All Forum Posts by: Marco Anemone

@Taylor L., thank you and agreed. What about at the other side when it's time to sell perhaps as a portfolio instead of individually?

@Greg Scott, I appreciate the insight. I agree as it relates to purchasing a single, single family house. And typically put much more weight im the other matrices you mentioned. I guess I'm wondering more so if a cap rate is relevant when it comes to a portfolio that is being sold or purchased.

I've acquired a number of single family houses and although I have no intention of selling, at some point I may, and it would be helpful to know what impacts value so that I can implement a strategy on whether to ultimately sell as a portfolio or individually.

@David Greenbaum

Although I understand the point others are making regarding coc not including principle paydown, I agree with your methods, and utilize both matrix.

Principle paydown is a function of the type of loan and the terms of the loan. Its still a return, it's just that the cash coming from rent went to the principal paydown. In comparison for instance, if the mortgage payment was interest only, with all other things being equal, the principal paydown that would otherwise go to the mortgage payment would remain as cash. Either way, its not an expense. Its a return.

Keep in mind that the housing authority payment standards are not necessarily the amount they will approve for your particular rental. There are other factors such as comparable rentals. The prospective tenants household income will also have an impact.

I know cap rates are not used to determine a value for single family houses. But is it appropriate to use, commonly used, or used at all for portfolios of single family houses? If it is used, would the cap rate be comparable to multi family buildings in the same are or more so based on other factors?

@David Lund

Cash flow is in large part a function of LTV on your loan. Put less money down and your monthly payment will be more, and there for your cash flow will be less. Put more money down, payment will be lower, and cash flow will increase. Of course there are other factors too. As for my criteria I look for all of the following (minimums):

Cash flow: $1000 per door. This is accounting only for PITI, and HOA if any ( Cap Ex, vacancy, management not accounted for).

Cap Rate: 10%. Does not account for CapEx or management. Yes I know single family houses are not typically valued/appraised using cap rates. But I do.

Cash On Cash return: 20%. This assumes 25% down, and accounts for all closing costs/purchase transaction costs, and all rehab costs/initial repair costs. Does not account for CapEx, or management.

All that said, some of my earlier purchases don't meet all of these criteria and many of my more recent purchases meet and often exceed these minimums.

I know cap rates are not used for single family houses, but is it appropriate to use for a portfolio of single family houses?

Wow, great memory. I hadn't put 2 & 2 together. Small world! Yes, they have been great to work with. And yes, always on the hunt for deals!

Bolingbrook is a great community, and even in the current market there are still very good cash flowing AND appreciating properties to be found. Nice work!

@Elvia Morales, everyones situation is different and everyone's objectives may be different. You should make your decision based on what your situation, needs, goals, and objectives are and proceed with a course of action that best meets the aforementioned. For me personally, I am currently buying to hold and rent. Purely coincidental, I just closed on a single family house in Bolingbrook this morning. So to your question, I would be inclined to do both. Make it a 4 bedroom and rent it. And then sometime after a year has passed, reassess my goals and objectives and sell at that time, should it help achieve that goal/objective. I say after a year because selling before 1 year has passed would create a larger tax liability.