All Forum Posts by: Leslie Hsia

@Katie L. Thanks so much for the insight reply! Really shows that there's definitely a lot more for me to look into as I make a decision.

Greetings!

I've been somewhat on the hunt for SFR's and some multi-family's (mostly duplexes) to invest in as a first-time investor. Where are you all looking to find good deals (particularly for good cash flow)? I've been using the 1% test as a first-check since that determines whether I'll even have a positive cash flow the first year based on some underlying assumptions on vacancy rates, repairs, CapEx, PM fees, etc.

Given that I'm currently living in Seattle and will be relocating to the Bay Area soon, I figured my best bet would be to do long-distance investing, particularly the midwest (lower barrier to entry, more landlord friendly but at the cost of needing to have a PM). My hope is to get something a bit more turnkey (MAYBE >6-8% COC?) since I'll be halfway across the country. I've looked at Indianapolis, Columbus, Milwaukee, Detroit, Chicago, Flint, Cleveland, etc, and I've had a VERY hard time finding anything that passed my 1% test, and anything that did only gave ~3% COC. The closest I got to having a consistently higher COC on multiple properties was probably Cleveland, but some research reports have shown that their population and job growth have been decreasing over the years even before the pandemic hit.

I've tried looking in the Bay Area to see if I could house-hack, but the numbers just don't work out since the price-to-rent ratio is still absurd...

Where have you all been making your turnkey cash flow purchases this year?

Can you clarify what you mean by "filing an LLC?" Is that different from CREATING an LLC? In other words, do LLC's do need to be "filed" for each state in which they will operate in (buying rental properties) even after being created (in some other state)?

Hey all! New investor here. I have some questions regarding LLC's.

My basic understanding is that LLC's are good because they can separate your businesses expenses, and they keep your personal assets safe in the event of a lawsuit. I'll ask my questions in hypothetical situations:

1. If I live in California and buy rental property in Texas and I set up my LLC based out of Delaware, do I need a representative agent in both Delaware and Texas? (ie. Does the representative agent get involved in the purchase of the rental property in Texas?)

2. If I live in California and buy rental property in Texas and set up my LLC based out of California, do I need a representative agent for Texas?

3. More generally, where does one find a representative agent for creating a foreign LLC, and what are his/her responsibilities with regards to setting it up? And is this someone who I would need to pay annually to keep the LLC's license (or whatever the term is used) renewed?

Thanks in advance and Happy Holidays!

I'd like to understand when and how different values of return should be utilized and interpreted. After much reading, I have come up with the following (excluding COC and Cap Rate for this discussion, since I believe I have a relatively good handle on those):

1. Total ROI = [Net Profit] / [Total Investment Amount]

•  [Net Profit] = [Total Appreciation] + [Total Cash Flow] + [Total Loan Paydown]- [Closing Costs (at selling and buying)]

• [Total Investment Amount] = [Down Payment] + [Pre-rent holding costs] + [Improvements]

Notes: Doesn't account for time value of money, also not annualized

2. Annualized Total ROI = (1 + [Total ROI]) ^ (1/[Years Held]) - 1 (This takes the Total ROI value from item 1.)

Notes: Annualized, but doesn't account for time value of money

3. Internal Rate of Return = I won't bother writing out this equation, but I understand it to be setting the NPV = 0 and solving for the discount rate "r"

Notes: Accounts for time value of money; gives a sense of "true" returns

4. Return on Equity = [Total Annual Return] / [Equity]

• [Total Annual Return] = [Current Annual Cash Flow] + [This Year's Loan Paydown] + [This Year's Appreciation]
• [Equity] = [Total Investment Amount] + [Total Loan Paydown] + [Total Appreciation]

Notes: Shows your return relative to your "trapped" money

My questions are the following:

• 1. PRIOR to purchasing a rental property, which returns do you look at (aside from cash-on-cash return and cap rate) in order to compare a potential rental property to another one? Which return(s_ do you look at to compare a potential rental property to another asset class altogether (ie. stocks)? I ask because stock brokerages generally show Total ROI rather than any other returns (like IRR), so would it be more apples-to-apples to use Total ROI for comparison?
• 2. AFTER purchasing a rental property and renting it out for some number of years, which returns would you look at for the same types of comparisons above? (ie. which metric do you look at to determine if you should continue renting out your rental property vs just selling it based on a comparison with the stock market?)

Many thanks. I've got lots to learn...

New investor here. I'm trying to learn/understand when to use different types of ROI. I'd like to get some of my learnings validated here and also have some questions answered as to how I should interpret some other types (like IRR). My investment objective for rental properties is cash flow (and not so much appreciation).

In terms of understanding total annualized ROI for a rental property (assuming I already bought it and have been renting it out for some time), my understanding of Total ROI is the following:

Total ROI = (Net Selling Price + Total Cash Flow) / (Total Investment Amount), with Total Investment Amount and Total Cash Flow adjusted for inflation.

I would then annualize the Total ROI figure by performing the following: Annualized Total ROI = (1 + Total ROI) ^ (1/(Years Held)) - 1

Now, assuming that I'm running numbers PRIOR to purchasing a rental property, I've been reading a lot about IRR. The issue that I run into is that I don't have any gauge as to what my future cash flow will be. Given that IRR doesn't include inflation, my best guess is that my annual cash flow this year will be the same as any other year. If this is the case, then what difference does it make if I were to just use the Total Annualized ROI equation described above (factoring out the selling price assuming I don't plan on selling the property in the future)? aka what's the difference that Total Annualized ROI figure vs IRR (other than the fact that I included Selling Price in one of them)?

And lastly, let's say I bought a rental property and I've been renting it out for 10 years. Which ROI (or ROI's) would you use to determine if you should sell today or sell in the next 10 years? I'm having trouble combining the effects of inflation that has already occurred vs what your anticipation for the future is.

Thanks in advance!

Fair enough. What's your opinion on the following scenario then:

I bought a rental property in 2010 for certain amounts in down payments, closing costs, etc. If selling this year in 2020, would you factor in inflation for your 2010 acquisition costs? I only ask because I don't see anyone talking about this portion.

Hi everyone! Completely new potential rental property investor here.

I've done some reading on understanding how to calculate rental property ROI. According to Brandon Turner's Rental Property Investing book (as well as other articles I've seen online), part of the ROI calculation involves understanding your total investment amount, where the total investment amounts includes the following: down payment, closing costs, and pre-rent holding costs (mortgage, insurance, repairs, etc.).

When calculating the overall return on a rental property investment upon selling, do you adjust your total investment amount for inflation? (ie. If I were to make a rental property purchase in 2020 and sell in 2040, would I adjust my total investment amount to the 2040 value?) I ask because I never/hear see this discussed in calculations for overall ROI, but I think that it's something that would really affect what your true gains are. Is there something that I'm missing here?

Thanks in advance!