All Forum Posts by: Corey Cowan

@Joe Villeneuve  Thats a fair question.  I'm not sure I exactly "know" the formula, but maybe I know how to do the math the long way.  If I had $23.44 and I just followed the formula I would eventually have 12,000 but I'd hit $182.50 along the way.  

Of course I may be wrong about what you mean...If it's a secret I mean to keep it as such.  

The formula I came up with yesterday was to determine how to hit my goal in 10 years.  This method I used allowed me to increase my rate of purchasing properties over that time frame.  So, my first year I would be 2% towards my goal.  My 5th year I would be 27% toward my goal.  Of course by year 10 I would be to 100%

I know that all deals are different so in reality these numbers may change, but I am at the moment just trying to create a baseline. For my goal, all things being equal (which of course we know will never be the case) each of my properties on average over 10 years of purchasing would need to Cash Flow $220mo.  This is a basic preliminary analysis that I'm trying to drill down into.  If I know this is the average I can infer a little bit about what average property would give me that result. In practice I'll look into all my options at the time and chose based on Cash Flow.  

I don't have a intuitive grasp on all of the costs associated where I can make educated guesses, nor do I have a "worksheet" setup for that.  I'm essentially trying to put all that together right now.  So the simple of it the way I see it is if I have control of a property that after all relevant and real costs are accounted for on a monthly basis allows for a $220mo Cashflow then I can hit my goal by repeating that as well as increasing my frequency of purchasing to the tune described above.  

Property X:

Cost of Leverage - $380

All associated Real Estate costs to maintain a valid investment - X (we'll say $600 because BPers say half of rent will be operating costs)

Cash Flow - $220

Rent needs to be at $1220 (also the market needs to allow for this to be the going rate)

If all these things are in place then its a definite property for the portfolio.  

You mentioned that Control is more important than ownership.  This is kind of new for me.  I've been looking into that for about a week.  I'm not well versed in the concepts.  If that is the case then the operating costs may be reduced to nearly zero in theory as they are passed on to the person with the Lease Option if done effectively.  Please correct anything I may be overgeneralizing or just out right wrong.

I need to get a form that outlines all of the general cost categories so I can begin planning the management of those aspects and of course using that to analyze deals.  

I like the notion of gaining Control of a property, that seems a bit easier from my current perspective.

To answer your direct question.  I don't think i know the formula, but I think with a few hours I could figure it out.  It's a function of doubling?  

Thank you @Joe Villeneuve.  I have been looking at the brass tacks to achieve my goals and came up with a "formula" yesterday.  When mulling over the one you mentioned in point #10 I see that it is fairly similar.  I am going to try to apply the formula you mentioned to my future goal and try to figure out how it backs into the present. 

@Joe Villeneuve I appreciate your response. Just to see if I’m tracking: 1. Don’t decide on a property based on percentages, make sure the actual profit in dollars is the highest 2. Cash is King 3. Equity as Equity cannot be used as Cash 4. Don’t use Cash foolishly, find terms that are favorable and use the minimum Cash to generate control 5. Control don’t own? (Subject To?) 6. Don’t make bad decisions 7. I’ll have to mull this one over 8. Don’t imagine shortcutting reality by a large down payment? 9. Don’t eat the seeds. How does one determine how much is for replanting the field or to control more fields? 10. This number is symbolic but if understood may produce opportunity?If utilized in the proper order in the proper application? As far as my current 2 properties: 1. is the house I live in that doesn’t actually have much of an investment value. 2.Is a house I’m letting my mom live in paying the note and attending to repair bills. So no cash flow to speak of.

I am just now officially starting my journey into real estate.  I own two properties and neither of them are currently acting as investments other than mortgage pay down and whatever appreciation the market creates in the future.  

In this process of officially starting my journey I have defined my goals and my reasons for those goals which leads to the most important part of any real goal...a STRATEGY.  

With regards to a STRATEGY many questions arise.  My primary goals are Cash Flow oriented.  My primary question I seek to have answered by posting this post is fairly straight forward, yet I encourage debate concerning metrics and comparisons.  

For normative Investment Properties (properties that are Deals but not Steals), what percentage of rent is Positive Cash Flow?

      Example:  Investor wants $220 in Positive Cash Flow on 1 property.  

Here in Southwestern Missouri  a relatively inexpensive rent would be $650.  An expensive rent may be $1500.  In this scenario I suggest that the percentage of rent lies between 14% to34% non-respectively. If any of you have insight into local rents feel free to align my position with reality if it deviates from it in a consequential way.  

Agree or Disagree?

If this is the case and an Investor here in Southwest Missouri wanted $12,000 in monthly Positive Cash Flow his/her total Rent would need to be approx $36,000-$86,000?

Now for the stirring of "The Pot" (this is because I know some of you love to set the record straight...I've been watching you :)

All financial metrics are for comparison.  All metrics are either percentages or representations of relationships.  These metrics are used to compare.  Usually to compare "opportunities"  A $100,000 investment that makes $15,000 vs $12,000 yearly is definitively better.  If one were to chose a property based on a Metric they would take the one with the higher return all other things being equal (we know they are not equal).  

Example:

If an investor had only 2 options for eternity and he/she was only able to eat food purchased with the Cash Flow from the decision: 

1. Put all available funds into an investment that generated $400 Positive Cash Flow or 

2. Put zero money down on an investment that generated $200 Positive Cash Flow. 

Which is actually better?  All investors are seeking opportunities.  For someone new the number of opportunities would seem to likely be fewer than the more experienced and active investors.  If this is the case should the investor make his decision to begin his/her portfolio with properties that meet a Positive Cash Flow expectation or a Metric?

When debating statistical performances then the game becomes how to display the metrics. If one were debating Cash or Value then its not a matter of metrics, it is a fixed reality? This is a question, sort of. $100,000 in cash or Equity is better than $50,000 in cash or Equity even though the ROI, COC, NOI, ETC... may be higher...or lower NOI.. on the Deal that generated $50,000 in Cash or Equity.

"I value metrics and I hope you do too" to a room full of bored kids - Corey Cowan  jk

But seriously.  As new investors are attempting to map out a STRATEGY that is honorable enough to get Props from BP members where should the focus be?  I posit that Cash Flow and the relationship that Equity has as a function of Cash is where one's focus should be.  This is assuming that an individual is planning for Financial Freedom...vs "dominating the market" or shaming ones peers where ego is the actual value at hand.  

What do you make of all this?  Forgive me I am the new guy.  This is my first post.