All Forum Posts by: Ethan M.

Just noticed this article on 2021 sums up an answer in this way: "To me, a good deal in 2021 means modest cash flow and strong equity growth." (https://www.biggerpockets.com/..)

Maybe for 2022 it is: "modest negative cash flow and strong equity growth"?

I'm hoping to get some perspective from people here on an experience I'm having in current markets. I would like to put some money into a property that can bring in some cash flow, or at least break even, and I want to do this in a market likely to have decent appreciation. The local markets that make sense for me are all coastal and have super high price-to-rent ratios so cash flow is very hard to achieve. I just never see any deals when I am sent properties. I've got a realtor that, however, is suggesting that I rely on cash flow going positive due to rent increases. This doesn't feel right to me. Rent feels sticky. Increasing it seems harder since it's a social decision that can affect tenants etc, and I've got an ethical system that will lead me to be reasonable about rent increases. 

So...my questions are:

1) Is there any legitimate reason that a realtor might be suggesting to me that I can rely on cash flow going positive due to an increase in rental income even in, say, a market like Seattle? When I use the rental property calculator on this site, I just don't see that happening with its default setting of 2% income growth;

2) What expectations can one set about income growth via rent increases in this environment. I've read a number of sources (including https://www.cbre.com/insights/...) that forecast rent increases in many types of markets (downtown areas, suburbs), but what might that translate into in terms of reasonable assumptions for % increase? 

The reason I'm asking these questions is that I'd much rather invest in a market that is in an area that I know and that I am likely to be. I can go the whole out-of-state route but it is, as many have acknowledged, just more uncomfortable. So if there is in fact some way to invest reasonably in a high octane market without being some super cash-flush investor, then that'd be great. I guess this comes down to: is there a way to balance the difficult cash flow situation in coastal markets against their attractive appreciation?

Any help with these questions would be greatly appreciated!  

@Justin Phillips I was wondering if you could elaborate a bit on your comments on the 1% rule. Understood that these rules are guidelines, how do you then think about the 1% rule. Do you decide that you'll filter potential leads instead in terms of a figure like 0.7%, i.e. the 1% rule is now the 0.7% rule? In this case we'd be saying that we need to accept a higher risk of investing in some property that is not cash-flow positive? Or do you take this further? That we can't evaluate investments in many markets right now in terms of cash flow positivity? 

@Jeff L. did you ever figure out how this "profit if sold" calculation is generated? I've been trying to understand the same thing. I haven't been able to reproduce.

I'm trying to understand how the Rental Property calculator's "Profit if sold" figures are calculated. I'm talking about this:

I'm doing this to try to understand the assumptions built into this particular calculator, but also just to understand how this calculation can generally be figured. I saw a reference to another post from some time ago that this calculation is: (Property value * (1 - cost of selling)) - remaining loan balance - cost to buy (e.g. downpayment + closing costs) + cash flow. But I can't quite get this to work out. I.e. for the above in Year 2, say, I do (with closing costs of 25960):

(747000 * 0.925) - 534322 - 25960 - (17696 + 16958 + 16193) = 79846

The chart above shows a value of -$6k for the profit if sold in year two. I'm obviously not understanding very well what goes into this value but I would really like to understand how it is calculated. 

Does anyone know how this figure really works?