All Forum Posts by: Damian Callaghan

I'm new to investment but spending a lot of time on market and deal analysis. I am ready to buy but so far - even in markets where you can still pick a home up in an appreciating market for $250K - I am struggling to see how they cashflow with 25% investor down payment and interest rates up there near 7%. It frustrating - Im ready to go but certain I am missing something. I use a 0.86% (rather than 1) for quick deal analysis but do detailed analysis as well. On a $250k house you are looking at $62,500K down (which isn't cheap) - then somewhere around $1500 a month for repayment and taxes (doesn't take in to account mgmt, vacancy, capital) - and these markets I am looking at only getting $14-1600 a month in rent..

What am I missing? Help from this network welcomed!!

Note - I wanted to invest locally but even worse on Gulf Coast so been looking at NC, Jacksonville amongst other places 

@Damian Callaghan 

There is an expression I’m sure you’ve heard, “Great deals are made not found.” So there are a few things you can do to keep from getting stuck in analysis paralysis and losing the momentum you have.

If you haven’t already, get pre-approved with a local lender. Next when you run the numbers on a property, instead of plugging in the asking price try to work backwards and find what you need the property to sell for for it to cash flow, and submit offers at that price point. 

This could take some time to find a deal, but you only need one person to accept an offer for you to get started. 

Keep your head up and lean into the BP community when you need motivation and support. 

Im in the same boat - Canadian looking in the US because the Canadian market has become insane ( Toronto). Looking Fl & TX but having a hard-time getting cashflow + general ignorance of area demographics. 

@Damian Callaghan certainly feel your frustration with the current rates but bear in mind that if it's a good deal now, you should lock it in because rates will eventually come back down. I recently invested in a single-family rental in DFW and am only ~$200 a month in cash flow. At least I'm in the positives, but the number feels low compared to my other investments. Anyway, I expect this amount to increase in a few months when we increase the rental rate with our tenant. FYI, there are no restrictions around rental rate increases in Texas, unlike where I'm from. I would advise you to look in the right markets (which unfortunately doesn't sound like your local market). Many things to factor in when determining which market is right but for us, it was state income tax, rental laws, and proximity to downtown. For out of state investing, I strongly suggest turnkey companies that also do property management. It will save you so much time and headache and effort. My property in DFW is through a turnkey company and I really like their process and management so far. It was already renovated and tenanted with a fixed term lease. Happy to chat further if you're interested.   

Damian,

Do you have the availability to spend a bit more and purchase a 2-4 unit building? Are there small multifamily buildings for sale in your area? Do they possibly cashflow better?

I ask these questions because this has been the case for my area of the Kenai Peninsula in Alaska for more than 15 years. I have many times been able to purchase a 4plex for a bit more (fractionally more downpayment) than a SFH. I have found that these small multi-units cashflow better and are less risky as it is unlikely the property will ever be without at least a couple of renters.

Try not to get too discouraged. When my wife and I finally decided to pull the trigger, it took over 18 months to find an investment that we felt would work. Also remember that all it takes for most okay deals to become great deals is time. I have heard many folks over the years say that they felt they paid too much for a property, but within 5 years it was the best deal they had ever made due to either rising sale prices or increased rents, or often both :) 

Hey Damian! I have a couple suggestions here  

1. “Marry the property, date the interest rate.” Rates will drop eventually but the house you’re analyzing may not. If a property is in the red a few hundred bucks, analyze it with a 5% internet and see where you might be in the future. You can refi and pull cash out in the future to invest in your next deal. 

2. Diversify your strategy or your market. I’ve built a career helping people buy Traditional Rentals in growing markets, but in todays world I’m focusing on Short Term Rentals for clients hyper focused on cash flow. The higher average monthly incomes help properties cash flow much more regularly. You might also consider other markets. Between advisors like myself and local managers it’s easy to invest further than arms distance away now. 

Happy to chat more about any of these ideas. 

@Damian Callaghan The first step in any investment is to identify exactly what it is you are looking to achieve. What is your investment objective? Are you investing for cash flow to fund other things, or are you investing for capital growth? It is important to understand this first.

If you are seeking cash flow then you would be wise to look at non-geared investments if you think interest rates will rise, or if your chosen investment is not performing as well as it needs to.

One of the greatest mistakes novice investors make is not assessing risk. Whenever there is debt or gearing, involved, the risk of all investments rises due to the interest risk associated with the borrowing. 

What can you earn on the deposit amount of $62,500.00 if there is no debt? This becomes the relative debt-free risk amount you need to compare all other debt-burdened investments against.

There are companies that you can invest in that pay annual dividends in excess of 5% per annum. So, your property investment, with debt attached, needs to earn you more than that to be viable. Bearing in mind that investment into a large corporation places no emphasis on you to work on the investment compared to property investing. They also have capital gains potential as companies grow in value over time.

One final point, it is also possible to borrow to invest in shares in public companies. Might be worth considering.

Hope this helps.