All Forum Posts by: Ron Vered

Thank you for your replies!

I think the answer to Q1 is YES as it was qualified to measure *performance* of your investment. Of course, there are multiple aspects of an investment, as was discussed above, e.g. risk, liquidity etc. but IRR is a measure of performance which is comparable IMHO.

Hello,

Real-estate investors benefit from their investment with cash-flow and with the build-up in equity. However, it seems people look at cash-on-cash return but ignore equity build-up. This seems logical if you look at a few years, but after >= 10 years, it seems wrong to ignore the effect of appreciation.

Some areas exhibit more growth then others, so it seems there should be a more complete metric.

A real-estate investment professional has showed me (among other things) the metric which was named "Cash on cash with equity build-up". It is calculated in a similar way to plain CoC:

CoC w/ Equity = (Net cash-flow + Equity increase) / Initial investment

Where Equity increase is the only new term which is: (i) the increase in property value (est.) (ii) the reduction in loan balance.

This can be estimated for a few years ahead to show a trend. Of course, term (i) is a guess, but could be done conservatively.

Q1: Is this metric usable? If not, what do you use instead?

Q2: Can I compare this metric to an interest rate I get from an alternative investment?

Thank you!

Ron.

Hello!

I'd like to ask the following general investment questions regarding real estate investment. This is while I am trying to analyze my potential first real-estate deal.

Please correct me if I am wrong, but it seems to me that IRR is this wonderful single number which I can use to compare my RE investment to investing in the stock market or any other type of investment. It basically gives me the annualized interest rate of my investment. So, if in this world I'd invest in this opportunity and there was a parallel universe where I invested in the same amount of money in something else entirely, I can easily compare the 2 investments based on their IRR. Furthermore, if the 2 investments had the same cash flow at the same time, from the time of investment until the time of sale, then they shall have the same IRR.

However, of course, as I cannot predict the future and since I also cannot even predict taxes, I thought of estimating IRR without taxes, hoping it will not be that different from an alternate stock market investment. Alternatively, a real-estate professional has given me some estimated numbers for taxes, for a revised IRR (which is lower).

I also understand that forecasting exact expenditures + their timing is hard yet can impact the IRR's accuracy. Perhaps not enough to obscure the picture.

Q1: Is it correct to do an IRR estimation and compare it to the stock market performance? The exact number is not exact, but close enough estimation?

Q2: When you do CoC calculation, especially for the next 10+ years, you omit growth in equity (property appreciation + reduction in loan balance). Why then do it? How do you compare it to other, non real-estate investments?

Q3: What are good and realistic IRR values to aim for?

Thanks,

Ron.

Hello,

I am looking at turn-key investments out of state and was wondering about if it would make it more difficult to get, when the time comes, to be a Real-estate professional, recognized by the IRS.

I understand there is the 750 hours/year + > 51% requirements, so theoretically I could be investing anywhere, but obviously not being in the area means I must rely on property management and others to do some of the work, so does it make it more difficult to get when investing remotely (in a way that the IRS will accept, of course)?