All Forum Posts by: Joel Gulstrom

I'm relatively young investor (30) working on putting my first rental property under contract. This community seems to have a fairly low view of stock market investing which is fine, but I thought the following comparisons really had some striking implications. 

I'm working towards early retirement. I still have a day job with 401K been building a mutual fund portfolio, and because I'm also a real estate agent on the side I've been working my way closer and closer to my first rental property. Really have appreciated the free podcasts and forum as they have really helped me understand the benefits or real estate more. I run the numbers on early retirement quite often. One of the major variables in my calculation is rate of return. For example say you have 500K and your getting a 4% annual rate or return. So your nest egg is kicking off 20K a year. That 4% number is an age old 25:1 safe ratio often used for retirement figures. Note there are assumptions made even for the %4 but that is no the point of this post. 

The point is as I run my numbers its really easy for me to think: I'm young I can afford to have my assets in a riskier class so really 8% ROR is reasonable so that is $40K. Yeah now I can retire that much sooner. Anyway I was dinking around with the numbers and looking at how a couple rental properties would aid in my ability to retire early and stumbled into this somewhat obvious but also obscure realization.  

When looking at cash flow (which doesn't specifically need to come from rental property) although there will be a  rate or return based on your cost to obtain and hold, there isn't an assumed rate of return based on stock market (economic market) conditions. 

I know I'm rambling I promise I'm about to get to the point:

The realization was that cashflow is worth an ever increasing amount as your investment strategy becomes more conservative. Meaning the more conservative I want to be the bigger my nest egg needs to be. Yet the more conservative I want to be the larger the portion of my nest egg the cash flow effectively replaces. 

The graph below shows 100K in income from investments at different rates of return. Note how as you become more conservative, (lower rate or return) that you need a large nest egg. At the same time the cash flow you already have effectively decreases the nest egg amount needed by an equivalent rate. 

This was a quite a revelation to me as I want to make sure I'm being reasonable with my ROR expectation of my portfolio. Meaning I need more money to get to that early retirement number. At the same time the more conservative my estimations are the higher the effective replacement value of my cash flow is. 

This was a light bulb moment for me. It may not be for you, but I thought I would share.  

Its simple math:

$1 annual return means you need a nest egg of $12.50 @ 8% ROR.

$1 annual return means you need a nest egg of $25.00 @ 4% ROR.

$1 annual return means you need a nest egg of $50.00 @ 2% ROR.

Meaning that $1 in cashflow effectively replaces larger amounts of savings as you get more conservative. 

Hope this helps someone else. 

Curious if I have this posted in the right section. Any additional feedback warnings, recommendations, etc would be appreciated. 

Would love some additional feedback before putting this one under contract. 

Would love any additional feedback from others. Being my first property I'm being necessarily cautious. I'm also using the feedback here to review with my wife as rental real estate as I want her to be completely onboard as well as we branch out into rental property. 

Although my post count is low my post reading is high. I've attempted to try and at least show that I've done some of the work before coming and asking "should I buy a property". 

TIA.

Thank you for the response Michael Manchester. I'll have to get a real number from a lender, but assumed I'd be one of the lower rates as I have a solid W2 income, own my own home, and have zero debt including the primary residence. 

One of the goals of this rental property was to improve my diversification in two areas: 1) Real estate. 2) Long term low fixed interest debt. Most of my assets are currently in my home and in Index funds. Some Tax advantage and some not but as far as being invested in debt or income producing real estate I'm don't have any exposure and I'd like to fix that.

A  piece of me also says this is a single family residential and will have good resale value and liquidity so I'm not pinched if I need to get out. Being my first one there has been alot of advice out there that says you just need to get started and do one. Once you start working the ropes you'll be far better equipped to be searching for the next deal. This one appears to have fallen in my lap. Worth mention that the price is asking and not the selling price so I expect there may be some room there. 

Good Morning all,

Location: Maine, 45 min west of Portland. (Small rural town)  

Little about me. Engineer (full time), Landscaper (part time), Realtor (Part time). 

Looking for my first rental property. Have a client who I've worked with in the past who mentioned he would be interested in selling his primary residence. He's offered it to me as a rental property so I thought I'd run the numbers. It close to were I live and in good shape so I'm interested but before I move forward on it I'd like some opinions. 

The Primary house is a late 1800 early 1900 farm house. Its currently only a 1bd/1bath with 700 sqft all ground level. There is an enclosed access to the second story from both the interior and the exterior, but that space is unfinished. It has been framed out for another bedroom and roughed in for a bathroom. Because of the separate entry it has potential to be made into a studio apartment or I considered making it an office for myself.  Basement is Granite block. This is the owners primary residence and its in good shape. Heating system was replaced with a rinnai propane unit and is 5-6 years old. There is a functional dug well on the property, but the owner drilled a well when he moved in as he feels like dug wells are unsanitary. Roof is shingle and is in good shape.

The Second building is an 1100 sqft garage with 10ft ceilings. I suppose there is potential to rent storage there, but since its close by to my place and I run some side business that could use additional space I might occupy the garage. There is a second story above the garage and it has a 2bed/1bath apartment. It was finished around 6 years ago and also uses a Rinnai propane for heat. Hot water is electric. A new separate septic tank and leach field were installed for the apartment 6 years ago as well. 

I've asked a local landlord who has quite a number of residential rental properties in this area and was told to expect to get 1000/per and I could probably get $1200 if for the 2 bedroom. 

Financing would likely be %20 down using a Heloc on my home and the rest would be conventional. Shouldn't have any trouble staying under %3 interest rate at the moment. I'll admit I don't run numbers on rentals that much but I've tried to for this one. Looking for some feedback on yeah or nay. Positive or negative I'd appreciate your feedback. 

Thank you!

*I've rolled the electrical and heating costs into the rents. Not sure how to handle that yet, but I don't intend to be on the hook for either so for simplicity sake that is what was done below. 

Good Afternoon all,

Been reading alot and not posting. Listened to well over 200 of the podcasts and hear over and over again you need to get in here and post. Realizing its just a step I need to take. 

Been looking around for my first deal. Not sure if I want to try a fix n flip or BRRRR, but this one seems like it could work for both. Was originally afraid of showing deals, but starting to realize I'm not going to make a move without some oversight so if someone decides they want it go for it. If you do would love to know how it works out.

Anyway, this property is local to me which is why it showed up in my list. Been extremely difficult to find anything that has the %1 rule in better areas of Maine. Parsonsfield isn't a war zone by any means, there isn't alot of high paying jobs out this far. Your here because you work at the local places or you've got a low skill job in closer to portland. The way I see it right now: Portland at least areas of it are A class and quite expensive. No chance of %1 rule. 20 miles around portland are the more B class areas. Prices are high rents are pretty high still and real estate has been hot for awhile so deals are fewer and further between. Parsonsfield is about an hour from portland and is probably C+. This one hasn't been listed that long so I'm not sure its got any real leeway on price yet, but sounds like owner financing is a possibility. I guess I'm wondering how to put a value on it. I don't think its a buy at the current price, and I don't think you'd get your money back if you did a bunch of work and made it real nice. Might even work better to convert back to single family and resell.. MLS#: 1452074

Property #2 is just a flip opportunity. Caught my eye because of the low price. Again just down the road from me. Looking at the price they started much higher back in December and have been dropping price every month since. REO and looks to be in relatively rough shape. When I look at it as a flip I think does this fit the preferable criteria of great neighborhood, good bones, good curb appear or the potential of being a great rental, etc. Pretty sure the answer is no on all of these. Its more of a niche home in the woods type thing. Would have to be the right buyer etc. At the current asking I'm wondering is this a buy at any price? I.e. 20K? 15K? Would give me some practice making offers even if they say no.
MLS#: 1441355

Probably ought to be searching offmarket if I want a real deal. Also need to organize my thoughts and be more concise with my posts, but break time is over so I'll see what happens. 

Thanks for taking the time.

Residential real estate (1-4 units) is valued based on comps. i.e. what are comparable properties selling for. 

Commercial (5+ units) are valued on cap rate. Most folks don't look at cap rates for SFR (Single Family Rentals)

Your numbers aren't bad and with it being paid off you will cash flow ok. 

However most folks here would say you could do better in a couple ways.

1) It doesn't meet the %1 rule which says monthly rents ought to be %1 of the purchase price. (Your not far off, and you may not be at market rent) This is a rule of thumb for purchasing only. 

2) Most folks on here want to Leverage to the hilt which would make your cash on cash returns much higher. However Dave Ramsey would say your doing it right.

To answer your question on should you sell your going to get alot of "depends". It all comes down to what you want. Paid off like it is you should get your $5k spread in cash flow every year. 

Current portfolio is my house only. (Also owned outright). 
 

Dang, Been on here so over the last few months, didn't realize that was my first post. Hello World!

Good Morning,

Was hoping to start connecting with some investors in the Buffalo area. I live in Maine, but I have two siblings who live in Owego, NY, and another who lives in Ashford Hollow, and my parents recently bought a place in Springville and will be moving there when they retire in the next year or so. I also have a bunch of relatives out in the Canton Ohio area. (3-4 hours Southwest of Buffalo)

I currently live in Southern Maine, but with so much of my family moving to NY I’m guessing in the next 5 years we will end up out there too. I’m a mechanical engineer and project manager and have a solid job here in Maine, but like so many folks I’m looking to get out from the 9-5. I run a small machine shop, lawn care business, and last fall I got my real estate license and work under Keller Williams. I own my house outright but have no other rentals at this time, but intend to use the real estate license to help me understand my area better and would like to start putting together some cashflow from rental property.

One question I’ve been mulling over is should I be buying rentals in Maine or in around Ashford hollow/Springville . Love to hear some insights on what sort of real estate investments are working well there. Prices seem depressed compared to Maine. (Fairly difficult to find anything under $150K that doesn’t need rehab even as you get in the rural areas.) Things get very expensive as you move towards Portland. Just showed a duplex on Saturday and there were other agents scheduled as well for additional showings. Built in 2005 Rents $1100 per side. Asking $325K. I just don’t see how the numbers make sense at all on something like that.

On the other hand my sister has been sending me listings from the Buffalo area with under prices under 50K and rents that make the numbers work. Pretty sure I can plan on zero appreciation in the Buffalo market though. I think some of the folks in Maine are making a bet on appreciation.

Anyway wondered what your thoughts were on starting to buy a couple rentals in that market and I also wondered if you had an recommendations for property managers in the area and contractors?

The big question is should I be looking harder where I think we will ultimately end up or should I just be present and get a few under my belt here where I don't have as much long distance heartache and where I have a support network?

I really don't know what I "want" when it comes to property. SFR, MRF, Commercial all sound pretty ok to me. I understand the advantages of the MFR, but I'm interested to know if SFR tend to attract a better clientel than the MFR's in this lower Buffalo area?

Thanks for taking the time to read my post.