All Forum Posts by: Ross Hayes

Hello

We are prepping a new SFH rental property, and the previous owner smoked. We are doing fresh primer and paint and removing any carpet.

I see cheap ozone generators on Amazon - give or take $100.  Are these units worth it, and have you had good success with addressing cigarette smoke odors with ozone?

Thanks

Thanks for the input, everyone.  I appreciate it.  I know that asking for general figures to use for estimates is difficult, but I was hoping that there was some general guidance to use when doing a quick, initial pass, knowing that it could vary when really getting into the details and project.

 Thank you!

Hello

Do you have any general price per square foot (or other measures) that you use for general light work?

I’m defining general light work as plank flooring, painting, minor electrical, etc..

For example - is it fair to estimate flooring labor as $3/square foot?

Or a general rough number for interior painting.

I fully understand every market will be different. We’re in the Midwest. I’m just checking some of my model assumptions.

Thanks!

Are those just for labor or also assuming material expense, as well?

Thank you for confirming, @Joe Villeneuve. In this scenario, the $200/month of cash flow is assumed to be invested somewhere else or used outside of this specific property.  It is not assumed as going back into the property.  Thus, the only cash going towards the debt payment is from the rent (nothing additional out of my pocket).  It is only paying the "minimum cost".

Thus, I'm trying to understand what type of metric would show the equity gain by having the rent, from the tenant, pay down the principal, essentially (at least in my eyes) building equity for me at no additional cost.

@John Clark & @Joe Villeneuve - thank you, gentlemen.  Maybe I'm getting mixed up on terminology?

To clarify, I'm not saying that I'm using the cash flow (what is left each month from the tenant's rent payment after all expenses, including the debt payment) is being used to pay down the debt. It seems like everyone is assuming that I'm saying that I'm putting more cash towards the debt payment, above and beyond what the monthly amortized scheduled payment is.

As I see it, I have to make the debt payment regardless of where that cash comes from to pay the debt payment. If the rent coming in from the tenant (not coming out of my pocket) is more than enough to cover that monthly debt payment, that seems to be a benefit to me.

For example (purely made up numbers), purchase a property for $100K.  I put down $20K cash at the time of purchase.  Monthly rent is $1000. Monthly debt payment for 20 year amortization is $700. Besides the $700 monthly debt payment, I have $100 of other monthly expenses.  So, my monthly cash flow is $200.  If I take the $200 and put it in my pocket or invest in something else, and only use $700 of the $1000 of rent to pay the debt payment, I see gains through the following:

1) I'm still positive cash flowing $200 per month

2) I'm generating a 12% cash on cash return ($2400 of annual cash flow divided by $20K cash 

3) I'm gaining equity each month with the tenant paying down the principal.

I feel like there is value in #3 above.  I'm using the tenant's cash to pay down the loan, adding equity to my balance sheet, all the while I'm still cash flowing and generating a cash on cash return, of my own cash.

Thank you, all.  I have read through everything.

However, I still feel like there is some type of value to using the monthly cash flow (not pulling any additional cash out of my pocket each month) to pay down the debt and thus build equity.  I understand that any cash that I put down at the time of purchase is a cost to me.  But, I am simply referring to a scenario where the property has a positive monthly cash flow and I'm making the regularly scheduled amortized loan payments.  After each month's principal portion of the loan payment is made, I have more equity.  I would think there is value in building this equity, only using the income from the monthly rent collected (no additional out of pocket cash each month).

For example, if Year 1 of a 20 year amortization pays down say $3,000 of principal balance on the loan, in my mind, my balance sheet gained $3,000 of equity (a positive).  If that $3,000 was all built by using a portion of the monthly rent to pay the loan payment, not costing me anything out of pocket each month (as the only cash out of pocket was at the time of purchase), that seems to be additional value beyond just cash on cash return, a positive monthly cash flow, and also any long term appreciation gains.

In that same example (purely directional made up numbers), if rent collected is $1,000 per month, total loan payment is $700, other expenses are $100, then my cash flow is $200 per month.  That $200 goes into my pocket.  But, the $700 loan payment is made using rent collected.  The portion of that $700 monthly loan payment is going towards principal, adding equity.

Hello

I could be missing the obvious, but I cannot seem to find much information on calculating the return and benefits of debt pay down on a rental property.

How do you assess the benefits of improved equity or increased balance sheet performance through the paying down of the mortgage on a property?

For example, if the property cash flows, you will see some type of cash on cash return.  That is great.  However, how does one track and analyze the benefits to their balance sheet by the monthly rent paying down the mortgage over time, giving you more equity and a better balance sheet, using the tenant and bank's money?

Do you look at the annual average principal amount of the loan paid down over time?

Thank you

Hello

For investing in a commercial property with a triple net lease (NNN), what factors do you consider for determining if it is a good investment? Do you look at cash flow in the same manner that you do with residential? Or, are you more focused on long-term appreciation?

Thank you