What are you finding for properties...........

[seeu22]

Hey Guys and Gals,

I am in the market for some more property. Just looking around and wondering what everyone is finding out there for numbers. Doesn`t seem to be a lot of cash flow out there and the markets seem to have stabalized.

Post you numbers on deals you have done lately. Not interested in hood areas where social issues lower the cost of purchase but exponetially increase the cost of management. Decent neighborhoods only.

Lets use some real expenses as well. I had one guy try to sell his portfolio to me and his total expenses were listed at 8%. The eight percent included insurance, vacancy, r&m, and management. A bit of a dreamer.

Let`s disect some deals.

Neil

 

[DaveRhydderch]

Not sure where your buying, but Calgary is cash flowing like I`ve never seen it. I just had clients buy a unit for 280k that after all expenses were taken care of cash flowed at $700. Great deals.

 

[Thomas Beyer]

QUOTE (seeu22 @ Nov 22 2009, 11:07 PM) I am in the market for some more property.
narrower definition of "market" please .. with over 100,000 listing in Canada I`d venture to guess there is 5,000 opportunities RIGHT NOW that are WOW !!!

for example, we have 3 buildings under contract right now in Alberta that are wow ..and are working through due diligence right now ...

 

[RebeccaBryan]

I`ve been looking at listings in Edmonton, and I am AMAZED at the opportunities!!! and certainty of cashflow!!!

 

[markbrad]

Just wondering when you folks talk cash flow... Is that cashflow at 80% LTV, or are you giving yourself a return on the DP and figure it at 100% financed (even if it isn`t, I still think it is fair to give myself a return) If you are using a LOC it should be figured at 100%, because you are paying interest on that LOC. I personally always figure it using 100% financed, because let`s face it, one way or another it is if I am using OPM!

Mark

 

[MarkTorgerson]

QUOTE (seeu22 @ Nov 22 2009, 11:07 PM) Hey Guys and Gals,

I am in the market for some more property. Just looking around and wondering what everyone is finding out there for numbers. Doesn`t seem to be a lot of cash flow out there and the markets seem to have stabalized.

Post you numbers on deals you have done lately. Not interested in hood areas where social issues lower the cost of purchase but exponetially increase the cost of management. Decent neighborhoods only.

Lets use some real expenses as well. I had one guy try to sell his portfolio to me and his total expenses were listed at 8%. The eight percent included insurance, vacancy, r&m, and management. A bit of a dreamer.

Let`s disect some deals.

Neil

Medicine Hat sucks right now. There is a huge disconnect between current pricing and rent. It`s mainly that the rents are too low. Hard to find any cash flowing deals unless you get into multi unit apartment buildings. That has been tight as well. There is a massive overbuild here of cheap condos. They are offering all kinds of incentives for buyers through some "smoke and mirror" marketing. Lots of payment assistance programs. They don`t even advertise the price. Just the monthly payment. It has taken a large chunk out of the rental market. Huge supply. Small demand.

 

[westboundventures]

QUOTE (seeu22 @ Nov 22 2009, 10:07 PM)
Hey Guys and Gals,



I am in the market for some more property. Just looking around and wondering what everyone is finding out there for numbers. Doesn't seem to be a lot of cash flow out there and the markets seem to have stabalized.



Post you numbers on deals you have done lately. Not interested in hood areas where social issues lower the cost of purchase but exponetially increase the cost of management. Decent neighborhoods only.



Lets use some real expenses as well. I had one guy try to sell his portfolio to me and his total expenses were listed at 8%. The eight percent included insurance, vacancy, r&m, and management. A bit of a dreamer.



Let's disect some deals.



Neil




Neil,



Where are you looking to buy?



Lots of good encouragement from member's here about good cashflow opportunities in Edmonton and Calgary.



If you're looking for specific numbers on deals that people have put together recently, you can view an overview of my last deal in the JV thread - http://myreinspace.com/search/classified_ads/Joint_Ventures/74-14009-70919-Seeking_Money_Partner_That_LOVES_CASHFLOW.html#70919



If you're having trouble finding cashflowing properties, I'd suggest you start talking with other successful REIN members who are investing in your area. Most members are more than willing to help out and point you in the right direction.

 

[invst4profit]

Statements regarding cash flow are of little value without knowing what bench marks are used for calculation purposes. We also must keep in mind cash flow is an estimate due to some numbers being based on future unknown events.




QUOTE (David Rhydderch @ Nov 23 2009, 04:42 PM) Not sure where your buying, but Calgary is cash flowing like I`ve never seen it. I just had clients buy a unit for 280k that after all expenses were taken care of cash flowed at $700. Great deals.



This is the type of information and statement that I would really like farther information on.
Many questions come to mind.
If this is a newly purchased property where could they have pulled the cash flow number from?
Is it based on a estimate of expenses or on what the previous owner told them?
If in fact it is an estimate what percentages are being used?
Are we sure they have included all expenses?
What is included in financing expenses?
What if anything is included as future expenses/repairs.


Generally I feel investors inflate there actual cash flow by not including many expenses or underestimating expenses which when they occur in the future they simply neglect to include.
I believe expectations on the part of investors are inflated and as a result so are the numbers provided to support there egos.
In addition I find cash flow numbers to be clouded depending on which side of the investing fence you are on.

I am not in any way suggesting that is the case in this example what I am saying is I am as curious as any in what the real numbers are out there and what the figures are to support those numbers.
Part of cash flow is a estimate of future expenses and as such I believe investors should know what those estimates are when seeing cash flow numbers.

As previously stated what is included regarding the cost of financing as it relates to cash flow. I prefer to see the cost based on 100% financing but without knowing what the investor is basing those costs on cash flow numbers become irrelevant.

When I work the numbers back on the example given of a $700/month positive cash flow on a $280,000 property I calculate the following.

$280,000 @ 5%, 30 yr, monthly payments $1494.00
Mortgage plus cash Flow: $1494.00 + $700.00 = $2194/ month
Expenses when holding long term generally run in the 50% range therefor $2194/month

The property in question would require a monthly rental income of $4388/ month to produce $700/ month in positive cash flow.
I am fairly certain that is not the case supporting my belief that positive cash flow estimates are subjective to say the very least.

 

[westboundventures]

QUOTE (invst4profit @ Nov 24 2009, 06:10 AM) Statements regarding cash flow are of little value without knowing what bench marks are used for calculation purposes. We also must keep in mind cash flow is an estimate due to some numbers being based on future unknown events.

This is the type of information and statement that I would really like farther information on.
Many questions come to mind.
If this is a newly purchased property where could they have pulled the cash flow number from?
Is it based on a estimate of expenses or on what the previous owner told them?
If in fact it is an estimate what percentages are being used?
Are we sure they have included all expenses?
What is included in financing expenses?
What if anything is included as future expenses/repairs.

Generally I feel investors inflate there actual cash flow by not including many expenses or underestimating expenses which when they occur in the future they simply neglect to include.
I believe expectations on the part of investors are inflated and as a result so are the numbers provided to support there egos.
In addition I find cash flow numbers to be clouded depending on which side of the investing fence you are on.

I am not in any way suggesting that is the case in this example what I am saying is I am as curious as any in what the real numbers are out there and what the figures are to support those numbers.
Part of cash flow is a estimate of future expenses and as such I believe investors should know what those estimates are when seeing cash flow numbers.

As previously stated what is included regarding the cost of financing as it relates to cash flow. I prefer to see the cost based on 100% financing but without knowing what the investor is basing those costs on cash flow numbers become irrelevant.

When I work the numbers back on the example given of a $700/month positive cash flow on a $280,000 property I calculate the following.

$280,000 @ 5%, 30 yr, monthly payments $1494.00
Mortgage plus cash Flow: $1494.00 + $700.00 = $2194/ month
Expenses when holding long term generally run in the 50% range therefor $2194/month

The property in question would require a monthly rental income of $4388/ month to produce $700/ month in positive cash flow.
I am fairly certain that is not the case supporting my belief that positive cash flow estimates are subjective to say the very least.


Greg,

I would agree with you that many investors (and realtors) tend to underestimate expenses, but it is my opinion that you might be overestimating.

In the above example, you are suggesting that expenses will be $26k+ annually on average over the long term. If I subtract taxes, insurance, property management, vacancy, advertising, etc, that will still likely leave $15k-$20k left annually in the expenses budget. With a repairs and maintenance buffer that large, you could likely rebuild the entire house every 15 years.

I completely agree that many investors should be more conservative when estimating expenses, but when I look at your analysis it seems you are overly cautious. I`m eager to hear some more detailed thoughts from you on why the 50% expenses number makes sense.

Perhaps it makes more sense to calculate the 50% expenses based on the value of the building, rather than on the value of the land + the building. I know that this makes a lot more sense for me in the area I invest as in many cases the land is actually worth more than the building.

 

[invst4profit]

http://www.biggerpockets.com/forums/52/top...me-from-?page=1

This is a lengthy discussion on the subject of the 50% rule.
Statistics on hundreds of thousands of all types of properties over decades have arrived at the 50% rule but it must be kept in mind that this estimate of expenses on a single building at a moment in time is irrelevant.
Cash flow may vary from as low as 30% to more than 60% but it is never a real number as it is always made up of unknowns.
Some investors will look at a brand new building and, projecting out 2 years, brag that cash flow is $XXX/month reflecting a ridiculously low % of expenses. Others will see the same building and base expense estimates on the life of the building. Completely different calculations.

There are only really two numbers that are truly accurate: The purchase price of a property, including legal, closing and immediate repair costs, and the monthly rental income.

Using those two numbers you could ask 10 different investors to estimate the cash flow on a property (providing details such as age of building, # of units, etc) and you would get 10 entirely different numbers.

As far as my personal estimates are concerned they may appear some what conservative but I would be willing to bet over the long hall highly more realistic than most investors would be willing to admit.

As an example why do most investors not include the fact that every income investment property has two sources of income and separate those numbers to reflect actual cash flow from the rental income.
What I am referring to is the cash or down payment a investor puts into a purchase. Most ignore this fact which resultes in inflated positive cash flow numbers.
Cash flow estimates on a rental income property should always be based on 100% financing numbers in my opinion.

In addition why do investors deduct the monthly principal payment from there expenses when calculating cash flow. By doing this they again inflate the cash flow numbers. Principal is a monthly expense that may or may not ever be recouped. Cash flow is an estimate of the usable cash in a owners pocket at the end of each month. Investors count it on the plus side of the ledger even though they may never see it because it feels good.

I am confident, in estimating expenses, that 50% is a realistic ball park number considering all possible variables and the fact that owning one door as opposed to 100 or 1000, as a snap shot in time, will change that estimate as much as the weather changes over the period of a year.
But its working well for me so far.

Let any investor tell me the numbers on there property, I`ll calculate what there cash flow will be, and I guarantee my estimate will be as accurate as there actual number.

 

[housingrental]

Hi Greg

I`ve posted similar responses to this before
I agree with you that some investors under under budget on maintenance expenses
I appreciate the more conservative responses your provide on this forum as there often more in tune than others on my thoughts
The reality is there`s a large variance depending on the particular property and location on whats appropriate to budget for expenses long term as a percent of revenue.

Take these two properties as an example:

1) New student apartment building. Steel roof. Concrete construction. Porcelain tile throughout. Tenants pay utilities. City has low tax rate and discount on property tax`s for 25 years to encourage new housing stock. Rent is $2500/month for a 1200 sq ft. apartment.

2) Very old apartment building. Frame construction. Carpet throughout. Utilities included in rent. City has high tax rate for apartment buildings. $900/month for a 1200 sq ft. apartment.

In example 1) wouldn`t it be reasonable to budget expenses at closer to 30% of rent than 50% long term?

In example 2) wouldn`t it be reasonable to budget expenses at closer to 60+% of rent than 50% long term?

Re the other parts of your email:

Investors don`t include mortgage principal repayment in cash flow calculations but they do include this in net income - as they should - the money is going to pay off debt.

Re calculating the cost of interest for the funds used on the down payment - Your correct an investor should be aware of this but this wouldn`t impact the decision to choose a property vs other properties as they`re financing costs for this will be the same (And same idea to examine opportunity cost if you already have the cash saved of using the funds in an alternate investment)


QUOTE (invst4profit @ Nov 24 2009, 10:54 AM) http://www.biggerpockets.com/forums/52/top...me-from-?page=1

This is a lengthy discussion on the subject of the 50% rule.
Statistics on hundreds of thousands of all types of properties over decades have arrived at the 50% rule but it must be kept in mind that this estimate of expenses on a single building at a moment in time is irrelevant.
Cash flow may vary from as low as 30% to more than 60% but it is never a real number as it is always made up of unknowns.
Some investors will look at a brand new building and, projecting out 2 years, brag that cash flow is $XXX/month reflecting a ridiculously low % of expenses. Others will see the same building and base expense estimates on the life of the building. Completely different calculations.

There are only really two numbers that are truly accurate: The purchase price of a property, including legal, closing and immediate repair costs, and the monthly rental income.

Using those two numbers you could ask 10 different investors to estimate the cash flow on a property (providing details such as age of building, # of units, etc) and you would get 10 entirely different numbers.

As far as my personal estimates are concerned they may appear some what conservative but I would be willing to bet over the long hall highly more realistic than most investors would be willing to admit.

As an example why do most investors not include the fact that every income investment property has two sources of income and separate those numbers to reflect actual cash flow from the rental income.
What I am referring to is the cash or down payment a investor puts into a purchase. Most ignore this fact which resultes in inflated positive cash flow numbers.
Cash flow estimates on a rental income property should always be based on 100% financing numbers in my opinion.

In addition why do investors deduct the monthly principal payment from there expenses when calculating cash flow. By doing this they again inflate the cash flow numbers. Principal is a monthly expense that may or may not ever be recouped. Cash flow is an estimate of the usable cash in a owners pocket at the end of each month. Investors count it on the plus side of the ledger even though they may never see it because it feels good.

I am confident, in estimating expenses, that 50% is a realistic ball park number considering all possible variables and the fact that owning one door as opposed to 100 or 1000, as a snap shot in time, will change that estimate as much as the weather changes over the period of a year.
But its working well for me so far.

Let any investor tell me the numbers on there property, I`ll calculate what there cash flow will be, and I guarantee my estimate will be as accurate as there actual number.

 

[invst4profit]

We are of course talking averages so your two examples could be accurate.


The new building will of course not be new for ever so expenses will climb and considering it is student rental I would expect higher maintenance costs than you would find in a regular rental building. In time the lower initial costs could be more than offset by higher than 50% expenses due simply to the fact it is student rental.
The older building may or may not be higher depending on how it has been maintained but repairs when necessary may be lower due to the level of quality of the building. Laminate floors or carpeting may be less expensive that tile to repair etc. Utilities included of course are a major red flag in Ontario under rent controls. Rent at $900 per month in a old building utilities included is a deal breaker.
The big "however" for the older building is that considering all the factors the purchase price should be adjusted accordingly.

There are plenty of variables involved that could still end up bringing them both in closer to 50% than what is visible on the surface.

The 50% rule is more applicable to use when considering the purchase of a property or in estimating long term rather than simply thinking that in any given year expenses will be 50%.

The 50% rule is also more accurate as a snap shot for a individual with a much larger portfolio if the time frame is seen as a single year due to the greater data base contributing to the law of averages.

The bottom line is that unless two investors are both utilising a general formula such as the 50% formula there really is no clear way or common language for them to discuss "cash flow" and be certain they are not talking apples and oranges.

 

[housingrental]

For ease of readability I`ve copied your post into this message and highlighted it in red
Thanks for the long response.

The new building will of course not be new for ever so expenses will climb and considering it is student rental I would expect higher maintenance costs than you would find in a regular rental building. In time the lower initial costs could be more than offset by higher than 50% expenses due simply to the fact it is student rental. I strongly disagree. No not really over any reasonable time frame. Over the next twenty five years costs will be lower because:

1) Reduced cleaning costs because of type of flooring
2) Reduced flooring replacement costs because of type of flooring
3) Reduced (NO) roofing costs because of steel roof
4) Lower property tax rate
5) No in suite utility cost
6) Reduced utility and cleaning and maintenance costs because of no or minimal common area`s between units
7) And most importantly the revenue per apartment is significantly higher... at $2500/month rent vs $900 ... Expenses as a percent of rent will be significantly lower... Many buildings under this scenario might actually be closer to 20% of rent...

The older building may or may not be higher depending on how it has been maintained but repairs when necessary may be lower due to the level of quality of the building. Laminate floors or carpeting may be less expensive that tile to repair etc. This is a valid point on cost of materials when replacing but as it effects expenses as a percent on revenue in this situation it doesn`t... The carpet will need to be replaced apx. 5 years... The porcelin tiles to fix crack tiles will need a few tiles, if that, replaced in 5 years for a fraction of the cost of new carpet.

The big "however" for the older building is that considering all the factors the purchase price should be adjusted accordingly. Yup it should be. The purchase price of the building doesn`t have any impact on expenses as a percent of revenue. It`s not relevant.

The 50% rule is more applicable to use when considering the purchase of a property or in estimating long term rather than simply thinking that in any given year expenses will be 50%. The 50% rule is also more accurate as a snap shot for a individual with a much larger portfolio if the time frame is seen as a single year due to the greater data base contributing to the law of averages. Re the above example it`s not. There`s a huge variance depending on property type. So for planning purposes it might be more appropriate for someone who has a newer building with tenants paying some utilities at 35% of rent... etc..



QUOTE (invst4profit @ Nov 24 2009, 05:50 PM) We are of course talking averages so your two examples could be accurate.


The new building will of course not be new for ever so expenses will climb and considering it is student rental I would expect higher maintenance costs than you would find in a regular rental building. In time the lower initial costs could be more than offset by higher than 50% expenses due simply to the fact it is student rental.
The older building may or may not be higher depending on how it has been maintained but repairs when necessary may be lower due to the level of quality of the building. Laminate floors or carpeting may be less expensive that tile to repair etc. Utilities included of course are a major red flag in Ontario under rent controls. Rent at $900 per month in a old building utilities included is a deal breaker.
The big "however" for the older building is that considering all the factors the purchase price should be adjusted accordingly.

There are plenty of variables involved that could still end up bringing them both in closer to 50% than what is visible on the surface.

The 50% rule is more applicable to use when considering the purchase of a property or in estimating long term rather than simply thinking that in any given year expenses will be 50%.

The 50% rule is also more accurate as a snap shot for a individual with a much larger portfolio if the time frame is seen as a single year due to the greater data base contributing to the law of averages.

The bottom line is that unless two investors are both utilising a general formula such as the 50% formula there really is no clear way or common language for them to discuss "cash flow" and be certain they are not talking apples and oranges.

 

[jeffjas]

QUOTE (ThomasBeyer @ Nov 23 2009, 05:25 PM) narrower definition of "market" please .. with over 100,000 listing in Canada I`d venture to guess there is 5,000 opportunities RIGHT NOW that are WOW !!!

for example, we have 3 buildings under contract right now in Alberta that are wow ..and are working through due diligence right now ...

Thomas, would you reveal where in Alberta you are particularly finding good value ? Is it outside of Edm ? I am extremely interested in investing in Edm, but I find $100K/door still over-valued.

I know you have an acquisition team behind you to find these deals but what options would smaller investors have other than ICX if we`re looking to go bigger.

 

[invst4profit]

Housingrental:

As far as the student rental is concerned statistics show in the long term expenses will still average in the 50% range. Although there are some factors you have sited that will reduce expenses there are others that will balance those out. As a student rental vacancies will be higher, default on payments will be higher, evictions will be higher, repairs and prep between tenants more often, and management of a student rental more hands on and time consuming/costly.
Admittedly I can not predict when expenses will creep to the 50% range but they will rise over time.

You are correct in stating that purchase price is not relevant to expenses I was simply point out that in regards to cash flow the newer building at possibly 2 or 3X the cost per door to purchase will not necessarily cash flow better than the older building assuming the utilities are adequately reflected by the $900/month rent and the price of the older structure is adjusted to compensate for all factors.

I`ll stick by my formula and predict that expenses on the newer building will be closer to 50% than 30% and definitely reach 50% within 20 years.
I do not have a Cristal ball so I guess we will simply have to wait and see.

 

[MarkTorgerson]

QUOTE (jeffjas @ Nov 24 2009, 08:03 PM) Thomas, would you reveal where in Alberta you are particularly finding good value ? Is it outside of Edm ? I am extremely interested in investing in Edm, but I find $100K/door still over-valued.

I know you have an acquisition team behind to find these deals but what options would smaler investors have other than ICX if we`re looking to go bigger.


Great question!
I am always looking for multi unit apartment buildings as well but seem to be stuck with ICX.

 

[housingrental]

Hi Greg

I don`t see how you could broadly apply that metric to all properties, setups, types...
As another example.. take insurance...

The building with $2500/rent / unit will have much lower insurance to rent in first year of purchase compared to the $900/rent/unit - both because:
a) the rent is higher and
b) the building is concrete vs frame so lower rates

You agree with this correct?

So lets say insurance cost is $30 / month for the suite that has $2500/rent and $35/month for the suite that is $900/rent in the first year...

So insurance cost as a percent of rent is 1.2% vs 3.8% .....

5 years, 10 years, or 20 years later you should this difference (over 3 times more!) continue

This would be the same idea for those other factors mentioned in my previous post... run the examples for tax`s... for utilities... etc...

So entirely reasonable because of MUCH higher rent per suite and lower expenses that one building can operate at expenses of 30% of rent vs another building operating long term as expenses at 60% of rent... even over a 20 year period.....

Therefore - Different property setups, types, in different locations require different measures to be used in evaluating them!



If I haven`t won you over guess we`ll agree to disagree on this

QUOTE (invst4profit @ Nov 25 2009, 09:07 AM) Housingrental:

As far as the student rental is concerned statistics show in the long term expenses will still average in the 50% range. Although there are some factors you have sited that will reduce expenses there are others that will balance those out. As a student rental vacancies will be higher, default on payments will be higher, evictions will be higher, repairs and prep between tenants more often, and management of a student rental more hands on and time consuming/costly.
Admittedly I can not predict when expenses will creep to the 50% range but they will rise over time.

You are correct in stating that purchase price is not relevant to expenses I was simply point out that in regards to cash flow the newer building at possibly 2 or 3X the cost per door to purchase will not necessarily cash flow better than the older building assuming the utilities are adequately reflected by the $900/month rent and the price of the older structure is adjusted to compensate for all factors.

I`ll stick by my formula and predict that expenses on the newer building will be closer to 50% than 30% and definitely reach 50% within 20 years.
I do not have a Cristal ball so I guess we will simply have to wait and see.

 

[wgraham]

QUOTE (seeu22 @ Nov 22 2009, 11:07 PM) Hey Guys and Gals,

I am in the market for some more property. Just looking around and wondering what everyone is finding out there for numbers. Doesn`t seem to be a lot of cash flow out there and the markets seem to have stabalized.

Post you numbers on deals you have done lately. Not interested in hood areas where social issues lower the cost of purchase but exponetially increase the cost of management. Decent neighborhoods only.

Lets use some real expenses as well. I had one guy try to sell his portfolio to me and his total expenses were listed at 8%. The eight percent included insurance, vacancy, r&m, and management. A bit of a dreamer.

Let`s disect some deals.

Neil

Neil,

here is a link to my Example Pro Forma. http://www.hgrei.com/component/rsform/?formId=4

As mentioned in other posts I buy property that cash flows a minimum $500 per month.

This is for the Calgary Area and I am still finding properties that fit this model. Things are changing (again) and I am not finding as many properties as I would like at this time of year.....but they are still out there!!

Good luck with your search!!

Wade

 

[invst4profit]

Adam:
Taking into consideration all of the information included in the link I provided in addition to what you have provided I will have to say that my support still falls on the side of historical statistics.

I will agree your particular example may work out as you show based on the numbers you present but history does not support that in general.

In particular to your example there are special circumstances due to tax breaks and a monthly income far above normal compared to a regular rental unit of similar size. These facts alone have distorted the example giving support to your case.
Under these circumstances alone I would tend to not disagree with your example.

In hindsight I would suggest that due to these two factors percentages may be thrown out the window.

We need to keep in mind that the 50% rule applies to average situations where by such things as monthly rent accurately reflects the normal average rent for housing in a given area.

If however you were to suggest that the 50% rule should not apply in general then we can definitely agree to disagree.

(personally my preference would be for the older building, having greater upside in my opinion, if it were not for the utilities included issue which I always reject on principal regardless of rent level)

 

[margaretcowan]

Hi Rebecca

What kind of good cash flow listings are you seeing in Edmonton? I`ve been looking for small multi-family buildings like a 6 plex and none I`ve analyzed cash flow. Expenses are too high compared to gross revenue.

Thanks,
Margaret

QUOTE (RebeccaBryan @ Nov 23 2009, 05:09 PM) I`ve been looking at listings in Edmonton, and I am AMAZED at the opportunities!!! and certainty of cashflow!!!