trash.

From my experience a cap rate being used or not more comes down to the sophistication of the investor (seller and buyer). I have seen 2-5 units having cap rates listed and I have seen 8 plex properties where the seller didn't have good books and there was no mention or even knowledge of a cap rate. But you are correct in that the majority of the buyers and sellers in I would say anything under 10 units don't use cap rates. 

Quote from @Sarah Ali:

Quote from @Bruce Woodruff:

Quote from @Sarah Ali:

I'm one by one tackling my fears by reaching out to BP community!

Next fear: I'm late 40s and have no RE. Am I too old to get started? in 30 years when my mortgages will finally be paid off, I might be dead.  

You're still young, just do it! You don't just make money when your mortgage is paid off....a lot of people never pay off a mortgage....just keep buying, selling, refi'ing.

Your goal is NOT to just pay off your mortgage.....

This is a new perspective for me. If not to pay off mtg, what is the goal? Yes I understand it's to make money, but could you elaborate more please? Do you just keep shuffling mortgages? It just feels like there'll always be something hanging on my neck. Help me understand this process better so I don't feel this way. THank you.

 Other people's goals may not be your goals. You need to decide what you ultimately are trying to achieve. If your goal is to generate $10k/mth in net income so that you can live off of that and to not have that stress of a mortgage "hanging on my neck" then that can be your goal. Just because most people on here like to refi till they die, and keep buying more and more does not mean that it is what everyone or you should do. There are plenty of people that buy enough houses to meet their goals and then pay them off. Or they might buy a few extra properties and then after equity builds up they sell those extra ones to accelerate paying those others off. Not everyone wants to have 100 doors to have to work. Also while the idea that you don't have any equity in a house because you keep refi'ing it and that keeps the lawyers away is foolish thinking. I have heard this before and while yes if a person has no money then they are less likely to be sued. However if you have multiple houses most people don't have them all in different LLCs and if you have $50k in equity built up in each of them they are still going to go after your insurance money and whatever equity they can get. They may also be content to throw a lien on them all so that as equity builds up you will not be able to refi without paying them nor sell without paying them. You are better to pay for a better insurance policy, do things right to limit your risk, (LLCs, fix things that are broken or hazards) and to treat your tenants right so that they don't want to sue you. To me the bigger risk, and more highly likely to happen, is to be heavily leveraged and then something happens such as a big downturn or covid and you don't get rent for 6 months or more and you can't pay your mortgages and you then lose the property to the bank. Again there is more than one way to play the RE game and win. 

Quote from @Troy Hanson:

Hi, I'm looking for advice on purchasing a long term rental.  Real estate continues to be high where I am located and when I calculate the mortgage payment with 20% - 25% down, it only breaks even with the rent I could collect.  My question is, would a down payment at 40% or more be realistic for this type of acquisition?  I assumed I could cashflow for 20% or more, so I want to see if I need to adjust my expectations based on the experience of others.  Thanks.  

I could not find this specific question looking through the first half dozen pages of results when I searched in this forum for this question. 

Keep in mind that just because 90% of the people on here use heavy debt, it does not mean you have to. There are investors out there that put large amounts down, such as 50% or more and those that pay cash. Obviously the more cash down the higher the cash flow. The up side of low down is that you can buy more properties and get appreciation on more properties. The up side on large down or all cash is you minimize your risk plus fewer properties means less work and less headaches. 3 properties with large debt or 1 property low debt or paid off generating the same or more income as the other 3. Take it another step and you have 9 properties to deal with vs 3. Most people on here think the 3 properties is a horrible way to go but there is a group that goes this way and there is the group that starts off the 9 property way but then stops and focuses on paying them off to be in the little to no debt group and enjoy huge cash flow without as much work and never worry about making a mortgage payment or worrying about having the cash to buy a new roof.

Quote from @Bradley Buxton:

@Sarah Ali

You're never too old to get started, that is someone projecting their own fears on you. Ignore them. If you can house hack and buy a property every year for the next 5 years in areas with strong appreciation you'll be well on your way to building equity. You don't need to pay off the properties to cash in the from equity.  One option is sell 2 of the properties pay off the other 3 and now you have 3 cash flowing properties that will still continue to gain equity. Then keep buying a property until your in your late 50s and repeat.  I was living in SLO, CA and moved to the Reno Tahoe area because it was more affordable and still had the CA outdoor lifestyle. There is strong appreciation in this market with tech and manufacturing jobs. Late 40s is the new 30s and you can still build wealth with real estate.

 The sarcastic side of me just wants to reply and say that someone in their 90s is probably too old to get started. 😂

Quote from @Sarah Ali:

I'm one by one tackling my fears by reaching out to BP community!

Next fear: I'm late 40s and have no RE. Am I too old to get started? in 30 years when my mortgages will finally be paid off, I might be dead.  What would a realistic plan for someone my age be? Ideally I would like to live off income from REI, as I cannot currently work in a traditional sense (ie, desk job).  How can I get there and how long would it take?

I'm thinking to house hack or do a 2, 3 or 4 plex where I live in one of the units.  But where I currently live (SF Bay Area) is so expensive. Could I find a place here? Should I look in other, cheaper parts of CA? Or OOS?

 @Bradley Buxton is correct. Another option is to pay the loan on a 15 year term. That way in 15 years they will be paid off, so early to mid 60s for you. Also as Bradley said, assuming appreciation and debt pay down you can either sell one and just cash out the equity or use it to pay another off.  One big benefit of the 15 year loan is that the payment isn't significantly more than a 30 year but you pay significantly less in interest over the term of the loan. 

Quote from @Lucia Rushton:

@Brian Kloft to piggy back on your post. Also in todays market why would one buy a 5% CAP when their interest rate is 7.5% for example. They are negatively geared from day one.

As always just my opinion and not written by Ai

 That is the beauty of real estate. Every person and situation can be unique. I would consider paying a 5 cap for a property with lots of upside and value add. Example I am looking at a triplex at $300k but it only had rents of about $1850. It ends up being a 5 cap.  However I know what I can renovate each of the units for and all three units are paying approx half of market after being fixed up. After fixing them up I can get about $1200-1,300/month each thus a new gross rent amount of around $3,750. After adding in renovation costs I get around a 10 cap. Also if you are unlike most on here and can pay cash it can still look like a great opportunity. 

First to get a better understanding of cap rate, flip the formula around. Purchase price x cap rate = NOI. Basically the cap rate is what % interest rate you are going to make on the property. So if you buy a $100,000 property at a 5 cap you in theory should be making 5%, after all expenses, on an all cash purchase. This is one reason that people have been saying cap rates would be going up because why would you buy RE at a 5 cap (5%) when you can take that money, in todays interest rate environment, and invest it in safe investments that take zero of your time and don't have unseen expenses, and get 5% or better? People are still buying the RE because of the other benefits such as value ad upside, leverage, tax benefits, etc. As Bradley pointed out they can be all over the place. From my experience small properties don't seem understand cap rates, or even care about cap rates as much. If small enough they seem to look at house values. The bigger you get, the more cap rates actually play into it. Example, in one of the markets that I am in there are two different trip plex properties. Both listed for around $499,000. However one has $3,700/mth in income while the other has $1,875/mth. Both have about the same expenses as they are similar properties in a similar area. The one has a 7.5 cap while the other has just over a 3 cap. When you start talking larger multi family properties and commercial buildings (office, retail, industrial) then cap rates become a much bigger factor.

As far as what cap rate is a fair cap rate, well that is up to each of you to decide if it is a fair cap rate and the buyer and seller may not agree on what is a fair rate. Best you can do is look at what cap rate similar properties in your area are selling for. Other things that impact the cap rate can be premium location, newer age for the property vs old building, quality of tenants, etc. 

Quote from @Alexandra Joy:

Quote from @Brian Kloft:

This whole discussion and the responses on here are part of the reason we have problems like these. People have forgotten about just being friendly people. Yes you have to make sure that you are not being taken advantage of, but you also need to be nice and friendly to others as you will get a lot more out of it. Tenant or just neighbor, someone asking you to print off a document for them is not a big deal. (Assuming it is not something like a 100 page document.) If one of my tenants in my office building asked me to print something off I would be fine with it. When I had my management company managing 400+ houses if a tenant stopped by and asked us to print something off I would not have any problem with it. (I know it happened, or at least copies so it is not theoretical.) Even if a homeless person were to open my office door and ask me to make a copy of something because they have to turn it in to social services but they want a copy of it, I would be happy to make a copy for them. As long as it doesn't become a regular thing such as every day or two asking you to print, then they would be taking advantage of you. If it is not going to significantly impact you then help them. Perhaps sometimes you might help someone too much, but that is the price of being a helpful person; but hopefully that means that some of the people you helped turn around and help others as well. That makes the world a better place. Perhaps printing that document helps them out while they are in a bind that allows them to turn in that paper that gets them that better job making more money, or win a scholarship, or....  You never know what a very small and simple act of kindness can lead to.

I know some of you are going to think that I am some free loving, hippie but I am far from that. I am a business owner and real estate investor that likes to make my money, and that often means enforcing contracts and lease provisions. However I try not to forget about being a human being and that others are human beings too. 

 No, I think this is a good point.  It's probably something I would ordinarily do if it were easy but part of it for me is that it's actually very inconvenient.  I don't have my computer and printer set up to access it easily.  I don't have a home office the way most people do.  I don't even have Internet access besides my phone so email wouldn't be possible either.  Also just the fact it was in the evening and I was already down for the count.  This might seem strange to most but I just don't have a home office the way many do these days.

Though it's true that she didn't know that.  She might think it was an easy request.  So maybe she didn't realize how big a favor it actually was that she was asking.  

ok, I am all for treating people with kindness and helping out when we can.  But I just began to feel this person was just starting to ask so much of me to the point of imposing in an inconsiderate way.  Maybe she doesn't realize and I just need to explain my situation.

I agree with the people talking about boundaries.  As a new landlord that is the advice I think I most need.  The way I see it now is that these are above all business relationships.  Businesses have set hours and a specific service they provide and though are almost always gracious with their clients, the relationships also have a professional distance and clear roles.

 If you don't have the ability to print at home because you don't have a printer at home then it should have been a simple, 'sorry I don't have a printer at home. I do all of my printing at the office.' At least then the person doesn't think that you just don't want to be helpful. My guess is that she had no clue that you didn't have a set up. As you have said, most people do. 

This whole discussion and the responses on here are part of the reason we have problems like these. People have forgotten about just being friendly people. Yes you have to make sure that you are not being taken advantage of, but you also need to be nice and friendly to others as you will get a lot more out of it. Tenant or just neighbor, someone asking you to print off a document for them is not a big deal. (Assuming it is not something like a 100 page document.) If one of my tenants in my office building asked me to print something off I would be fine with it. When I had my management company managing 400+ houses if a tenant stopped by and asked us to print something off I would not have any problem with it. (I know it happened, or at least copies so it is not theoretical.) Even if a homeless person were to open my office door and ask me to make a copy of something because they have to turn it in to social services but they want a copy of it, I would be happy to make a copy for them. As long as it doesn't become a regular thing such as every day or two asking you to print, then they would be taking advantage of you. If it is not going to significantly impact you then help them. Perhaps sometimes you might help someone too much, but that is the price of being a helpful person; but hopefully that means that some of the people you helped turn around and help others as well. That makes the world a better place. Perhaps printing that document helps them out while they are in a bind that allows them to turn in that paper that gets them that better job making more money, or win a scholarship, or....  You never know what a very small and simple act of kindness can lead to.

I know some of you are going to think that I am some free loving, hippie but I am far from that. I am a business owner and real estate investor that likes to make my money, and that often means enforcing contracts and lease provisions. However I try not to forget about being a human being and that others are human beings too. 

Like with most of RE, Section 8 can be hyper local. While there are lots of areas where the Section 8 won't pay enough to get market rent, I have had plenty of clients that had Section 8 paying more than what market rent was for their place. I know this was true because they brought me their houses to manage so I was collecting the rent and then later had to rent it out again. Personally I have a problem with Landlords collecting more than market rent from Sec 8, just like I have a problem with Sec 8 tenants that are abusing the system. Both of them are a waste of tax payer monies that could be better used to help other people that truly need the help. But just like any government program or other large system there is a lot of waste. 

As far as Tim's reasons for not being willing to take Sec 8 tenants, most of them I see as just excuses used to justify the position and not valid reasons. 1. They want to make sure that you aren't charging Sec 8 more than what market rent is on your property. This is a good thing for tax payers to prevent fraud. 2. government shutdown causes delay in rent payment and you want to charge a late fee? 4. never seen that one before, I will have to look, but in all my years doing it I have never had any request even remotely like this. 5. If government shutdown causes delay you can't evict while waiting. However is Sec 8 will no longer be paying then the tenant will become 100% responsible and you can evict for non payment. 6. Not a big deal, some states require this for any tenant period. ----- Personally I think you are being way over paranoid. Have you ever looked at any of your insurance policies in detail, or if you live in an HOA have your read it in detail? Lots of companies that you don't have a choice in changing the wording of the contract or a choice in going with someone else have things like that in their contracts. Obviously you are free to use them or not, however many states are now putting rules in place where you can not deny someone just because they are on Section 8 so you may not have the option in the future.