All Forum Posts by: Henry Le

Thanks everyone for the added insight. I built a model in excel so what was said here makes much more sense now.  Many thanks!

Are there any books about commercial real estate and value add that you would recommend?  Thanks.

Hi Mike,

Thanks for the input. So it seems like the value of the property increases if you're able to increase NOI over time with value add programs.

Hi Rich,

Thanks for chiming in.  Why would you use $250k as the denominator?  If the property is $1 million and I'm financing 50% of the value, putting in $500k in equity, wouldn't the denominator be $500k?  

I'm having a hard time figuring out how people generate double-digit cash-on-cash returns with commercial properties.  Can someone explain if my math below is correct?

Let's say there's a commercial property selling for $1,000,000. The cap rate is 7%, so NOI is $70,000.

You put 50% down at 4.5% interest rate for 10 years, amortized over 25 years.  So the annual debt service is about $35,000.  

That leaves you with cash flow of $35,000 before taxes.  So the cash-on-cash return is 7%, ($35k divided by $500k).  

If even you put 20% down, the cash-on-cash return increases slightly to 7.5%.  ($55k in debt service, leaving $15k in cash flow).

Do you have to buy at a much higher cap rate or rely on increasing the NOI overtime? Many thanks in advance.

@Taylor Chiu , @David Krulac , @Amanda Hoening 

Thanks for everyone for the feedback.  I'll look into perhaps signing up for a credit card.  I belong to a credit union so I'll start there.  I don't want to have multiple accounts to manage my fund, think my finances are already complicated enough haha.  Thanks again!

Thanks again to everyone for the follow-up replies.

Does anyone have good recommendations of what type of credit cards to get?  There are rewards such as cash back, gas, miles, etc.  What would be the best? 

@Phil G. 

I'm looking to purchase an investment property with the intention of renting it out. So maybe I won't qualify with NACA? I'll give them a look, thanks!

@Rick Baggenstoss 

Thanks for the advice.  Yes, capex like new roof, HVAC, and water heater can really destroy all previous cash flows.  If I went through a turnkey company then maybe those things can be more predictable.  And vacancy is the hidden expenses, who knows how long it'll take to fill the unit.  In my area at least, rent rates are higher than the mortgage payment (cost of owning a house).  So I wonder to myself if that is really sustainable.  What happens if the rent rates start to decline?

Prior to the financial crisis, appreciation was all the rage and everyone assumed housing prices can never go down.  Now it's all about cash flow, but what if you have to lower the rent rates?

Thank you everyone for the advice, really appreciate it!  =)

@Marshall Downs  

I don't want have to liquidate everything to buy a house outright with cash.  I will give the local bank and credit union a call.  Hopefully they're more rational than the major banks.

@Doug McLeod 

That's true, everything is based on a credit score nowadays, even with basic services like insurances, phones, etc.  

@Andrew S. 

I read somewhere that you could attach your name to someone else's credit score and reap the same benefits.  And after a while, you'll have their credit score.  So maybe that'll speed up the process?

@David Midgett 

I'm in no rush to purchase an investment property, prices in the area are fairly high and the returns aren't that great.  I would like to gather the finances for when opportunities come knocking.  I'll look into the commercial lender.  I believe I have enough for a 20-25% down payment and a steady income to support any mortgage payments.  Thanks.

@Paul Granneman  

Yes, I tried pulling my credit score.  It either comes up blank or can't be found.  I never had to borrow money before, even for college, and pay for things with cash.  I grew up in a family who's anti-debt and try to avoid debt as much as possible.  My parents said you avoid going broke by not having debt and that debt is attractive until it's multiple by zero.

@Thomas Weir 

I am apart of a credit union.  They seem like friendly people so they'll be the first bank I reach out too.

@Bradley Bogdan 

I like where I'm living now so I won't be occupying the investment property.  That's why I don't think I'll qualify and my income level too.