All Forum Posts by: Seth Weatherly

Elizabeth,

Thank you for the perspective, I figured that was the case, but I'd never thought completely through it. Hoping to get started shortly! 

I'm new to personal investing and hoping, like many of you, to make it my full time career at some point in the future. I recently finished the site favorite, Rich Dad Poor Dad, and was left with a fairly mundane question. Kiyosaki says a couple times in the book that essentially as soon as your free cash flow from investments equals your monthly expenses, you're virtually free to quit your job and go full time, as your investments can sustain your lifestyle. However, that seems to exclude reinvesting in your business, which I know Kiyosaki is in favor of.

So my question, for those of you that have made this transition, is did you target your monthly expenses as your transition point? If so, how did you continue to grow if your free cash flow was going to personal expenses? If neither of those, what was your target cash flow situation that made you feel comfortable going full time (i.e. 50% goes to personal, 50% goes to reinvesting)?

@Jamie Salavea

Hi Jamie, my wife and I just moved to the DFW area and are in a similar situation. I'm looking for my first flip or buy and hold property, however, we just signed a lease, so staying in the home isn't an option for us right now. That being said, here are the things I've picked up about the DFW market from people who've been here much longer than I have. Flips are the hardest deal to get right now because the market is over-heated, its hard to get the numbers to make sense. Buy and hold seems to be a little easier to make work because rental rates are going up. Financing for those strategies can also be challenging. That being said, if you are thinking about buying a home anyway and ok with living in a construction zone for awhile, that may be your best option. You can get a traditional mortgage and there are tax benefits to staying in the house for two years before you sell it or rent it out. I'm still finding out more about the area but feel free to reach out if you have more questions!

@Adam Wright

Sounds like a good time, I'll try to make it!

Thank you all for the welcome and advice. I've been pouring over the forum and podcasts as many of you suggested; so much info to get through!

@Heath McPherson, that would be great, I'd be happy to buy you a cup of coffee or get a drink and discuss the local market. 

@Alyssa Baron

I agree with bits and pieces of what's been said above, but in more simple terms, it's a way to estimate value based only upon NOI (in addition to cap rates derived from comparable deals, which are relatively easy to obtain). They are similar in nature to a gross rent multiplier in multi-family deals, which is a more straight forward metric, in my opinion.

(Note: I think there is a return relationship between cap rates and returns, however I think it's much more convoluted than using the IRR (internal rate of return), which is more closely related to the method of calculating returns for other investments (CDs, Bonds, stocks, etc).)

From an appraiser's point of view, cap rates are important because they are a major component of income capitalization approach (discounted cash flow) to value, which is one of three approaches used by professional appraisers to value commercial real estate. And unlike the sales comp or cost approach, it is the only method that uses income to derive a value, which is what investors and lenders are most concerned about anyway. In theory, all three approaches should yield very similar values, which lends legitimacy to the value estimate. (In actuality, there are many reason why they may not reconcile. So when you, as an investor, are valuing your personal income producing property or a potential income producing property deal, gathering accurate cap rate data is essential in getting the value correct (using an income approach, that is).

As a side note, professional commercial real estate investors (REITs and PE funds) and commercial lenders rely almost exclusively on DCF values, so if you're looking to get into that space, they will expect the same. 

So, just to wrap up, let's say you've worked like crazy to get your pro forma income and expenses modeled correctly for a property you'd like to sell and you're confident that your NOI estimation is as close as it can be. From that point, you can gather cap rate data from comps, brokers or market publications and use that to derive a value simply by dividing your NOI by your market derived cap rate. (i.e if your NOI is $500,000 and your market derived cap rate is 8.0%, you should not sell the property for less than $6,250,000)

Apologies for such a long-winded answer, would be happy to clarify directly if it would be helpful! Good luck! 

Hello BP Community!

My name is Seth Weatherly and my wife and I just moved to the DFW area a little over a month ago from New York City. After almost 9 years in the city, we were ready for a change of pace and an opportunity to be closer to our families. 

My real estate experience started right at the beginning of the recession when I interned at a PE Real Estate fund and then transitioned to a real estate valuation consulting group at a Big 4 accounting firm. I've always wanted to invest in my own properties, but haven't made the time for it until recently. I'm excited at the prospect of learning to build a consistent stream of passive income through REI and even more excited to be part of the BP community; I think what Josh and Brandon have created is awesome!

I look forward to getting to know and maybe work with some of you soon! 

Best,

Seth