All Forum Posts by: Christopher Stevens

I should have double-checked the numbers, but the information it created in about 10 seconds is impressive. However, as mentioned in my post, it's essential to check the numbers.

These new AI tools can help make decisions. If we ask the right questions, we might get answers to understand leverage better, too. Much of what we get from these tools is dependent on how/what we ask.  
 

Check this out! I did a test and input this data into ChatGPT: 

What is the ROI and monthly cash flow on a property purchased for $135,000?

- Property taxes and insurance costs are $101 per month
- Down payment is 30% on a 30-year fixed rate of 5.5% interest
- Monthly rent is $995 monthly
- Closing costs are $5,500

If you have this information when considering purchasing a property, here's what you'll get if you type this into ChatGPT:

"To calculate the return on investment (ROI) and monthly cash flow for the property purchased, we need to consider several factors:

1. Mortgage Payment
2. Property taxes and insurance costs
3. Monthly rental income

First, let's calculate the mortgage payment:

1. Down payment: 30% of $135,000 = $40,500
2. Loan amount: $135,000 - $40,500 = $94,500

Using a mortgage calculator, we can calculate the monthly mortgage payment:

- Principal and Interest:

- Loan amount: $94,500
- Interest rate: 5.5%
- Loan term: 30 years

Using the formula for a fixed-rate mortgage, the monthly payment is approximately $535.89.

Next, let's calculate the monthly cash flow:

- Monthly rental income: $995
- Property taxes and insurance costs: $101

Monthly Cash Flow = Rental Income - (Mortgage Payment + Property Taxes & Insurance Costs)
= $995 - ($535.89 + $101)
= $995 - $636.89
≈ $358.11

Now, let's calculate the ROI:

ROI = (Annual Net Income / Total Investment) * 100

Annual Net Income = Monthly Cash Flow * 12
≈ $358.11 * 12
≈ $4,297.32

Total Investment = Purchase Price + Closing Costs
= $135,000 + $5,500
= $140,500

ROI = ($4,297.32 / $140,500) * 100
≈ 3.06%

So, the monthly cash flow on the property is approximately $358.11, and the ROI is approximately 3.06%."

A cash flow of $358 and ROI of 3.06% in year one might not be all that appealing. However, the other benefits of owning real estate are:

- Taxes (depreciation/potential accelerated depreciation)

- Appreciation (this is NOT always guaranteed, but over time, you will have appreciation)

- Building equity (in this scenario, as long as rent is paid, you'll build about $140 monthly in equity)

Please note some expenses that are missing from this are: 

- Management fees (8-10% on average, if applicable)

- Estimated vacancy costs (2-3%)

- Estimated repairs (5%)

Disclaimer: I am a real estate investor and own four rental properties. This is a quick and easy way to get a general idea of potential cash flow and your ROI on a property using ChatGPT. I'm not associated with or vouch for the accuracy of information provided by ChatGPT. This is for general purposes only and not legal or investing advice. Always double-check the data and calculations from any source.

Advice: Information is good, but taking action is the best way to learn. Every action you take is a learning experience that will help you learn and grow. Not taking action means you'll never grow or learn. You will make mistakes, but you'll learn the most from mistakes - this is how to improve your life. "If you don't fail, you're not even trying." Denzel Washington.

I hope this information is helpful. Thank you for reading.

Great question, Jaye! 

I put down 30%, but the closing costs were about $5.5K. I made a mistake and should have put $46K instead of just the $5.5K closing costs. I've updated the post since, so it should reflect the updated cash down. 

Thanks for the heads-up and great question. Good luck with future deals.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $160,000
Cash invested: $46,000
Sale price: $160,000

New property acquired in Arkansas with cash flow.

What made you interested in investing in this type of deal?

My goal is to get to 10 rental properties within five years. This was my 2nd REI Nation property, and I closed on a 3rd property this month. So, I'm at four properties, but three are with REI, and one is self-managed. With the home I live in, we now own five properties.

How did you find this deal and how did you negotiate it?

I found it on the REI website. REI helped with some management fee concessions to make this property cash flow for the first 18-24 months.

How did you finance this deal?

I used CrossCountry Mortgage, which provided a premium rate of 5.5% for 30 years. Rates at the time hovered around 7%, so the 5.5% negotiated by REI also helped with the cash flow.

How did you add value to the deal?

I provided a 25% down payment to help create some cash flow and did my best to provide documents as quickly as possible to make it easy for the lender to close on the deal.

What was the outcome?

This was a decent deal. It provides a small cash flow with little money down. Over time, I plan to refinance to help create even more cash flow, and with time, rents will most likely increase.

Lessons learned? Challenges?

Ask good questions. Take time to think about what you want to say or ask when put in a difficult situation. Don't be afraid to ask for things and allow the other side to make offers. Sometimes, their offer is significantly better than you'd expect or ask for.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

REI Nation does it again! These guys are top-notch! As long as they have inventory and I have money to invest, I'm going with REI Nation. Thank you, Taz, Taylor, et al at REI Nation. Keep up the great work. I appreciate all you do to help me get to where I want to go with my real estate portfolio.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $135,000
Cash invested: $5,500

Small property in Beebe, Arkansas. This property has more cash flow than the Las Vegas property. However, the rate is higher and the capital paydown is significantly lower than the Las Vegas property.

What made you interested in investing in this type of deal?

Easy turnkey deal. Low cost of acquisition. Higher cash flow than another property. Good rate and property management concessions to help with cash flow.

How did you find this deal and how did you negotiate it?

I found it through REI Nation. I worked with Taz to help get favorable terms to increase cash flow and get a decent rate.

How did you finance this deal?

CrossCountry Mortgage

How did you add value to the deal?

I tried to make the purchase fast and easy. Since we closed on another property earlier in January, the lender had all the docs necessary to close this deal quickly.

What was the outcome?

More cash flow than a property (Las Vegas) that I sold in December. And cash left over to pay off other debts and make other investments.

Lessons learned? Challenges?

I learned that keeping another property I acquired might not be the best option. Taking the cash from another property sold and buying more property to create more cash flow. The biggest challenge was deciding to sell one property to generate more and better opportunities. It's easy to get stuck with what's been working and not think outside the box to improve things.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I recommend working with Taz at REI, REI Nation, and CrossCountry Mortgage. They're the BEST for turnkey deals. Yes, things cost A LOT more, making it hard to find good deals and create cash flow, but having a great partner is worth the extra cost.

Hi Engelo, 

That is frustrating to get messages like that since you've already done all the hard work. However, if you have the time and bandwidth, a good strategy would be to give them a respectful response with as many details as you're willing to provide to help them. The reality is, even if you give them ALL the information in great detail (which isn't what I'm suggesting; give them a few details/answers) they'd still have A LOT of work to do and the task is daunting. Perhaps they would consider a turnkey deal with you instead of taking on such a task. The more willing you are to help others, the more business you'll earn over time.

I suggest you create a canned response and save it. When you get these emails/questions, take the canned write-up and tweak it based on their questions. That way you're offering some help and support, but with a prepared, general response, you won't use up much of your time. 

Thoughts on this strategy? 

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $220,000
Cash invested: $55,000

3 bedroom, 2 bathroom, 2 car garage, and nearly 10 sq. ft. lot.

What made you interested in investing in this type of deal?

1st turnkey deal to make it easier to grow my portfolio.

How did you find this deal and how did you negotiate it?

REI Nation. Yes, it costs a lot to go with REI Nation, and the cash flow is low, but they have an excellent reputation. Plus, they offered $5,000 in property management concessions. I can refinance this deal to increase cash flow and help with property management costs when the $5,000 is gone.

How did you finance this deal?

30-year mortgage

How did you add value to the deal?

25% down payment.

What was the outcome?

So far, so good. I'm happy with this purchase and know that the rent and cash flow will increase over time. Plus, the return will grow with appreciation and principal paydown from rent.

Lessons learned? Challenges?

I learned to ask a lot of questions and to ask for concessions. I need to consider other options to turnkey deals so I can cash flow more. The margins are so small from turnkey deals, but REI Nation makes these deals easy to complete.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I'm impressed with REI Nation, but you must know you'll pay much more for properties. However, they do a great job with the rehab work, and their property management is excellent. Cash flow is low or non-existent with turnkey deals, but they make completing deals fast and easy. If you're just starting and don't have time to deal with a lot of potential issues, turnkey is a great way to get the ball rolling.

Investment Info:

Condo buy & hold investment.

Purchase price: $385,000
Cash invested: $60,000

Burbank property

What made you interested in investing in this type of deal?

It was my wife's property, and we decided that once we bought our home together, we'd rent this property.

How did you find this deal and how did you negotiate it?

My wife purchased this home.

How did you finance this deal?

30-year

How did you add value to the deal?

Flooring, new bathrooms, new kitchen.

What was the outcome?

Rents have skyrocketed over the past 10+ years, especially in the Burbank area. Keeping this property was one of the best decisions we made due to its increased equity and high cash flow from high rents.

Lessons learned? Challenges?

The longer you keep a property, the greater the returns. Buy and hold works!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, my wife did when she purchased this property.