Cashflow is Possible!

[rabrol]

OK, so I firmly believe that it is possible to find cashflowing deals, but I would really like a bit of encouragement. What deals have you guys done in Alberta during 2009 that are cashflowing well. I`d love to see figures if people don`t mind sharing.

How much did you put down? What kind of property? Amortization period? Did you run into deferred maintenance issues?

I read a post where Thomas was suggesting to buy 20+ door multiplexes to start with as they cashflow well. I am open to beginning with multiplexes, duplexes, single family or whatever.

Also - are there many assumables out there these days?

Thanks so much for your time!
Robin

 

[wgraham]

QUOTE (rabrol @ Jul 14 2009, 09:50 AM) OK, so I firmly believe that it is possible to find cashflowing deals, but I would really like a bit of encouragement. What deals have you guys done in Alberta during 2009 that are cashflowing well. I`d love to see figures if people don`t mind sharing.

How much did you put down? What kind of property? Amortization period? Did you run into deferred maintenance issues?

I read a post where Thomas was suggesting to buy 20+ door multiplexes to start with as they cashflow well. I am open to beginning with multiplexes, duplexes, single family or whatever.

Also - are there many assumables out there these days?

Thanks so much for your time!
Robin

Yes, cash flow is certainly positive these days. My cut off is $300.....if I can`t make that a month I am not buying it in Calgary.

Cheep mortgages, longer amortization, relatively stable rents and vacancy in the 4% range. I usually put down 20% as I don`t like paying CMHC fees. I know others are ok with CMHC.....just my personal preference. Please put in a healthy reserve for maintenance as sooner or later you will need it.

Focus on a single product (multi or single) and area you will do fine.

No there are not any assumables out there that I am aware of.

Good luck!
W

 

[ChrisDavies]

I`ve got one right now. $170k purchase, three bedroom townhouse, rented for $1175. Cashflows great at 10-15% down.

 

[invst4profit]

Chris I would assume based on your numbers that it must be a brand new building with no maintenance.
Yes, No?
What is your expected hold time. Do you normally sell off before routine maintenance costs climb.

How would that same property look cash flow wise with a 6% mortgage.
I am trying to get a long term picture with higher rates, monthly return on my down payment and increasing routine maintenance that comes with age.

 

[ChrisDavies]

QUOTE (invst4profit @ Jul 14 2009, 11:33 AM) Chris I would assume based on your numbers that it must be a brand new building with no maintenance.
Yes, No?
What is your expected hold time. Do you normally sell off before routine maintenance costs climb.

How would that same property look cash flow wise with a 6% mortgage.
I am trying to get a long term picture with higher rates, monthly return on my down payment and increasing routine maintenance that comes with age.

It`s an older building, updated in the last 5 years and reasonably well maintained. It`s a 5-8 year buy and hold. In most scenarios it`s break even or positive in the first year and stronger after that.

Let`s be honest, anything will cashflow given the right down payment. There`s easily 15 other variables to consider when doing a cash flow analysis, at least a half dozen of which have a major impact on the numbers.

 

[Mitch Collins]

I personally purchase properties in Fort St. John and Dawson Creek - just outside the Alberta border.

We`re getting half duplexes to cash flow easily - even brand new properties. For example - we can buy a $230,000 duplex and get $1,550 per month rent.

This gives you more than a 8% yield without illegal suites, and with newer building you have NO deferred maintenance.

Give me a call if you like more information on something like this.

Warm regards;

 

[invst4profit]

Chris

I believe you are more accurately referring to ROI not cash flow.

Investors must be mindful of the fact that a income property has in fact two revenue sources.
One is from the property itself the other is from the cash invested in that property.
As a bare minimum the calculation of debt servicing on a property should be based on 100% financing figures.
Or the portion of the income attributed to the cash invested, along with all expenses and debt servicing, is deducted from the total income in calculating monthly cash flow on the property itself.

This means you can pay 100% cash for a property or finance 100% and end up with the property generating exactly the same "monthly cash flow".


For an investor to up sell the cash flow of a property by assuming that the cash invested has no value could be considered deceptively creative.
I find investors to be generally more creative with numbers when selling or when talking about there investments among other investors.

 

[invst4profit]

Mitch

I can see break even or maybe a little better initially with a mortgage at 3% with no maintenance but in the event mortgages go to 5% at $2000+ per month I do not see how you make enough to cover expenses. And that is ignoring the fact that maintenance costs will climb with time and use.
I can not see how $2800/month could possibly be enough to cover a $385,000 investment.

What numbers are you using for insurance, taxes, legal, accounting, reserves, vacancies, utilities while vacant, evictions, advertising, routine upkeep between tenants etc. to project positive cash flow on these properties.

What percentage of income are you attributing to expenses to calculate positive cash flow on these properties.

 

[ChrisDavies]

QUOTE (invst4profit @ Jul 14 2009, 01:33 PM) Chris

I believe you are more accurately referring to ROI not cash flow.

Investors must be mindful of the fact that a income property has in fact two revenue sources.
One is from the property itself the other is from the cash invested in that property.
As a bare minimum the calculation of debt servicing on a property should be based on 100% financing figures.
Or the portion of the income attributed to the cash invested, along with all expenses and debt servicing, is deducted from the total income in calculating monthly cash flow on the property itself.

This means you can pay 100% cash for a property or finance 100% and end up with the property generating exactly the same "monthly cash flow".

For an investor to up sell the cash flow of a property by assuming that the cash invested has no value could be considered deceptively creative.
I find investors to be generally more creative with numbers when selling or when talking about there investments among other investors.

I`m talking cash flow, and I while you make a good point, it`s not the standard we discuss here (or most other places) for cash flow. The opprotunity cost of the downpayment is highly variable, and for 95% of investors the costs of financing the downpayment (for a JV money partner) are left up to the partner. A 100% financing situation is a theoretical one; what most people are concerned about is whether or not the project will be bleeding money.

I could be wrong, but that`s how I believe almost everyone else is calculating it. My real point is that `cash flow` is a subjective definition.

 

[invst4profit]

Subjective to some degree but for me it is what I buy the groceries with.
The portion I use as a down payment is my retirement savings so it is important that it generates an income monthly as well.
I have often been reminded that with REIN you do not account for interest on the down payment. Many investors simply expect to make the money at time of sale but as everyone knows you can not count what you do not have.
From my business perspective I find this aspect of the REIN system extremely odd.

If I had a million dollars available to move from my income investment funds to the down payment on a apartment complex I would sure as heck expect to replace that monthly income with something from the apartment.
How is it that everyone on here is so rich that they simply ignore lost income on a monthly bases.

 

[EdRenkema]

QUOTE (ChrisDavies @ Jul 14 2009, 10:35 AM) I`ve got one right now. $170k purchase, three bedroom townhouse, rented for $1175. Cashflows great at 10-15% down.


Chris could you be more specific when you say `Cashflows great`
I`m buying townhouses for $145 to $150K that rent for $1250 to $1300, so last year with mortgages at prime -.6 yes great cashflow, providing condo fees are around $200/month, its about $400 per month after hard costs, and thats 100% financed.
If condo fees are higher and unexpected costs crop up as they always do, real cashflow isn`t so great, add to that higher financing rates and they become break even.
With the numbers you posted I don`t see `great` cashflow.

 

[Thomas Beyer]

QUOTE (ChrisDavies @ Jul 14 2009, 11:35 AM)
I've got one right now. $170k purchase, three bedroom townhouse, rented for $1175. Cashflows great at 10-15% down.


.. especially when not counting property management, repair and maintenance (averaged over a 10 year period perhaps for new paint, carpet, fridges, ...), insurance .. and when interest rates are at 4% ..



Does it honestly cash-flow if one uses a few thousand/year in R&M, 6% interest rate and 12% for PM ?



Related post: Are you too levered ?

http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10823-When_are_you_too_levered_.html

 

[rabrol]

OK, so back to the original question then with a bit more information.

Are you guys finding deals that cashflow when :

1) R&M are included
2) Property tax included
3) Insurance included
4) Vacancy rate at 5% included
5) Property management is factored in (are most people paying 8-12% of monthly rent for pm?)
6) Interest rates are sitting at 7 or 8% in 5 years (thanks for the link Thomas)

Basically if there aren`t such deals out there, getting into Real Estate would seem fairly risky to me as a newbie considering making a career out of it.

Secondly, are there certain property types that lend themselves more to cashflowing with these criteria within the Edmonton area, or do I need to be looking further afield? Surely if wade can cashflow a minimum of $300pm with 20% down in the Calgary region, it has to be possible.....

Give me some good news folks! Some real world examples!

 

[invst4profit]

The reality is there are real world properties out there that cash flow. They are in every provence, city and town but you have to find them. It`s hard work and depending on the area you may have to concentrate your search on smaller towns or on lower income housing.
Duplexes, trips and quads often offer the best return for novice investors. Don`t buy anything until you find the right one.
You can not buy a $300,000 SF and expect to make money.
Research, find a property where the rent is 1% or more of the purchase price and do your due diligence to ferret out the expenses.
They are out there but you have to find them and not lock yourself into one type or quality of property.
The harder you are prepared to work on your investment the more profitable it will be.

Also my advice to novice investors if you are not in a position to risk and lose it all you are not mentally prepared to invest.
The higher the risk the greater the reward.

 

[terri]

QUOTE (invst4profit @ Jul 14 2009, 07:39 PM) Subjective to some degree but for me it is what I buy the groceries with. The portion I use as a down payment is my retirement savings so it is important that it generates an income monthly as well.I have often been reminded that with REIN you do not account for interest on the down payment. Many investors simply expect to make the money at time of sale but as everyone knows you can not count what you do not have.
From my business perspective I find this aspect of the REIN system extremely odd.

If I had a million dollars available to move from my income investment funds to the down payment on a apartment complex I would sure as heck expect to replace that monthly income with something from the apartment.
How is it that everyone on here is so rich that they simply ignore lost income on a monthly bases.



Greg,

I calculate my cash flow based on 100% financing because I use my LOC as my downpayment so I have to pay interest on it monthly. For me I won`t buy anything that doesn`t cash flow when I factor in the interest on the downpayment. Now, I do do my own property management so that saves me a bit every month, but even still if (or more accurately when) I have a property manager one day, I`d still cash flow @ 100% financing.

I agree with you that it seems odd that some people choose to base their cash flow estimation on 25% down or 30% down. Anything will cash flow with enough d.p. I guess they are looking at ROI and in the end for most people as long as it does cash flow or at least break even, if you are not holding forever then it`s about ROI. Right now I need cash flow as I don`t have another source of income.

Terri

 

[Mitch Collins]

[quote name=`invst4profit` date=`Jul 14 2009, 01:56 PM` post=`61861`]
Mitch

I can see break even or maybe a little better initially with a mortgage at 3% with no maintenance but in the event mortgages go to 5% at $2000+ per month I do not see how you make enough to cover expenses. And that is ignoring the fact that maintenance costs will climb with time and use.
I can not see how $2800/month could possibly be enough to cover a $385,000 investment.


What numbers are you using for insurance, taxes, legal, accounting, reserves, vacancies, utilities while vacant, evictions, advertising, routine upkeep between tenants etc. to project positive cash flow on these properties.

What percentage of income are you attributing to expenses to calculate positive cash flow on these properties.


Good questions - here are the answers;

1. A 80% LTV mortgage on $385,000 gives you a mortgage of $308,000. Based on a 35 year amortization and 4% locked in rates the payment is approximately $1,360 per month.

Then add the following-
Insurance - $110/mth
Taxes - $280
Vacancy - $140/mth (5%)
R+M - $70/mth (2.5% average with a brand new building - don`t forget about home warranty on brand new property)
Management - $180 (7% for management fees. I manage my own so this cost isn`t real)
Utilities - 2 seperate meters, each tenant has their own electric and natural gas hook ups.

So - total monthly expense of $2,140. This leaves you a cash flow of $660 per month.

All your other costs there are covered by whatever JV agreement you have in place. As far as legal fees, accounting, advertising, utilities while vacant - how do people who buy properties cash flowing at $100 per month pay for the same? What I do with my JV partners is cover 100% of the accounting expenses from my own pocket and provide PM services. And personally the only advertising expenses I`ve had in my single family properties (duplexes, etc) has been lawn signs. We don`t even bother with the local paper anymore and use 100% exclusively free online advertising and professional made lawn signs I had done a few months ago.

Greg - could you let me see some of the deals that you get involved with as well? I`m just curious how you calculcate out cash flows, etc. It would probably be beneficial as well for the other REIN members to see how you get strong cash flows, what you calculcate and if you involve illegal suites, etc.

Just a quick edit - even with a PLC at 5%, the downpayment and approximate closing costs and initial reserve fund of $90,000 would be about $375 per month. Now you have a 100% financed project with $285 cash flow per month including vacancy and management fees. Now with the reserve fund in place if you had something you needed to replace I would pay for it from the reserve fund and repay the reserve fund over a period of months.


Warm Regards;





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[rabrol]

QUOTE (MitchCollins @ Jul 15 2009, 04:11 PM) 1. A 80% LTV mortgage on $385,000 gives you a mortgage of $308,000. Based on a 35 year amortization and 4% locked in rates the payment is approximately $1,360 per month.
Then add the following-
Insurance - $110/mth
Taxes - $280
Vacancy - $140/mth (5%)
R+M - $70/mth (2.5% average with a brand new building - don`t forget about home warranty on brand new property)
Management - $180 (7% for management fees. I manage my own so this cost isn`t real)
Utilities - 2 seperate meters, each tenant has their own electric and natural gas hook ups.

So - total monthly expense of $1,860 - call it $1,900. This leaves you a cash flow of $900 per month.

And if interest rates were 8% on the $308,000 mortgage payment would be $2159. Add the other stuff and the monthly expense on this would be $2934, for a negative cashflow. However in 5 years time the rent would also have increased...

 

[ChrisDavies]

QUOTE (rabrol @ Jul 15 2009, 03:30 PM) However in 5 years time the R&M will be starting to increase.

As will the rents.

 

[amurthy]

QUOTE (invst4profit @ Jul 15 2009, 02:09 PM) Research, find a property where the rent is 1% or more of the purchase price

Folks,
In this context, does the `purchase price` contains all acquisition costs incl. fees for transfer, legal, financing etc. as well as any reno/ demo expenses required upfront?
Thanks,
/am

 

[Mitch Collins]

QUOTE (rabrol @ Jul 15 2009, 03:30 PM) And if interest rates were 8% on the $308,000 mortgage payment would be $2159. Add the other stuff and the monthly expense on this would be $2934, for a negative cashflow. However in 5 years time the rent would also have increased...


I see many people purchasing 20+ year old townhomes in the $150,000 range where rents are in the $1,300 range. So, this is 10.4% yield property - but then you have to look at much higher R+M expenses as well as typical strata fees, which eat away at the already small bottom line. So the yield isn`t the only number to look at when calculating actual cash flow. This property would have probably $300-$350 more per month in expenses than the example that I showed due to higher R+M and strata fees.

What are other people doing at the moment?

Regards;