All Forum Posts by: Ray Johnson

@Syed H. @Joe Villeneuve I come from the "professional shops", the Institutional Private Equity and REIT industry, that's exactly how it's done when investments are evaluated, your Financials do not show any profit until all of your initially invested cash has been repaid by the Asset via Monthly, Quarterly, Annually distributions, or at the closing of Sale.

You may be getting a pay check, cash flow, or some other form of compensation from the operations of the asset going into your bank account but the asset hasn't generated actual profit to the bottom line until all of your invested cash is out of the deal.

Take a look at either your Retained Earnings line (if you're reinvesting cash into the asset), your Shareholders Equity (if you have partners and are pushing out K-1's, at the end of the year) or Owners Equity line on your Financials, you will clearly see what I'm talking about, the financials don't lie unless you're cooking the books or doing them wrong. This line on your Financials represents your real NET Income earned on the asset.   

Like @William C. pointed out, there are other variables that can skew the cash flow number every month to get a wide range of responses for numbers on an asset.

When I'm not talking to someone with a background in Finance or Accounting I try to simplify statements which is what I've done here with my responses, if not we'd be getting into the weeds on these post talking about EBITDA and other variables when we discuss our numbers on our assets.

@Maugno M. There's more to selling/buying a home than getting the paperwork through the closing process. When you get an agent, they are taking on the responsibility of any issues going wrong or things being missed. By you not being an informed agent, if something gets missed, it's on you to take the hit, if you have an agent the liability falls on them if anything in the paperwork or process is wrong.  

Personally since I'm not an Agent, I wouldn't be selling or buying property without one, Google can only get you so far! Agents can chime in but I think Agents are required to be up to date on the latest changes in real estate laws and regulations, if this is missed in your Google searches or you're downloading an old form to be used, the buyers agent isn't going to help you out if you're the buyer in your mistake.

Something to consider is if you're in a hot market, you may be able to offer less than the typical 6% fee since the property may require less effort to sell provided it's a higher priced property and you're not trying to offer 4% a $75,000. I've done higher priced properties where the split was 4% seller / 2% buyer (Me) so my agent took 2%. You may be able to find some middle ground instead of going without an agent. This is business, everything is negotiable!  

I agree with @Joe Villeneuve regarding the additional metrics. @Nate Sanow I looked at a deals for a guy last week and he was reflecting cash flow of $208.75 in month two of having a tenant. 

I said I don't see at what point in the timeline you Break-even and actually start making money, He asked what I meant, he said I get a tenant in the second month in my analysis, that's when I start to cash flow. I told him until you get all of your initial cost (closing cost, purchase cost, down payment, etc..) You don't have any cash flow, you have reimbursed owner funds received from rent in the amount of $208.75, you basically prepaid the rent for the tenant at closing and they are paying you back in monthly installments until all of your cash is out of the deal.

I showed him he doesn't have true cash flow until year 7 on the deal when he gets his $18,800 in cash out of the deal (down payment, closing cost, etc). With the caveat that he doesn't have to purchase a CapEx items early based on monthly set-asides or rehab a trashed property beyond normal wear and tear.

So in Joe's defense, your question is asking for "Net Cash Flow" which will include the need to factor in all cash initially invested being out of the deal. A person with a property in year 1 or 2 saying they have $400 a month in cash flow means they are missing a key metric in the information they are giving you unless the deal was100% financing and the only cost they paid out of pocket is the inspection cost, appraisal cost, and closing cost.

If you're doing a BRRR the timeline gets shorter to start cash flowing but most deals do not cash flow early on.

@Max McGuirk What's your long term goal, to gradually move into Multi-family Apartment assets, while slowly selling off your 30 cash flowing SFR properties, or maintain the 30 SFR's in addition to acquiring multifamily assets?

If you're having difficulty finding 60-80 unit assets in your immediate area, Keep in mind that once you start moving into these commercial assets, unlike the SFR assets, you're going to become more hands-off on the day-to-day operations so the need to acquire an asset close to home becomes irrelevant, have you expanded your search parameters to see what's available in other areas outside of your regional commuting area?

@Max McGuirk 80 units may be on the small size for @Brian Burke but he may be able to weigh in with some insight.

@Matthew Schaefer I'm with @Theo Hicks item number four on his list, I have several firms sending me Apartment deals regularly, I get on average about 5 apartment deals per day from the various teams, there is zero need for you to spend the time building a list, there are many people out there that do this for a living and will work with you.

The only issue is sometimes they'll send you a deal that isn't in your criteria requirements, I don't do Student Housing Assets, however at least once a week I get a Student Housing Asset sent to me in hopes that'll I'll bite, I don't even look at them but that's a part of their job as well to get a deal closed. 

@Somaya Abdelhadi Any update for us?

@Steven Lewis I would definitely pull out the $315,000 and use that to acquire another property, you're in a great position to scale forward.  

@William Orrock Are the Units Studios apartments or One Bedrooms apartments? Your post says "studio style apartments, One Bed, One Bath". If they are just a Studio unit, I don't invest in this type of product due to the limited pool of renters, If the Units are One bed, One Bath units, I would do it if the property is in a major metropolitan area where there are plenty of renters in the available pool.

@Seth Firestone When you say the property will "Cash Flow around $270 per month", Your Cash Flow calculation should have a vacancy reserve factored into it along with CapEx, Maintenance, Property Management, Landlord Insurance, and any other cost the landlord may be absorbing.

For your vacancy reserve some people do a percentage of rent collected, I personally do one month worth of rent just in case the tenant moves out after one year, that's never happened but I do everything on a conservative level.

What type of Asset are you buying that has a $3,000 mortgage in NOVA, and What will that asset rent for? Are you shopping for an investment property off the MLS? You need to connect with an Agent that deals with investors on a regular basis some of them have off market deals or investor-to-investor deals.

Reach out to @Russell Brazil he knows the DMV very well.