All Forum Posts by: Susan Gillespie

@Jerry Gates it really depends on your goals.

You have an income producing asset. You make several hundred dollars of positive net cash flow after expenses each month. The area is appreciating in value. There's market demand for your property as a rental.

Consider tax benefits of depreciation and the impact of this asset on your net worth. I personally would rather own an asset like yours versus getting a one-time cash out of $30,000. How would you reinvest the money?

Rules of thumb don't matter, it's your actual situation, income, expenses and investment goals that matter. Like @Kevin Young I would run some internal rate of return (IRR) scenarios to get an idea of how holding time impacts your return. Most people don't realize that IRR changes over time, depending on several variables. Don't count appreciation in cash flow, it's accounted for in the final sale.

It sounds like you're in a good position either way -- good luck with your decision.

@Wendy BK I'll email you a suggestion. Have a good weekend, Susan

@Tyler Perleberg

Document everything with notes and photos, including dates and all communications you had with your tenant on the issue. Hopefully you'll be able to work things out, but be prepared for the worst.

I can recommend an attorney who works with real estate investors. He can advise you on options or help if the situation escalates.

Most importantly, what do you want from this situation? The MN standard lease has a timely notice of damage clause and it sounds like the tenant didn't comply. Can you repair the damage and keep on good terms with this person? If you're the landlord, they should have quickly notified you when this happened. In my experience, it's a big red flag that they didn't.

@Jason Fraser This is my general process:

-Location. Based on location, neighborhood condition, community features, type of properties, etc., is it a place where I would want to live and spend time?

-Long-term view. Can I see myself holding the property for 5-10 years?

-Market. What's my rental competition, what do similar properties rent for, what's the school district like, how's housing demand/supply, how's the job market, etc? (use online sources - craigslist, hotpads, zillow, etc - and talk to people)

-Evaluation. What's my potential cash flow and return?

-Second opinions. What do local realtors and property managers say?

My personal focus is on finding quality and taking a long term view. When I look at new markets, I do a lot of research online and talk to people with local knowledge. Real estate agents are a great source of information, even if you don't ultimately close with them.

Like @Andrew Syrios said, I also talk to the neighbors. Most people readily share their opinions when asked. The more you know up front, the more likely you'll be to find an investment that works for you.

@Jason King

I would add that you should start networking and interviewing property managers now. You need to find someone you trust and who knows your area well. You might even get some leads from them, because PMs often know people looking to sell and get out of the rental business.

Learn about their fees for initial leasing and ongoing management, because it adds up and you'll need to factor that into your evaluation.

For new investors, my belief is that hiring a professional property manager is money well spent. They will have solid contracts, processes and most importantly, experience to guide you along the way. There's no end to unusual rental situations you'll deal with, believe me. Even though they manage, you're still the decision maker.

Thanks for the info @Albert Bui and @J. Martin and for distinguishing between people at the portfolio lending level vs beginning investors. Interest-only loans have their place. There's really no bad loan type - but too often there's a bad understanding of the loan by consumers.

As a buy and hold investor, I look for positive net cash flow.

Second, I look at internal rate of return (IRR). I agree with@Bill Jacobsen that it's the gold standard for evaluating real estate investments.

Third, I look at the net present value of cash flows. Used together, these are powerful metrics to evaluate and compare properties.

I look at cap rate for commercial property analysis, but not for single family properties.

@Mark Nugent I like to talk both software and investing, and I also invest with my husband. It's been a good combination. Feel free to connect if you'd like to talk or have questions. I would have a few for you.

@Albert Bui

are many people doing interest only these days? For shorter term deals, I imagine? Maybe hoping to capture appreciation in CA? There's so much upside to holding a property if it cash flows, and rates are still historically low, so I'm not sure of the appeal of interest only. I've done them before when the spread was greater. Am I missing something?

@Aroldo Villarreal I don't have enough details to know if your deal works as a buy and hold. Do you have financing lined up after the hard money loan, and what are the terms? What's your expected monthly rent?

What about ongoing monthly expenses (taxes, insurance, property management, maintenance, etc.)?

How long will the rehab take, and is 6 weeks realistic to get it rehabbed and rented? Depending on the market, it could take several weeks to rent, and that assumes the property is ready to show. Also, you might show the property in May, and find a great renter who wants to move in July. You'll have to cover all expenses in the interim. Just an example to consider.

Many new investors focus too much on potential income and not enough on potential expenses. Keep running your numbers and good luck.

Mean? No! People are very nice. If you go to the cash flow game, and find it too competitive, you can join the square dancers who meet there at the same time. The whole experience is very entertaining.