All Forum Posts by: Namal Burman

@Namal Burman San Diego is one of the top House hacking markets, if that is an options for you, it might be worth looking into.

Quote from @Bruce Woodruff:

Quote from @Behzad Sharifi:

Quote from @Bruce Woodruff:

Quote from @Behzad Sharifi:

Is that good?

You create more cash flow by putting down more money. Right?

 Does it? 

 Well if you put down $400k on a $500k property, then you're only paying on a $100k mortgage, right?

I suspect lower LTV is not an option for most newbie RE investors, but let’s look at the numbers.  

80% LTV, 6.75% 30 year on $500k. $100k down. P&i 2,594. If it appreciates 10%, you made 50% from appreciation. If it appreciates 20%, you made 100% return from appreciation.

20% LTV same loan terms (you likely would get marginally better as there is less risk on the lender at the low LTV), $400k down. P&i $649. If it appreciates 10%, the return from appreciation is 12.5% (25% of the return of the higher LTV). 20% appreciation would produce a 25% return (25% of the higher LTV) $1945/month crease to the cash flow. $300k/1945 is 154 months (12.85 years) to have the cash flow recover the additional down payment. This is not including the lost value of the money. That money would typically be earning returns. The returns vary but at 10% return, the recover never occurs because at 10% return that money produces $30k/year (not including compounding). $1945/month equates to $23,340/year. At 5% return, it would be $15k annually. $23349 - $15k is $8,340. At $8340/year, the time to recover the $300k is 35.97 years.

The numbers show that buying cash flow hurts return.   Best return is achieved using highest leverage but make sure you have sufficient reserves.  Most people who lose money on RE did so because they were forced to sell.   Do not put yourself in a position that you will be forced to sell.  In addition, that increased down would take many years (likely longer than the 30 year loan term when including modest 5% growth on the money) to pay for in the increased cash flow. 

Use the leverage.  Keep some/much of what would have been used on larger down as reserves.  Do not try to purchase the cash flow, virtually always it ends up being financially the wrong decision.   

Good luck

Quote from @Namal Burman:

Quote from @Dan H.:

Quote from @Namal Burman:

Quote from @Kenneth Donaghy:

@Namal Burman Do you have a clear goal? Is the play to acquire property slowly over time, or do you want a better return on equity? Or cash-flow? 

The goal is to find great property in San Diego and from day one which i can rent it out and build equity overtime and cash flow from day one.

At current rates, retail (MLS) properties in San Diego do not have cash flow on day 1 at high LTV with realistic underwriting. This implies either killer off market deal (hard to find, typically needs work and/or has risk) or great value add (typically require work and have some risks).

In addition, you do not distinguish if non-commercial MF (less than 5 units) or commercial MF (more than 4 units). More than 4 units, if purchased via DSCR loan, require lower LTV due to the poor rent to value ratios. You likely are looking at in the 60s LTV. This implies it takes some significant cash.

It is a challenging market.   I have made my first offers ever that my underwriting has projected negative cash flow.  It may seem like I am going against my primary RE moto “goal is to make money, not own units” but on my recent offers I have a lot of confidence on growth.   

Good luck

If for retail MLS property would putting higher down payment lets say around 40 to 50% would make sense specifically in good school area in San Diego?

See my recent post on the linked thread.  It uses numbers to demonstrate why buying cash flow is typically not a good decision.  I recognize there are many advocates of buying the cash flow on BP.  I suspect most have not much experience and none have actually played with the numbers.  look at my numbers.  See if you see any issues with my numbers (if you do PM me).  Use my post as a single source of input.  

 https://www.biggerpockets.com/forums/88/topics/1169893-why-p...

I have never purchased with negative cash flow, but my last couple of offers projected negative cash flow with my underwriting. Not thrilled about it, but it has been just over 2 years since my last purchases (purchased $4m in Dec 2021), they had a private beach (there is not going to be addition beaches at least not in human lifetime spans), the market is down just over 10% from its height, and it is a place I would enjoy visiting. I am not considering lower LTV to purchase the cash flow (so I do as I preach).

Good luck

Quote from @Namal Burman:

Quote from @Kenneth Donaghy:

@Namal Burman Do you have a clear goal? Is the play to acquire property slowly over time, or do you want a better return on equity? Or cash-flow? 

The goal is to find great property in San Diego and from day one which i can rent it out and build equity overtime and cash flow from day one.

At current rates, retail (MLS) properties in San Diego do not have cash flow on day 1 at high LTV with realistic underwriting. This implies either killer off market deal (hard to find, typically needs work and/or has risk) or great value add (typically require work and have some risks).

In addition, you do not distinguish if non-commercial MF (less than 5 units) or commercial MF (more than 4 units). More than 4 units, if purchased via DSCR loan, require lower LTV due to the poor rent to value ratios. You likely are looking at in the 60s LTV. This implies it takes some significant cash.

It is a challenging market.   I have made my first offers ever that my underwriting has projected negative cash flow.  It may seem like I am going against my primary RE moto “goal is to make money, not own units” but on my recent offers I have a lot of confidence on growth.   

Good luck

@Namal Burman Do you have a clear goal? Is the play to acquire property slowly over time, or do you want a better return on equity? Or cash-flow? 

Nothing against any of these strategies, but don't forget that sometimes paying tax is a good thing.  It means you made money.  If the primary goal was not paying taxes, the solution is to reduce rents!