All Forum Posts by: Account Closed

@Account Closed a 5 cap in LA, AZ, or TX give you the same income stream. A 5 cap in LA and an 8Cap in TX gets you more bang for the buck in TX. That was my point. There may be other reasons to invest locally, but cashflow is not usually one of them. Case in point I just purchase a property at 21k a door with 1 bed rents at $650. Compared to a LA purchase of 210k a door and $1800 1 bed rents.

Originally posted by @Account Closed:

Wouldn't the property be an asset and the mortgage the liability? The LTV ratio is less than 50 percent. I'll take that "liability" off his books. Also you do realize that cash flow does not guarantee profitability? Without knowing the probable rent growth and appreciation rate you are being very premature in making a sell decision.

I don't think I'm being premature at all.

I think it is just semantics to try to separate the property from the loan... because you can't. The loan is tied to that property until he pays it off or refinances. And because of that loan, along with HOA, taxes, insurance, this property will not give any positive cash flow and as soon as there is a vacancy or maintenance expense it loses money. That doesn't sound like a good use of $100K of equity to me.

I think one of the key words you used was "probable". Yes, the property should appreciate in terms of rent and value, but I would never count on that. It would be much better to have positive cash flow in the meantime.

@Account Closed , you said you'd take it off his books... so you're willing to pay him $100K and then take over the loan payments and then not have any cash flow for the foreseeable future? (and actually negative cash flow as soon as any vacancy or maintenance) I just feel there is a lot better uses for that $100K that would give much better returns without hoping for appreciation.

@Bob Bowling As the purchase price increases relative to the income stream, the caps compressed or goes down. So in LA you are not getting the same bang for the buck, assuming other criteria were the same.

@Jeff Greenberg: My question to the OP was for him to understand WHY the cap rates were low for the type and location of the properties he was talking about. My question to you would be why you think a lower cap rate in LA gets less "bang for the buck" than...? Since cap rates are the result of market actions AND a lower cap rate means possibly that the market is paying MORE for an equivalent income stream than say Surprise, AZ it could be very well that there is market anticipation IN LA that rents are on the way up or that prices will increase even more or BOTH.

My partner and I did our first deal a few years ago which went really well and we have about 1-1.5M in equity, but the problem is that the cash flow it generates is not that great - partly because cap rates are so low here in Los Angeles.

We have the property listed for sale and are thinking of 1031ing into something that will hopefully provide a lot better cash flow - which probably means we will need to look out of state.

We were considering multi-family but are open to ideas.

My question is - with 1-1.5M cash, is it possible these days to get levered returns in the 10-15% range? Net 200k+? Seems like it should be doable if we can find an apt deal for around 3-4M at an 8-10 cap and get fixed rate financing and lever up, but I am wondering what all of you guys are seeing right now.

If it's possible, any suggestions for markets to look at? We have been eyeing TX but haven't found anything great there yet.

Thanks in advance!

I would calculate this property at about a 12 Cap. You are paying 6.5% for money. It looks like a good deal to me.

There are two question you must answer. Do you have the resources to handle the negative cash flow? Will you be able to pay off the property in 5 years?

If your answer is yes to both questions, you should go ahead.

Good Luck.

Bill

Hi @Dan A

I would say sell it. As you mentioned, you only break even until there is a vacancy or maintenance issue. So, this is not an asset, it is a liability because for the foreseeable future, it won't put money in your pocket.

Now, if you were under water on the mortgage and the only other choice was to do a short sale or foreclosure, then covering nearly all the expenses with rent would be a good alternative.

But since you have about $100K equity, I would definitely sell and use that money to buy 1 or more properties that will cash flow well from day 1. That way, you'd still get "the tax write off, the diversification play on my balance sheet, and the idea of doing a new venture."

If not that, then definitely refinance so you can cash flow each month after ALL expenses.

Just my thoughts.