All Forum Posts by: Paul C.

You got it right!  Cap rate is the return without leverage.  So by definition, the cap rate is the cash on cash return when no leverage is used.

Originally posted by @Nicole A.:

I don't think this is as straight forward as you believe unless you have a lot more knowledge in taxes than you've stated. You may just need a new CPA. I'm happy to send his contact info to you if you'd like; I believe he has clients from several states.

 Thanks, Nicole.  Sure, please send me a PM with his contact info.  I'm always willing to explore whether I can be doing things better.

I tried using a CPA two years ago when I first had rental properties to account for.  He did an okay job, but nothing that I could not have done myself.  He also made a mistake that if I had not caught, would've cost me a couple of thousand bucks.  In the end, I felt it was a bigger hassle putting all of my information in a different format for him to file versus doing it myself.  I did not feel he delivered value equivalent to his fee.

I'm trying to understand how CPAs can add value besides doing an accurate tax filing.  I'm meticulous with my accounts and am confident that I can file an accurate tax return myself.

What I'm looking for is someone who can think strategically and provide valuable advice.  I want to know what I don't know.

How has your CPA helped you?  Have they come up with a better way for you to structure your business entities?  Have they found a way for you to put more money in a retirement account?

Basically, I want to hear what a good CPA does so I know what to look for in one.  Or, if owning rental properties is so straightforward that it requires nothing beyond filing accurate tax returns, that's fine too.  I'll know there are no efficiencies to be gained by searching for a "good" CPA.

I aim for high, but realistic. Starting too high and gradually lowering until you find a sweet spot wastes valuable time and increases your vacancy. Charging too little leaves money on the table and I'm not convinced you get a better behaved tenant. If I see a comparable that's been sitting on the market, I try to figure out whether my unit is as good, better or worse. If they're equally good, then the fact that the other unit is sitting tells me they're asking too much. It'd be silly for me to ask the same price and expect a different result so I'll price $50 or so lower. That's the sort of logic I use to help me shoot for high, but realistic. I typically do small increases every year, $20-25, and have not seen any turnover as a result. I do make sure to take care of repair requests promptly and professionally to hopefully avoid issues with perceived value / tenant satisfaction.

Originally posted by @Account Closed:

I think it's just a psychological thing, about wanting my sweet cash in my hands. I guess the smart way to look at it would be to make my decisions based on interest rates, and if I can make a higher return off my cash than I'm paying on the mortgage then I'd keep the mortgage(s).

 You hit the nail on the head.  Once you figure out the risk side of the equation and what you're comfortable with, then you want to maximize your return by investing in assets that return more than your cost of debt.

Also keep in mind that money is fungible.  I tend to look at all my debt and investments together.  For example, you may find that the cost of borrowing against a stock portfolio is cheaper than borrowing against rental property, but you may use the proceeds to invest in property.

Based on the way you asked your question, I think your goal in using leverage is to reduce your risk since you said you don't want to put your hard earned money into an investment that may lose money so I'll answer from that perspective. Unless you're leveraging your investments with non-recourse loans (lender can only go after collateral and not you personally), then you're not reducing your risk by using leverage. For example, let's say you buy a place for 100k, put 20k down and borrow the rest. If the property value drops to 50k, you're still on the hook for the 30k. And even if you do have a non-recourse loan, there will be ramifications to walking away from the property like a black mark on your credit. If you are able to get a non-recourse investor loan and not in your personal name, then the leverage may help reduce some risk if things go really bad. I don't think this type of financing would be easy to obtain though.

Does anyone know of any note funds where investors participate in the upside?

I've seen funds that offer a preferred 8% or 10% return, but that's it.  I'm interested in seeing if there are funds with possibly a lower (or even no) preferred return, but with meaningful participation in the fund's total return.

If you're not comfortable naming a fund on a forum, please feel free to PM me.

Thanks in advance.

Are there any Charlotte investors familiar with Stonehaven? I'm under contract to buy a package of properties consisting of 3/2s. From a cash flow perspective, these properties will not do as well as my other Charlotte properties. My average cost will be around 115k to 120k (after renovations) and average rent will be 1,050. I believe comps do support these prices. I've typically been able to get that sort of rent for 90k to 100k. The reason I'm looking in Stonehaven is my agent thinks it has more potential from an appreciation perspective. I think that's probably true as the community consists of older established neighborhoods with a more upscale feel versus some of the cookie cutter new construction in newer subdivisions that cash flow well. If you're familiar with the area, I'd love to hear your take. I suppose this is somewhat related to the cash flow vs appreciations debates that often take place, but more specific to Charlotte. Thanks

Congratulations Daniel Miller ! It's great to see when people persevere and find success. Is there anything you can share about why your older friend's rental business got in trouble and how you guys turned it around? Did his portfolio consist of anything other than 16 single family houses? I think there are enough of us on BP focusing just on SFH that it would be instructive to hear about some mistakes to avoid and what you did to turn it around. Wishing you continued success!

I would view the renovations as another "purchase " and see if the ROI made sense. In your example, you'd get an extra 4,800 to 6,000 a year for spending 20 to 25k. That's a 24% gross yield! I would definitely do that. Plus, generating that extra 4,800 to 6,000 a year on an existing property means you won't have to find another tenant and incur all the activities and expenses associated with that. There are economies of scale with both time and money.