All Forum Posts by: Danielle Elms

Sell it faster than you can say, "I'm losing money by the boat load"..., which you are.

Your equity is wasting itself where it sits.  The equity is what you are paying for the property and the cash flow that goes along with it.  The higher the percentage of equity you have in a property, the more you are paying for it, and the lower the lower the value of that equity becomes with every rise in that percentage.  In this case, your equity ($120k) is buying a property that is only worth $160k, with a CF of only $1200/year.  

From the CF perspective, it will take you 133 years for the accumulated CF to equal the equity.  Let me say it another way.  If this property appreciated a measly 1% in the coming year, the equity would grow an additional $1600...that's $400 more than the CF you are getting for that same year.  So, your total return on that year would be $2800.  You may be saying "what's wrong with that"?  The answer is, your actual value of your equity is in its buying power...not its face value.

Now, onto the equity side.  Currently, your equity is buying a property that is worth 1.5 times the face value of that equity.  If you sold the property, and reinvested it as a down payment (this is your initial equity for the new property), after closing costs, you should walk away with at least $100k in cash.  Take that $100k, use it as a DP at 20% the PV, and the new PV is $500k...not $160k.  Take that same 1% appreciation I mentioned above, apply it to this property, and the increase in equity is $50k...not $16k (see above).  Now what about the CF?

If you sold the property, and you used the $100k on one property or more than 0ne property, the cash flow should be at least triple what you're getting now...that's $3600/year...not just $1200.  So, combining the two returns (CF and Equity gains), the total gains that year would be over $50,000...not just $2,800.

The difference between $50,000 vs. $2,800, to me, is a boat load.  Apply this same math comparison the the following years, and that "boat" becomes a "fleet".