All Forum Posts by: Account Closed

Oops! Rents and expenses don't scale linearly with rents ... 2 single family homes in LA will have ~16% the CapEx of 12 single family homes in Baltimore, regardless of rents and price points.

Oops! 2 tenants paying $3500/mo each will be much easier to manage and a much better tenant class than 12 Baltimore tenants at $1,395, resulting in much lower vacancy and steadier cash flow with fewer management headaches.

Oops! Long term LA wins the appreciation game AND the cash flow game.

Of course you have your way of looking at things.... we have to use what is reasonably certain than compound forecast and assumptions exponentially. some may argue that estimating a 3% increase in a rent control environment is excessive but general price increase is at 3% hence that is used for both cities.

Also, although 45% expense is estimated for both cities it can also be that expenses are actually higher in LA than Baltimore, so actual expense in Baltimore may be like 35 or 38% which is totally feasible.

Well, we let property management worry about managing properties within their allocated budget right? :)

Try not to take it personal Dave!

David is absolutely right. Rental income follows appreciation. This is real estate 101.

Why didn't you account for this in your calculations? The numbers have been published. If you look from 2000 or 2008, doesn't matter, the highest profit markets have been, and continue to be San Francisco, Los Angeles, San Diego, and San Jose. That is because profit = equity gain + net rental income.

If you want too look at hypothetical situations, at least take into account basic principles of real estate ecomonics. The data is already out, no matter how much you try to fudge the numbers.

Last time I checked, rent is controlled in the market you are talking about. I dont have to account for jack in any calculations. If I have two properties in different markets, one cash flows if rent is held constant through out holding period the other doesnt... there isnt much to calculate.

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Originally posted by @Peter K.:

Great, thanks for all the input!

I was also looking at Capex and repairs on this condo- I feel as if I priced it a little too high because the exterior maintenance is all done by HOA (roof, etc, etc.). The only major things I would have to worry about is interior and I feel like I wouldn't need much for repairs/CapEx.

Any thoughts?

If your estimations were correct in terms of rent and operating expense, then it seems like a bad deal. For starts, just the operating expense is almost 65% of rent. Normally, 50% (per the 50% rule) can be excessive in some markets but still 65% expenses and prior to adding debt service, will almost make CF negative in most markets.

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Originally posted by @Andrew Johnson:

Peter Kim So two flaws...

1.) You're analyzing the deal with 15% down. Most investments require 25% down. Rerun your numbers with 25% down so you're at least analyzing this in a like-for-like scenario. Side note, it's also why the 3.5% down FHA deals often have trouble cash-flowing.

2.) Not all properties are meant to be cash-flowing investment properties. Condos are even tougher because of HOA fees, restriction on the % of rentals, etc. Not to mention if you're selling in an area with owner-occupants they aren't seeking a return.

Basically, not all properties are meant to be investments. Not all "investment" properties are meant to cash-flow the first day you buy it. I look at my SFR in Encinitas (where I live) and I'd bleed cash like a stuck pig if I tried to rent it out. And while it's great that you're qualified for a 15% down mortgage, you're better off using 25% down if you're looking at an investment.

I hope that helps, it probably doesn't... 🤷🏻♂️

I think if the property is really good it should cash flow with 10, 5 or 0% down. If you have to increase the down just for property to cash flow, then there may be something wrong. He may just have to find a better deal that CFs with at the 15% or a lower amount. Of course if the lender says you need a certain percentage down to get the loan, then thats what your options are. It is true that not all properties are meant for CF. The 1% rule work in some markets and with certain properties and it doesnt in some.

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Originally posted by @Andrew Stephens:

Originally posted by @Joseph Pugliese:

My thoughts on this great conversation...

This appreciate game , had to start to slow down in big cities (I live in NYC) just has gone up to much and too fast the last few years. The cap rates are going down to much , not even making much sense even in the multiple million dollars market 😬. How much juice is really left in that appreciation 🤔.. . . . .

So if you're will to get your hands little dirty, I see good 😊 potential in some low income neighborhoods .

This also depends on your age , patients and timing in life .

My 2 cents ...

I've enjoyed reading this thread. It is a good illustration of the relationship between risk and reward.

The comment by @Joseph Pugliese reminded me of another NYC investor who has gotten his hands dirty in the Baltimore area: Jared Kushner.

The New York Times had a profile of Kushner's investments in Baltimore:

Jared Kushner's Other Real Estate Empire

I actually wasn't aware of this.

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Originally posted by @Mike Dymski:

Find a place where the owners or the management company don't care about unmarried couples living together. It's not about someone being "set in their ways" or older. Some people's ways are just different than other people's ways. Also, breakups are significantly more frequent with unmarried couples and that creates more turnover, inability to pay rent, deposit disputes, etc. and that means no profit for the owner. Their are billions of houses and residents. Forget about legalities and just move on to a better fit. Good luck with your search.

Wait, right, there...... are you telling me that someone got discriminated against because of their marital status? Somebody tell me I heard or read that incorrectly.

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Originally posted by @Peter K.:

So I'm looking into buying this rental property that just came on the market by a University. It is a 3 BR 3 BATH apartment Unit and the market is hot for these here and they sell quickly so I did my analysis, included all the things like capex, repairs, whatnot, and still come up negative. I know the rent price is fair market value and common sense tells me I should be getting cash flow but math does not, am I pricing CAPEX, repairs a little too high? What are your thoughts based on my calculation?

The problem is you are including debt service (mortgage payment) as an operating expense. You subtract that and you should have expenses at $485, cash flow $265 and cap rate at 4.54%. It does mean however (if your numbers were correct), that you would have the out of pocket expense of $55.09 each month. This is a problem often more pronounced in markets like LA or SF.

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@Sebastian E.:

I think Uber is the prime example of a company using the strategy of non-compliance and then forcing localities and cities to react to their business model.

Quite frankly, I have never used an Uber or really looked into it. They really only got on my radar when we were trying to decide on a corporate location for a venture and California was mentioned as a possible "problem" state. Problem= risk.

This became evident with the recent issue of Google suing Uber about stolen technology/business secrets etc. Something about an employee leaving google with certain business secrets to use at Uber.

Unfortunately this is just another problem with the way the law is written in California. I can understand why some of these companies are getting upset and relocating corporate offices to other countries in some cases. Google for instance appears to have plans of moving headquarters to London, it seems?

Unlike many other states where a company can legally require an employee to sign and abide by certain trade restraint contracts for some time, limiting that employees ability to literally leave the company and set up shop next door with patent type secrets he took from the employer, in California, such contracts are not enforceable. I mean the concern isnt about an employee leaving, they just have to keep hands off employer's business secrets.

So some are of the view that California laws is very anti business, but this is of course getting way off topic. My view of Uber is limited to its legal issues and lawsuits by google about business secret infringements.

You seem to have a things for companies that like getting into all sorts of legal trouble -- seeing a pattern here? :)

https://www.theguardian.com/technology/2017/jun/01...

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Originally posted by @Ken Dillard:

Short term rentals have been around a long time. Back in the day (longer than I care to admit) everyone looked in the Classified ads for weekly house rentals in Florida to plan their vacation. In 1992 Home Exchange began. AirBnB began in 2008.

Now in 2017 if you are to believe a lot of the stories criminals are running rampant and AirBnB is a conduit for this. Take this linked story out of Nashville where the focus has become that these criminals were using AirBnB to rent. The print story linked below only mentions AirBnB but the TV coverage leads it with "AirBnB renters found with guns and drugs". It has become a hot topic so now it seems there are more and more stories.

Nashville Story

There was no outcry from neighbors when Home Exchange began. Someone correct me but I don't recall hearing AirBnB concerns in 2008 when it began. So why have short term rentals gotten such a bad name in the last 2 years? Tax Revenue? Resistance to change? Or all of a sudden a large number of criminals have decided to STR? Should neighbors be fearful or is this the next new media hype?

Thanks

AirBNB is making the news for all the wrong reasons because in many of the cities/states where it is trying to do business, it is actually breaking the law. Most of the properties aren't zoned for hotel use, the host aren't licensed to run a hotel, the business isn't registered with city/state, tax evasion of course, rapes and sexual assaults, fraud etc. These are real issues. I mean its bad enough for a criminal to sneak into your house in your absence to steal something. That bad enough... but its totally something else for that same criminal to go to a court and sue you to change your door locks, because he feels its too much work breaking in.... you enable enough people to knowingly and deliberately commit crimes and at some point you are liable to face criminal charges as an accomplice or accessory.

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Originally posted by @David MIller:

Hey BP, while I try to buy a place, I'm looking to rent in Sacramento. I just got off the phone with a landlord. After we scheduled a showing and agreed to a time and date, he asked how many of us were going to be renting. It's for a 2 bd 2ba 1100 sq ft apartment. I told him it was for my gf and I and my friend. He immediately told me that would not work. Confused, I asked why not? He responded, that the apartment is too small for 3 people. Quick side not 1,100 for Sacramento is pretty big from what I've seen. He continued how in his experience that a friend living with a couple never works out. He promptly said well that settles that and implied that he was no longer going to show or offer me the apartment. I responded with, well let me know if you change your mind. He responded I'll call you if I do.

So is this an issue where you were given an illogical (unlawful) reason or how exactly do you feel you were being discriminated against? Also, the pic on your profile is you correct? :)

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Originally posted by @Diogo Marques:

How do you know if a given Market is Overvalued or not? Anyone?

This usually is a hint...

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All Forum Posts by: Account Closed

Account Closed has started 11 posts and replied 613 times.

Post: The mindset of the Cash Flow investor: LA vs Baltimore

Post: Why is my cash flow in the negatives? Is this a bad investment?

Post: Why is my cash flow in the negatives? Is this a bad investment?

Post: The mindset of the Cash Flow investor: LA vs Baltimore

Post: Landlord being Discriminatory?

Post: Why is my cash flow in the negatives? Is this a bad investment?

Post: Airbnb, a threat to short term rentals - hotels, apartments etc?

Post: AirBnB = Media Hype or real concerns?

Post: Landlord being Discriminatory?

Post: How to tell if a Market is Overvalued