All Forum Posts by: Dan Gandee

@Allan C.Totally agree 100% and I should have prefaced the entire post as this should be used for newbie investors with limited cash on hand to get started with short term holds/BRRR. Comparing a seasoned investor and their leverage/equity/cash position is going to drastically change how they evaluate areas for growth and their portfolio building strategy using specific metrics. Most of the first time investors I know with have limited DP money and need to cash flow from the start or they will not be able to fund their LLC's operating expenses, PM, build reserves, etc to acquire more doors in a reasonable time frame. I'm coming from the syndication side, so IRR is very important to the mix as well. It was my mistake to blanket statement that CoCr was the most #1 priority vs. other key metrics to use in specific situations based on type of investor and their goals. A very liquid cash investor is going to have a different mode of attack vs. a financed investor from day#1. I'm old school so if it doesn't cash flow after I perform a BRRR, then I'm not banking on appreciation even if growth trends show it. NOI vs. APPRECIATION is a whole other argument :)

Agree to disagree. I've made millions and acquired tons of units by using this methodology. I see your point and agree that quality land & structures is super important. But I can also say that I've turned poop into gold. Knowing the markets and understanding demand is key as well. 

When I first got started in this business my mentor said "Start with the numbers and be an expert at spreadsheets!" Boy was he right...This game is more underwriting than anything. It doesn't matter how much money you have, how long you've been selling real estate, or what property management experience you have under your belt. When you know how to analyze properties then you can make smart decisions, limit risk, and create faster acceleration with your portfolio. I tell everyone I mentor the same. Don't start with cap rate, gross rent multiplier, 1% rule, or any other metric. Start with CoCr!

When it comes to investing in real estate, one of the most important metrics to consider is cash on cash return (CCR). This is a measure of the amount of cash generated by an investment property compared to the amount of cash invested. Understanding CCR can help investors make informed decisions about which properties to invest in and can help them maximize their returns.

Cash on cash return is calculated by dividing the net operating income (NOI) by the amount of cash invested in the property. The NOI is the income generated by the property, minus all of the operating expenses, such as property taxes, insurance, and maintenance. The cash invested in the property includes the down payment, closing costs, and any other costs associated with the purchase of the property.

For example, if an investor purchases a property for $200,000 with a down payment of $50,000 and generates $20,000 in net operating income per year, the CCR would be 40% ($20,000 / $50,000).

A high CCR indicates that an investment property is generating a significant amount of cash relative to the amount of cash invested. This can be a good indication that the property is a good investment, as it has the potential to generate significant returns. However, a high CCR alone does not necessarily indicate a good investment, as there are other factors to consider, such as location, market trends, and property condition.

CCR analysis is particularly useful for investors who are looking to purchase rental properties. Rental properties generate income through rent payments from tenants, and the CCR metric helps investors understand how much income they can expect to generate relative to the amount of cash invested in the property.

Another important factor to consider when analyzing CCR is financing. If an investor finances a property with a mortgage, the monthly mortgage payment will need to be deducted from the net operating income before calculating the CCR. This means that the CCR will be lower if the investor finances the property, but it may still be a good investment if the CCR is higher than the investor's required rate of return.

In addition to analyzing CCR, investors should also consider other metrics such as cash flow, capitalization rate, and internal rate of return when evaluating a potential investment property. These metrics can provide a more complete picture of the potential returns and risks associated with a particular property.

In conclusion, cash on cash return analysis is an important tool for real estate investors to evaluate the potential returns of investment properties. Understanding CCR can help investors make informed decisions about which properties to invest in and can help them maximize their returns. However, it is important to consider other factors in addition to CCR when evaluating a potential investment property. By analyzing multiple metrics, investors can make more informed and effective investment decisions.

PHONE RINGS...My wife who does our real estate brokerage accounting and investment business bookkeeping just called me to say we owe $47K in taxes...{heart stops}.

BUT I didn't blink an eye because I understand the true tax advantages of this professional - So let me kick it off for the newbies...

When it comes to investing in real estate, there are several perks of tax shelter that investors should be aware of. A tax shelter is a legal way to reduce the amount of taxes paid on investment income, and it can be a valuable tool for real estate investors. Here are some of the benefits of tax shelter with investment property.

1. Depreciation: One of the most significant tax benefits of owning an investment property is depreciation. Depreciation is the reduction in value of an asset over time, and it can be used to offset rental income for tax purposes. By depreciating their property over a period of 27.5 years, investors can reduce their taxable rental income and increase their cash flow.
2. Deductible Expenses: Investment property owners can deduct a range of expenses from their rental income, including property taxes, mortgage interest, insurance, repairs, and maintenance. These deductions can help reduce the taxable rental income and increase the overall profitability of the investment.
3. Capital Gains Exclusion: When an investment property is sold, any capital gains are subject to taxation. However, investors can take advantage of a capital gains exclusion by living in the property for at least two of the five years prior to the sale. This exclusion allows investors to exclude up to $250,000 in capital gains ($500,000 for married couples) from their taxable income.
4. 1031 Exchange: Another tax benefit of investment property is the 1031 exchange. This allows investors to defer capital gains taxes on the sale of one investment property by exchanging it for another investment property of equal or greater value. This can be a valuable tool for investors looking to upgrade their investment properties or diversify their real estate portfolio.
5. Self-Directed IRA: Investors can also use a self-directed IRA to invest in real estate. This allows them to defer taxes on rental income and capital gains until retirement, and it can be a great way to build wealth and secure a steady stream of income in retirement.

In conclusion, the perks of tax shelter with investment property are numerous, and they can help investors reduce their tax burden and increase their overall profitability. Depreciation, deductible expenses, capital gains exclusion, 1031 exchange, and self-directed IRAs are just a few of the tax benefits available to real estate investors. By taking advantage of these tax shelters, investors can maximize their return on investment and build long-term wealth through real estate.

BOTTOM LINE: Talk to a licensed CPA who can tell you what to do to save the most money possible!

I CAN'T THANK YOU ENOUGH FOR CONTINUING THIS CONVERSATION WITH THE REGULATION INFO. I even learned a few points I was unaware of at this time. 

Owning a short-term rental property in a beach area on the Oregon Coast can be a lucrative investment opportunity, but it also comes with its own set of pros and cons. Let's start here!

Pros:

1. High Demand: Beach areas are popular vacation destinations and attract a lot of tourists, making short-term rentals in these areas in high demand. This high demand can lead to higher occupancy rates and higher rental income.
2. Seasonal Rental Opportunities: Beach areas often experience peak seasons for vacationers, which can allow for higher rental rates during these times.
3. Personal Use: If you enjoy vacationing at the beach, owning a short-term rental property in a beach area can provide a convenient vacation spot for you and your family while also generating rental income when you are not using the property.
4. Property Appreciation: Beach areas are often desirable locations for real estate, and owning a short-term rental property in these areas can provide a potential for property appreciation and a profitable exit strategy.

Cons:

1. High Competition: With high demand comes high competition. Other property owners may be vying for the same renters, which could lead to lower occupancy rates and less rental income.
2. Seasonal Fluctuations: The rental income for a short-term rental property in a beach area may fluctuate seasonally, with lower demand during off-peak seasons.
3. Maintenance Costs: Owning a short-term rental property requires regular upkeep and maintenance to keep it in top condition. This can be costly, particularly if the property is located in a corrosive, beachfront environment.
4. Regulations: Some beach areas may have regulations that limit or prohibit short-term rentals. Property owners must be aware of these regulations and comply with them to avoid legal issues.

In conclusion, owning a short-term rental property in a beach area on the Oregon Coast can be a lucrative investment opportunity, but it is important to weigh the pros and cons before making a decision. Property owners should consider the competition, seasonal fluctuations, maintenance costs, and regulations when making their decision. My real estate team has been working with STR owners for years, and we always advise anyone looking to invest in this asset class to run a SWOT analysis of the specific market they are potentially entering. If you have no personal use goals, then it must simply CASH FLOW every month to be a good investment.

Next, here are my TOP 10 STR Cities on Oregon Coast (ranked by best to worst in my opinion of cashflow, amenities, beauty, and weather):

1. Brookings, OR  

2. Cannon Beach, OR  

3. Seaside, OR 

4. Lincoln City, OR

5. Florence, OR (Yachats & Heceta) 

6. Newport, OR 

7. Bandon, OR

8. Gold Beach, OR 

9. Port Orford, OR 

10. Pacific City, OR 

It's not always the most beautiful place that cashflow the most, but instead the easiest for access for weekend getaways. Hence the reason we have several cities within driving distance of Salem, Corvallis, Eugene, and most importantly Portland. In terms of beauty, I feel Brookings, Gold Beach, Seaside, and Bandon take that crown. In terms of amenities and things to do - Florence takes the crown here with the dunes, restaurants, fishing, hiking, etc. For romantic locations with a little more privacy, Port Orford, Gold Beach, Cannon Beach can be great areas to visit. 

Most of the cities on this list have restrictions for STR's so DO YOUR OWN DUE DILIGENCE before BUYING!

Any questions - hit me up! 

Hello there BP Family! Let me preface this forum post by saying that no one is an actual dummy when first starting out, but to grab your attention I had to use something good :) 

Cap rates, gross rent multipliers, cash on cash return, internal rate of return, ROI, 1% rule, and the list goes on in terms of underwriting calculations you must know as an investor. But I wanted to quickly break down cap rate because I train, recruit, and mentor a lot of first time investors/agents. This seems to be one of the hardest concepts to grasp due to the rules that create confusion with moving variables around such as rent income, expenses, vacancy, repairs, and capital expenditures.

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Cap rate, short for capitalization rate, is a common metric used in commercial real estate to evaluate the financial performance and value of an income-producing property. It is expressed as a percentage and is calculated by dividing the property's net operating income (NOI) by its current market value or purchase price.

The formula for calculating cap rate is as follows:

Cap Rate = Net Operating Income (NOI) / Property Value

Here's a breakdown of the components:

1. Net Operating Income (NOI): NOI is the annual income generated by a property after subtracting operating expenses but before deducting debt service (mortgage) and income taxes. Operating expenses typically include property taxes, insurance, property management fees, maintenance and repairs, utilities, and other costs necessary to operate the property.
2. Property Value: Property value refers to the current market value of the commercial property. It can be estimated through various methods, such as sales comparables, income capitalization approach, or the cost approach.

Cap rate is used as a measure of the property's yield or return on investment (ROI) and helps investors assess the risk and potential return of a commercial property. A higher cap rate generally indicates a higher risk property or a property with lower potential returns, while a lower cap rate indicates a lower risk property or a property with higher potential returns.

Investors often use cap rate as a benchmark to compare the relative value of different commercial properties. For example, if an investor is considering two properties with similar NOI but one has a higher cap rate than the other, it may indicate that the property with the higher cap rate is relatively cheaper or offers a higher potential return on investment.

It's important to note that cap rate is just one factor to consider when evaluating a commercial property, and it should be used in conjunction with other financial and qualitative factors to make informed investment decisions. Additionally, cap rates can vary depending on the type of property, location, market conditions, and other factors, so it's crucial to thoroughly analyze each property on its own merits before making investment decisions.

That being said, cap rates can be very confusing to most starting out. As a real estate broker and investor, I've always had my clients run through multiple underwriting spreadsheet test cases so they understand benchmarks, valuation, and how expenses and value add can create changes in valuation, i.e. cap rate. 

-Dan Gandee

Totally! Just let me know if you want to connect sometime and be happy to share any insights. We've spent years compiling a list. 

 I could broker parks if I wanted to, but my investment company is actively owning and operating a few. Do you have a buyer looking in Oregon?

Quote from @John Boutros:

Quote from @Dan Gandee:

After purchasing multiple parks and managing them over the past few years here's my synopsis of the pros and cons of owning a park. What has been your experience? 

Pros:

1. Steady Income: One of the biggest advantages of owning a mobile home park is the potential for a steady stream of income. As the owner of the park, you lease the land to tenants who own their mobile homes. This allows you to collect monthly rent from each mobile home owner, creating a reliable source of income. We've noticed great net operating income from our parks and continue to force appreciation through annual rent increases. 
2. Lower Operating Costs: Compared to other types of real estate investments, mobile home parks generally have lower operating costs. Unlike owning rental properties, you are not responsible for the maintenance and repairs of the individual mobile homes. Instead, you are only responsible for the common areas and infrastructure of the park, such as roads, utilities, and amenities. This can result in lower ongoing expenses, making it an attractive investment option for some. This can be somewhat of a incorrect data point as our parks expense ratios are in the 25%-35% range. 
3. Demand for Affordable Housing: With the rising cost of traditional housing options, there is a growing demand for affordable housing. Mobile homes provide an affordable housing solution for many people, especially those on a tight budget or looking for a more flexible living arrangement. Owning a mobile home park allows you to cater to this demand and provide an affordable housing option for tenants, which can result in a stable tenant base and consistent occupancy rates. We have seen this demand through mobile home listings on the brokerage side and it still continues to be strong. We've never had an "expired" MFH listing and this shows us that affordable housing is at it's highest demand ever. 
4. Potential for Appreciation: Like any other real estate investment, mobile home parks have the potential for appreciation in value over time. As demand for affordable housing increases and land becomes scarce, the value of mobile home parks can increase, resulting in potential capital gains for the owner. This has been the biggest gain for our portfolio by repositioning the asset by forcing net operating income and through improvements. 

Cons:

1. Management Challenges: Managing a mobile home park can come with its own set of challenges. Dealing with tenant issues, enforcing park rules and regulations, and overseeing maintenance and repairs can be time-consuming and require effective management skills. If you're not prepared to handle these challenges or hire a property manager, owning a mobile home park may not be the right investment for you. This definitely has been a challenge for us since tenant disputes can get out of hand and suck the moral of the specific area of the park down. We deployed professional property management to combat this. 
2. Dependence on Tenants: The success of a mobile home park is heavily dependent on the tenants who lease the land. If you have high turnover rates or struggle to attract and retain quality tenants, it can impact your rental income and profitability. Additionally, mobile home park tenants may have limited financial resources, which could affect their ability to pay rent on time, leading to potential collection challenges. We fortunately have not run into these issues by screening tenants well and keeping rents affordable. 
3. Regulatory Requirements: Mobile home parks are subject to various regulations and laws, including zoning and land use regulations, health and safety codes, and tenant protection laws. Compliance with these regulations can be complex and require ongoing effort and expense. Failure to comply with regulatory requirements can result in fines, penalties, and even legal disputes, which can impact your investment returns. We keep detailed checklists of all the items that are annually required to keep our parks running which includes water testing, park registration, septic maintenance, and licensing. 
4. Limited Financing Options: Financing a mobile home park can be more challenging compared to other types of real estate investments. Traditional lenders may have stricter lending criteria for mobile home parks, and obtaining financing may require a higher down payment or come with higher interest rates. This can make it more difficult to acquire and finance a mobile home park, especially for first-time investors. We avoided this problem by deploying owner financing and locking in great terms. 

Love keeping in touch with other owner/operators so please reach out! 

-Dan Gandee

 Good post! I'd agree with your points here from personal experience with multiple parks. We are in acquisition phase of growing our portfolio of parks with my partners.

Shoot me a PM if you'd like to connect! Enjoy connecting with other owners/operators.

 Definitely let's connect! Happy to share my experiences.