All Forum Posts by: Eric A.

Welcome Sarai Browne what's your budget and how many units are you targeting. That will determine where you can afford to buy. If you want to be in Brooklyn you will be paying well over $1mm to live in a nice/established neighborhood and even some of the

Thanks for the tip Shawn Ackerman what is the out of pocket investment to get that 300-450 / month? Meaning what's the cash on cash return?

What kind of cap rates and cash-on-cash return can one get buying properties in Rochester, Albany, Troy etc? Also what do property values look like today vs 2006 and 2009 respectively?

Zeke Mohammod I disagree. If you're already paying 4K per month in rent (as I am) for several years, then you can most certainly "afford" it. If you can purchase something and end up with a similar monthly payment, the equity buildup and tax advantages make it a no-brainer investment.

Also @Michael Gilman where is it that you're getting 25% cash on cash?  I hope it's not secret sauce.  Thanks.

I posted this in another thread, but thought it would make good food for discussion here:

I've been struggling with this. On the one hand there is the "Rich Dad, Poor Dad" theory that your primary home is a liability, NOT an asset because it takes money out of your pocket each month instead of the other way around. However, I have come around to believing that in certain markets like NYC, where appreciation over the long term is guaranteed (think 10 year stretches), your home is absolutely a (very valuable) asset.

Yes, coming up with a down payment is tough, but if you do have say 200k liquid, the question is what's a better investment for 10 years?

Scenario 1: Buy multiple cash flowing properties in the Midwest and keep renting in NYC

- Earn 15% cash-on-cash return per year = $30k per year x 10 years = 300k profit

- Very modest appreciation (let's say 100k to be generous)

- Total profit = 300k + 100k = 400k (I'm being very generous here)

- Keep in mind if you sell the homes at the end of the 10 years all your profit is taxable since you don't live in the properties. Even if you were offsetting the profits with depreciation write-offs, there will be a depreciation recapture upon the sale by the IRS.

- Also keep in mind you will be spending at least $2.5k per month on rent to continue living in NYC while you invest out of state. This adds up to -$300k in total rent spent over 10 years, for which you get zero deductions or equity.

Scenario 2: Purchase your home in NYC

- Take your 200k and lever it up to buy a $1mm property that's going to appreciate on average 4% per year in NYC, compounded, so $1mm x 1.04^10 = $1.480mm for a profit of $480k.

- That entire gain is tax free, since it is your primary residence

- Your monthly payments will be over 4k per month, but almost half of that is going toward your own equity and the other half is a tax write-off that reduces your taxable income and possibly brings you to a lower tax bracket.

SUMMARY: I'm not quite ready to declare victory for purchasing your home in NYC, but I have to admit, I just convinced myself a tiny bit more. What do people think of my rough analysis? One last thing to consider is that this really only works if at the end of the 10 years, you are willing to cash in your chips and move somewhere cheaper. Because if you decide to "trade up" for a bigger property in NYC in 10 years, that property will have also appreciated a lot, so you'll be buying high and spending a ton, and the profit will have been on paper only.

I've been struggling with this.  On the one hand there is the "Rich Dad, Poor Dad" theory that your primary home is a liability, NOT an asset because it takes money out of your pocket each month instead of the other way around.  However, I have come around to believing that in certain markets like NYC, where appreciation over the long term is guaranteed (think 10 year stretches), your home is absolutely a (very valuable) asset. 

Yes, coming up with a down payment is tough, but if you do have say 200k liquid, the question is what's a better investment for 10 years? 

Scenario 1: Buy multiple cash flowing properties in the Midwest and keep renting in NYC

- Earn 15% cash-on-cash return per year = $30k per year x 10 years = 300k profit

- Very modest appreciation (let's say 100k to be generous) 

- Total profit = 300k + 100k = 400k (I'm being very generous here)

- Keep in mind if you sell the homes at the end of the 10 years all your profit is taxable since you don't live in the properties.  Even if you were offsetting the profits with depreciation write-offs, there will be a depreciation recapture upon the sale by the IRS.  

- Also keep in mind you will be spending at least $2.5k per month on rent to continue living in NYC while you invest out of state.  This adds up to -$300k in total rent spent over 10 years, for which you get zero deductions or equity.

Scenario 2: Purchase your home in NYC

- Take your 200k and lever it up to buy a $1mm property that's going to appreciate on average 4% per year in NYC, compounded, so $1mm x 1.04^10 = $1.480mm for a profit of $480k. 

- That entire gain is tax free, since it is your primary residence

- Your monthly payments will be over 4k per month, but almost half of that is going toward your own equity and the other half is a tax write-off that reduces your taxable income and possibly brings you to a lower tax bracket.

SUMMARY: I'm not quite ready to declare victory for purchasing your home in NYC, but I have to admit, I just convinced myself a tiny bit more.  What do people think of my rough analysis?  One last thing to consider is that this really only works if at the end of the 10 years, you are willing to cash in your chips and move somewhere cheaper.  Because if you decide to "trade up" for a bigger property in NYC in 10 years, that property will have also appreciated a lot, so you'll be buying high and spending a ton, and the profit will have been on paper only.

Mike Dymski those links are super helpful. I'm gonna play around with the data and check on a few cities I have a hunch about. Population growth and demographics hold the key to future appreciation. If there's a city that is trending toward 20%+ population growth over the next 10 years, especially in an optimal demographic mix, that's a pretty safe bet for solid appreciation. If there's even a modest amount of positive cash flow to be had today, then it's a no brainer. Thanks for these tools!

JOE MILL sorry I should have been more clear. My question is if you purchase a property in say Bushwick (or any of those nabes), and you make 20% down payment, will the rental income for that property at least match the mortgage payment plus taxes/utilities/maintenance (total operating costs)? I'm pretty sure the answer to that is no. So yes you'll probably get appreciation over time, but you'll be coming out of pocket several hundred dollars per month while you wait for that to happen.

maybe the better question to ask is where is the next Austin or Dallas? What were the market forces at play that led to those metro areas that for a long time were slow-appreciating/good cash flow areas, to a sudden boom of appreciation? And who has good educated guesses about where we might see the beginnings of similar forces at play around the country? For example where are young, educated, tech-employee types or hipster-types moving when they don't move to the coastal cities? Maybe southern cities like Nashville? Do Atlanta or Raleigh still have room to run, and do they still offer positive cash flow?