All Forum Posts by: Michael Kotylo

This seems to be a reoccurring post every couple of days. In most markets the price of homes and expenses have outpaced the increases in rent. This is making deals very hard to find. The increase in interest rates is also making other investments like bonds and CDs more attractive.

Hey, another software guy!! That's my bread-and-butter too. I've been reading the literature on REI intensely for the past few months, looking to get away from that. A few points:

First, from all I see and hear, this is one of the toughest housing economies for cashflowing deals in a very long time. Many, many zipcodes all over the country are like this. I'm in southern California, and this was true even before Covid. I've been looking for months, and I can't find anything that will cashflow locally. It's making me strongly look at investing out-of-state.

Second, not every seller will be interested in your offer, and you might need to adjust your expectations. Experienced investors I've heard from say that they only get 1 out of 10 offers accepted. 

Third, how are you educating yourself on deal-finding? Are you reading books? There's a ton of literature on this subject. I love Audible.com because there's a huge number of relevant titles and I can listen while driving in the car or doing mundane stuff around the house. It's a great way to make better use of the time. For evaluating different deals, especially for BRRRR and buy-and-hold, look at Internal Rate of Return (IRR) calculations. I made a calculator for this in Excel, using BP's BRRRR calculator as my inspiration and to know what input parameters to factor in. IRR is excellent for understanding complex series of cash inflows and outflows over time. You probably want to aim for an IRR that's a fair amount better than simply sticking your money in the stock market. I'm aiming for 15% at a bare minimum.

Can't win if you don't play. This seller laughed at your $280k offer. But another seller with more motivation might have taken a $240k offer.

Just keep going after them and making offers based on what makes sense for you, not based on what the property is listed for.

I feel the same as @Russell Brazil . Buying in equity markets adjusts expectations as does buying in a low inventory,  mostly sellers market. Most have to find and create deals off-market. 

An equity capture .5% deal for me is a go as long as my discount is 12%+. Smalls are balance sheet buys.  Multis for cash-flow.  

You mentioned ARV, but not how much rehab to get there so the term is worthless. What is the comped FMV? How much below market value are you buying at?

Lastly, have your offers appear they came from your calculator.  $280,000 has way too many zeroes.   Try $281,740 or something in the future @Michael Kotylo 

Ive been hearing people with the same complaints for the entire 20 years Ive been in real estate.  Year after year, decade by decade goes by and they keep not buying because they keep saying the numbers dont make sense....sellers want too much money...I cant cash flow enough.

I keep buying year in and year out regardless of market conditions. You said the property would rent for $2500...Id pay $500k in my market for a property that rents for that in my market happily. 

@Michael Kotylo If you're not already listening to podcasts check out the Rental Income Podcast with Dan Lane. It was either the BP pod or that one where they interviewed an investor that buys property in a small town at similar price points ($10K or less). The properties rented for $600-800 per month. He self manages the properties. Appreciation is next to nothing. It's a pure cash-flow play. The town has a handful of jobs but most of the people drive 1hr+ for employment. It's a unique situation. Maybe this applies to your market. Cheers. 

@Michael Kotylo I'm more interested in those wild numbers! Assuming this property is distressed are you really buying a property for $7500? What class neighborhood? How did you verify the ARV?

These questions are massive if you're aiming for buy/hold property. Cash-flow is only one piece of the pie (a small piece long term). Think about your tenants (customers) and potential headaches you could have. If it's negative cash-flowing those headaches better be worth it. Otherwise it's a flip deal, take the profit, pay your taxes, and on to the next opportunity. 

@Michael Kotylo Hi Michael, if you’re planning on staying in the same area I’d recommend doing the management on the rental yourself until you build up your portfolio a little bigger. There’s generally not that much work involved and it’s the fastest way to learn the ins and outs of real estate investing and also what types of information you’re looking for from your property management company down the road. You can always hire management if it becomes overwhelming. It will also save you 7-10% of your rent monthly as well as mark up costs on any work you have to have done to the property.