Real estate vs. a business - Posted by john

Real Estate Investing Retail
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Re: Plugged toilets and 2am phone calls… - Posted by Chris in FL

Posted by Chris in FL on August 29, 2011 at 17:46:41:

John,

That is really an afterthought for me…
My big concerns are, first, is it in my price range (amount my private lender has available, and will the rent cover a 7.5 year mortgage payment, taxes, insurance, vacancy, and repairs). Second, is it a house that I want to own (solid house, decent condition, functional layout, okay location - no war zones) - basically a house that decent people will want to live in. Third, can I buy it with minimal cash out of my pocket… How much I am willing to pay out of pocket depends more on how much I like the house than on my ROI, because, IMHO, the ROI on my deals is so slam dunk, that it doesn’t require my attention.
Let’s consider my aveage deal: $25K total invested, including repairs and closing costs; private loan for $20K, $300/month PI; taxes plus insurance total $100/month; rents for $600/month; 25% for vacancy and ongoing repairs is $150/month. $1,300 back for first month’s rent and security deposit, so my investment is down to $3,700… Positive cash flow $50/month, or $600/year. Sounds ho-hum, right - 6 years and 2 months to get my cash back… However, what does my $3,700 buy me??? A house with a $20K mortgage, that is worth about $35K the day I close (instant equity)… That I will own free and clear in 7.5 years, at which point my cash flow jumps an additional $300/month - nice retirement plan. I also get tax breaks (passive income that is taxes way less than earned income, house depreciation, 1031 exchange ability, can refinance later and pull cash out without a taxable event occuring). Plus, one day these houses will appreciate again - mark my words - the world is not ending (in spite of what Leo thinks) - real estate (and economies) are cyclical!

Total ROI on my $3,700:
$600/year positive cashflow.
$15K instant equity, turning into a $35K free and clear asset in 7.5 years, which will then cash flow at $4,200/year.
Numerous tax advantages, that are nearly impossible to calculate without a crystal ball and an accountant.
Eventually, appreciation in value, again.
When you got my ROI figured out, let me know… IMHO, good 'nuff!!!

Best wishes,
Chris in FL

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Re: Real estate vs. a business - Posted by jim

Posted by jim on September 19, 2011 at 17:51:29:

hi arlan. are all your houses local to your area? I live in the san francisco bay area. but here it’s hard to find houses under $100k. do you manage your rentals outside your area? if not, you would have to hire property managers? how is your experience with property managers not in your area?

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Re: Plugged toilets and 2am phone calls… - Posted by Chris in FL

Posted by Chris in FL on September 19, 2011 at 20:03:51:

Jim,

I am in central FL… It does not sound like San Fransisco/Oakland will provide the kind of numbers that are available here. I agree with you about trying to own and manage remotely - I don’t suggest it. Unless you have a strong property management team in place, it can create too many headaches. How do you make buy, sell, and repair decisions without being able to lay eyes on the property?

I am guessing there are no areas anywhere close by that have significantly lower prices/better cash flow? Even if it is an hour or two, and you have to hire a property manager, at least if the need arises you can go there without having to fly across the country. I don’t know California, but from what I understand, RE prices are significantly higher there… Plus, it has been my experience that higher prices almost always reflect lower cash flow (higher rents, but rents don’t keep up in proportion to prices).

I would love to offer to work with you, but the truth is, my business is busting at the seams… There is more opportunity right now than I can take advantage of, and I don’t want to divert my attention to someone else’s property, and be forced to buy less of myself. I fully intend to take on all that I feel like putting up with; work on getting help as needed, and then taking on some more! I think we are in a moment of opportunity, “Right here, right now”, and I intend to load up a dump truck, not a thimble!

Sorry I wasn’t more helpful.

Best wishes,
Chris in FL

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I think in business you have to face many ups and downs. If you have chosen the right method for investment you can more than expectations.