Let me rephrase my question. What steps would one take to determine a suitable rate of return in their area? Could you walk me through your thought process?
Probably the easiest way is to get with a realtor and 1) look at comps for sold properties and 2) look at active listing. In both cases (sold and active), run the numbers with both the current rents and a proforma on what you think the rents should be. The realtor "may" be able to give you market rents for the area. If not, look thru listing on marketplace, apartments.com, etc. Make sure you understand the class of the properties when comparing (I have a video on that) so you are comparing apples to apples. Also, check out my video on Real Estate Math to help you with the calculations. Email me if you would like more details. thediylandlord@gmail.com
A question that I have is how do you come up with the 10% return and 20% on COC? Could you go into more details? Also how do you determine when to raise rents?
The returns was what I deemed as a good deal in my area at the time. Those were hard to come by last year. Now, with interest rates increasing, that might not be enough. Rent increases are a big topic that I could talk about for hours. Obviously, the market controls how much rent you could possibly charge. I follow the market pretty closely for new tenants, but it gets more complicated for good tenants you have had for 10 years. Also, your goals come into play. When you are living off the cash flow, It is not always max rent amount when you may have to spend $10k in Capex if your tenant moves. If you are flipping multifamily, then max rents are the target. Hope this helps. It is a deep topic.
I do have a suggestion, perhaps you could get some type of wireless microphone to attach to your shirt, it was very hard to hear you in this video and other videos. 0:06
2:30 doesnt make sense to me. If you finance it, you are taking a loan, so you are making monthly payments to pay off a loan, where as if you pay all cash, you have no loan payment. So you would actually have higher cash flow if you paid in cash, since you are not paying off your loan. Am i missi g something?
What you said is correct. Your cash flow is higher on a cash deal but your return is most likely lower as a percentage (called cash-on-cash return). So, if I pay $100k cash and make $10k, that is a 10% return. If I finance the same deal and put down $20k and make $4k after expenses and debt service, that is a lot less cash flow but I am making 20% on the cash I invested. Hope that makes sense!
Indeed. Just like if you spent that $100k on 5 properties' down payments of $20k, and made $4k on each, you'd make $20k per year with the same $100k cash.
Thanks for watching. Please leave your questions and comments below!
I really Love your channel. You make things so clear. I just wished you used a spreadsheet
I did create a spreadsheet, but after doing this so much, I can run the calculations on a calculator in seconds.
Let me rephrase my question. What steps would one take to determine a suitable rate of return in their area? Could you walk me through your thought process?
Probably the easiest way is to get with a realtor and 1) look at comps for sold properties and 2) look at active listing. In both cases (sold and active), run the numbers with both the current rents and a proforma on what you think the rents should be. The realtor "may" be able to give you market rents for the area. If not, look thru listing on marketplace, apartments.com, etc. Make sure you understand the class of the properties when comparing (I have a video on that) so you are comparing apples to apples. Also, check out my video on Real Estate Math to help you with the calculations.
Email me if you would like more details. thediylandlord@gmail.com
I want to do this but my agent can't find me anything!
You have the worlds worst agent. He buys all the good deals...lol
It's OK, he's retired and needs the work 🤣
I had to retire to get away from my tyrannical boss😀
A question that I have is how do you come up with the 10% return and 20% on COC? Could you go into more details? Also how do you determine when to raise rents?
The returns was what I deemed as a good deal in my area at the time. Those were hard to come by last year. Now, with interest rates increasing, that might not be enough.
Rent increases are a big topic that I could talk about for hours. Obviously, the market controls how much rent you could possibly charge. I follow the market pretty closely for new tenants, but it gets more complicated for good tenants you have had for 10 years. Also, your goals come into play. When you are living off the cash flow, It is not always max rent amount when you may have to spend $10k in Capex if your tenant moves. If you are flipping multifamily, then max rents are the target. Hope this helps. It is a deep topic.
I do have a suggestion, perhaps you could get some type of wireless microphone to attach to your shirt, it was very hard to hear you in this video and other videos. 0:06
Yes, good point. I need to invest a little in this low budget operation...lol
Fyi...ordered today
2:30 doesnt make sense to me. If you finance it, you are taking a loan, so you are making monthly payments to pay off a loan, where as if you pay all cash, you have no loan payment. So you would actually have higher cash flow if you paid in cash, since you are not paying off your loan. Am i missi g something?
What you said is correct. Your cash flow is higher on a cash deal but your return is most likely lower as a percentage (called cash-on-cash return). So, if I pay $100k cash and make $10k, that is a 10% return. If I finance the same deal and put down $20k and make $4k after expenses and debt service, that is a lot less cash flow but I am making 20% on the cash I invested. Hope that makes sense!
Indeed. Just like if you spent that $100k on 5 properties' down payments of $20k, and made $4k on each, you'd make $20k per year with the same $100k cash.
Exactly!
During pandemic, tenants didn’t have to pay. What happens then?
All my tenants paid. Make sure to buy in landlord friendly areas!
And to elaborate more, there was a lot of rental assistance available at the time too.