All Forum Posts by: Tanner Crawley

Sure. If you buy a property with $5000 NOI it is worth $100,000 at the (average) yield of 5%. However, if you are buying a property with $5,000 NOI and 10% yield it is worth $50,000. So to get that 10% yield you have to buy properties at a 50% discount.

Once again, my returns are not low to average. I used owner-occupant loans with DPA and my own commission to put no or negative money down on my properties. They have both appreciated >$100,000 and they both cash flow nicely despite no down payment. I accept average yields but choose to outperform by being in an A market and using creative financing.  

There is a difference between above average and double a reasonable cap rate. If you were finding consistent 10% yields in decent markets then you should have easily raised a $500M+ fund to manage. I would challenge you to post your deals here and make them public if that is the case. Until then I will remain skeptical. After all, if you are buying something for half of its real value you wouldn't have to use that formula you mentioned. You could simply assign the contract, or finance it with 0 money down...

I am a developer here in Denver and can give you some ballpark numbers. PM me.

And that is fine. I simply am pointing out that you called OP's post speculation because he implemented a strategy without cash flow. I am simply making the case that your strategy is very different than many. Some investors prefer to invest in their own market. Some choose to house hack and use owner-occupant loans. Some like to self-manage.

I am still skeptical of the 10% yield used in your examples as well. I would imagine a market with double the national average in yield probably has terrible fundamentals including declining population and income.

Years to recovery: 200

My point is that this model falls apart if the numbers are in line with an A or B market. Cash flow becomes more scarce and much more nuance is required in modeling. Interest rate sensitivity skyrockets and DTI must be much more carefully managed.

I would certainly sell to capture the tax-free gain and reinvest. I would then purchase another home to owner occupy with a low downpayment option. I would use the remainder to purchase another investment. Assuming your income is high enough to bridge any cash flow gaps because you are right. Cash flow is tricky in this market. I would still be confident that principal paydown, appreciation, and rent growth will meet your goals but I would carefully evaluate your DTI for this strategy and have some reserves.

@Joe Villeneuve

Equity is real. It shows on a balance sheet, can be used as collateral, can be used for credit enhancement, and can be realized pretty easily. The transaction cost of selling a property and purchasing another is also MUCH higher than any of the strategies I mentioned for realizing equity, as well as likely incurs a capital gain. 

These considerations modeled out over a 20-30 year portfolio would likely be a dramatic difference. 

I also think the scenario you laid out with option 1 and 2 is unrealistic for 98% of investors. A 10% yield is unrealistic and heavily downplays the impact of interest rates. In most markets, the difference between a 2.9% mortgage and a mortgage at 4.5% is the difference between cash flow and negative cash flow.

Equity is real. You can use it as collateral, you can exchange it, you can refinance, and you can sell. Sure it is less liquid but it is certainly real.

I also would much prefer equity growth as it is often tax-advantaged compared to cash flow. 

Some questions regarding your strategy:
My strategy (as of now):
1 - Recover my cost (DP) ASAP (3 to 5 years)
This is likely easiest with low downpayment options which often negatively impact cash flow. How do you reconcile/ think about this?

3 - When both are achieved, sell...because at that point my equity is losing value, and my CF potential is being lost,...both of these loses are exponential.

Would you still sell if you have an extremely low interest rate locked in? 

Just because one investor doesn't use instant equity as a criterion doesn't mean your strategy is always better, and it certainly doesn't mean you should laugh at someone for purchasing a break-even property at market prices.

I would say most participants in this forum don't have access to capital, don't have the freedom or means to pursue off-market deals full time, and simply may not be as skilled as yourself in off-market sourcing/negotiation.

In that case, they would likely be far better off acquiring property and letting the market work for them.

I am not pretending to know your strategy. I simply categorized you as a CF investor because it seems to be a major criterion for you.

I'm a little skeptical you are getting an 80% discount on your acquisitions in this market. If you mean you are only putting 20% down that is another story. I put negative money down on my last property (0% down and I took a commission) so the cash on cash metric is useless. 

Some people on here aren't in REI full-time. If I were to spend all my time trying to find heavily discounted properties I would be forgoing significant income to do so and in the time it took me to source that property I would have probably missed out on significant appreciation. Same thing goes for finding cash flow.

All I'm saying is your criteria aren't necessarily the only criteria that work. I didn't buy with cash flow going in or much equity. But it would have been nearly impossible to do so in the area I bought in. Today it is a cash cow with huge amounts of equity

In this market, the biggest mistake I see investors make is trying to find a property that meets unrealistic criteria suggested by participants in this forum that have no idea what is going on in another market. Meanwhile they miss out on appreciation, face rising interest rates, and higher purchase prices.