All Forum Posts by: Matt Burr

How do you handle number 5 with the insurance?

The downside I am trying to find a way around is how to insure correctly without the bank getting notified of the change in owner. 

We all should know that no matter what numbers you choose to use you should analyze your deals factoring in money for repairs and maintenance along with capital projects.

When you only have a house or two it makes good sense to save these funds in a separate account so they are there when you need them.

As I have grown and built a portfolio that brings in several thousand dollars a month that starts to seem a little silly to do. In reality I have more than enough cash flow each month to cover the repairs and maintenance of the units even as it fluctuates month to month. I also keep a minimum cash balance on hand for major projects then rebuild the fund when needed.

What are your strategies? Do you cash flow repairs or do you still set aside funds based on your initial analysis of the property?

@Fred Cannon that is why I wanted to gather some opinions on how people perceived some of the rules of thumb for cash flow. The horse has been pretty well beaten to death but the out come is... it all depends. 

For low cost markets like I am in you are not likely to see small MFH buildings put out $1000+ per month but I also don't pay $300,000+ so it makes sense the rules probably waiver some. Neither is right or wrong there are some nice advantages to both sides. I would love the simplicity of only needing to buy one building a year to match the same cash flow that I get with three buildings a year. The flip side is a vacant unit here and there doesn't impact me much at all vs if I only have a few large cash flow buildings I will feel it soon as something is vacant. 

There several other factors that have all been talked about many times in this chain as well. Boiled down you do what works for you. Check your facts and numbers along the way but if you are happy with the deal then it "is a good deal" doesn't matter who else is making $1,000,000 a month.

@Fred Cannon

One example is a triplex that is $75k. Cash flow on the property after all expenses is $293. With 20% down that is above 18% Cash on cash return. I also own three other propertise a block away.

There are a few things that seem to need to be clarified in this conversation.

1) there is a big difference between multi family and sfh

2) Financing also makes a huge difference. You can make any property make tons per door just put down more cash

3) also propertise you pay more for generally will make more per door but your over all cash on cash return can be much lower

@Phil Denton you are 100% correct. You must adjust for the area. In my particular case on these houses I am compensating with 10% maintenance and 10% capital costs assumed. Those are pretty high in general. Area should not be as bad on turn over but if you do look at high turnover areas then adjust your vacancy figure accordingly.

@Dan Heuschele

I agree even with PM it is not close to passive. I should have been clear though that the properties in question are 3-4 units and cash flow for the whole property is between $300-400 per month. Both are honestly just shy of the $100 per door mark but there are several doors.

Totally agree it isn’t worth it for $30 bucks a month.

@Joe P. you are correct it may not be worth it if you are jumping into a whole new area or a war zone area. In my case it is the same town I have several other properties in. I will be using all the same vendors and property management. In theory shouldn't be to bad on the headache side. 

To piggy back on this post a bit. I am looking at a few properties in a small market. Property prices are pretty low. I have always told myself the $100 a door rule but I am finding properties now that are not quite at the $100 mark but my Cash on Cash on Cash return is north of 18%. 

I have been investing for real estate for several years and I cant think of a reason why this wouldn't work. In other words 18% is 18% no matter if I make 5$ a door or 500$ a door assuming I have my expenses figured accurately which I always make very conservative. 

Anyone have any thoughts on if my logic is sound or not?

@Phillip Rosin

Won't beat the dead horse much but personally I would pay everything off. You will be left with a good chunk of cash, great monthly cash flow and a clean slate to map out the rest of your investing. 

Also keep in mind just because you have "a good interest rate" you still have to make the whole payment and it affects your overall cash flow the same no matter what rate you have. 

If you have not already check out "Rich Dad Poor Dad". It is a great book that I think maps out your situation exactly. In summary your debt isn't being paid by someone else so you need to pay it off.