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

[DaveRhydderch]

QUOTE (invst4profit @ Nov 24 2009, 07:10 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.

I was pretty rushed when I made this, but it was calculated considering a fixed mortgage of 4.1, with the current rents being used - 2650. 10% was put down as a deposit, a vacancy of 8%, repairs at 10%, with insurance and taxes included as well. Its a nice property in that its 30 years old and the owner was a full time pm of his own properties and his best skill was his handy man skills. He replaced the furnace, hot water tank and roof all in the last 3 years. So the major expenses are taken care of. My clients only have a 5 year plan with the property, so thats all that is considered.

So obviously not a perfect analysis, but pretty good.

 

[tonyla]

QUOTE (invst4profit @ Nov 25 2009, 01:46 PM) 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)

Are we all buying "average real estate"?

It`s been said we aren`t buying Canadian Real Estate, or Albertan Real Estate or even Edmonton Real Estate. We are buying a specific piece of property in a specific part of a town. The 50% rule may be the historical average but as with any average there are pieces of real estate that over perform the average and under perform the average. Which one would you rather buy? Under performing? Average? or Over performing?

Would you use the "average price" of a SFH in Canada to guide your purchase on the Mountain in Hamilton? Maybe but nothing more then a general guideline. What`s more important are the specifics of the particular property you are buying. As previously pointed out there are many reasons why a specific piece of property would out perform the 50% "rule".

I do agree with the fact that as an investor it`s prudent to be more on the conservative end of the scale when estimating expenses.

In the end the difference in opinion is that you shouldn`t apply a general rule to specific circumstances. Without knowing the distribution (so you assume a uniform distribution) then you are equally likely to buy a piece of property with expenses > 50% and < 50%. What is more important is what the expenses look like for that property and to have the confidence in the estimates (reasons why it is less or more then 50%).

 

[invst4profit]

QUOTE (David Rhydderch @ Nov 25 2009, 05:58 PM) I was pretty rushed when I made this, but it was calculated considering a fixed mortgage of 4.1, with the current rents being used - 2650. 10% was put down as a deposit, a vacancy of 8%, repairs at 10%, with insurance and taxes included as well. Its a nice property in that its 30 years old and the owner was a full time pm of his own properties and his best skill was his handy man skills. He replaced the furnace, hot water tank and roof all in the last 3 years. So the major expenses are taken care of. My clients only have a 5 year plan with the property, so that`s all that is considered.

So obviously not a perfect analysis, but pretty good.


The numbers he is giving you are only part of his expenses. There are a huge number of items missing and by the looks of it he is not including anything for his personal time.
He has had $10,000 to $14000 in repairs in 3 three years and believes his expenses are running at less than 25% in total.

Doesn`t add up but he probably does believe he is putting $700 a month in his pocket. You have to love this business.

 

[DLUX]

QUOTE (ThomasBeyer @ Nov 23 2009, 04:25 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 ...


Im just wondering what might be considered WOW? i think i sometimes have a hard time deciding if its a really good deal or not for instance i just purchaced a piece of bare land to build a spec home for $45,000 below market value. and i thought it was a fairly wow deal considering 30 days eairlier i paid market value for a lot in same area.

 

[housingrental]

Awesome!We`re close to agreement

QUOTE (invst4profit @ Nov 25 2009, 02:46 PM) 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)

 

[housingrental]

This is a post I`ll agree with Greg on

QUOTE (invst4profit @ Nov 25 2009, 09:31 PM) The numbers he is giving you are only part of his expenses. There are a huge number of items missing and by the looks of it he is not including anything for his personal time.
We has had $10,000 to $14000 in repairs in 3 three years and believes his expenses are running at less than 25% in total.

Doesn`t add up but he probably does believe he is putting $700 a month in his pocket. You have to love this business.

 

[invst4profit]

QUOTE (housing rental @ Nov 26 2009, 12:05 AM) Awesome!
We`re close to agreement

Close is good enough.

Problem with me is, because of my background, I prefer to debate rather than agree. Tends to create tension.

 

[housingrental]

Cool
And whats your background beyond trailer park operator ?


QUOTE (invst4profit @ Nov 26 2009, 10:46 AM) Close is good enough.

Problem with me is, because of my background, I prefer to debate rather than agree. Tends to create tension.

 

[DaveRhydderch]

QUOTE (invst4profit @ Nov 25 2009, 07:31 PM) The numbers he is giving you are only part of his expenses. There are a huge number of items missing and by the looks of it he is not including anything for his personal time.
He has had $10,000 to $14000 in repairs in 3 three years and believes his expenses are running at less than 25% in total.

Doesn`t add up but he probably does believe he is putting $700 a month in his pocket. You have to love this business.


Ahhh he did include property management at 12%. I`m making my client look bad. I think though someone can take my numbers and run their own proforma and get the details.

 

[RedlineBrett]

QUOTE (invst4profit @ Nov 25 2009, 08:31 PM) Doesn`t add up but he probably does believe he is putting $700 a month in his pocket. You have to love this business.

I`d really like to see you try find these cash-cow deals anywhere west of small town Ontario. Like in say the top REIN investment market in Canada (which would be Calgary). Every time there is a cash flow thread you get on your high horse and kill every deal that doesn`t earn 2x the expenses while using zero asset appreciation... and come down on any investor that does a deal thinner than that which is akin to telling off 99.9% of REIN members. Many of whom are multi-millionaires. You know this right?

 

[invst4profit]

QUOTE (housing rental @ Nov 26 2009, 11:33 AM) Cool
And whats your background beyond trailer park operator ?

Labour union, Contract negotiations, Telecommunications industry.


QUOTE (Redline Brett @ Nov 26 2009, 12:13 PM) I`d really like to see you try find these cash-cow deals anywhere west of small town Ontario. Like in say the top REIN investment market in Canada (which would be Calgary). Every time there is a cash flow thread you get on your high horse and kill every deal that doesn`t earn 2x the expenses while using zero asset appreciation... and come down on any investor that does a deal thinner than that which is akin to telling off 99.9% of REIN members. Many of whom are multi-millionaires. You know this right?


(What follows is a unnecessarily lengthy post as a result of me having far too much free time.)

The fact is those cash cow deals I criticise can rarely be found west of anywhere which is why I ride my horse.
I don`t kill deals that don`t cash flow 2X expenses I kill deals where the numbers clearly do not add up to what is being said, the investors conveniently leave out expense details and exaggerate cash flow.
I believe if a new investor is cash flowing $100/month/door they are doing OK. Real cash flow that includes all expenses, including postage stamps, and consists of realistic projected expenses.
If someone asked to have REIN critique a deal I will do it from the perspective of the real world of landlords not some arm chair investor. Reality bites.
I dismiss speculation and concentrate on investing, and no appreciation is not investing it is speculation. That dog won`t hunt but if someone wants to use it to make a deal look better so be it..
I have no problem if someone wants to buy a property with poor cash flow but if they want to pretend otherwise I will critique.
I will also critique real estate agents and sales reps that tout high cash flow while conveniently excluding real expenses. Am I stepping on toes?
Too many green investors have pie in the sky expectations of cash flow that does not exist in this business.
Too many seasoned investors throw out cash flow numbers as big as there egos.
Too many REIN members are more interested in making REIN look good than disseminating the real facts on what can be expected in this business. Admittedly REIN is not for landlords.
Yes I will advise/suggest investors pass on thin deals when the aim of investing is to make money and will always suggest waiting for a good deal is smarter. If this is telling off 99.9% of REIN members (your suggestion not mine) then that suggests the vast majority of REIN members are not particularly savvy investors.
As far as many members being multi-millionaires is concerned what is your point. I may not be a multi- millionaire but at last count I was a millionaire. Besides money makes money.
You should also note that those individuals that appear to be multi-millionaires on here are conspicuously absent from most posts discussing cash flow examples and if they do comment often echo my sentiments.
I am trying to help those that do not have money not lose what little they do have.
You do know this a business and the majority of new businesses fail in the first 5 years right.
The majority of investors are mom and pop LLs that will never own more than a few doors and are the ones that will most benefit from real grass roots information. Hearing you can buy a $300,000 door and make money at $2000/month rent by making a huge down payment is not helpful to them in fact in my opinion it is dishonest.
If people are going to throw income numbers out they should support them with fasts because there are innocent investors watching that could be mislead.

Admittedly REIN may be a bit high brow for me but I have no problem with having a reputation of being cruel to be kind. Those that chose may ignore me.

I don`t talk about people. I talk about deals and money and as we all know money doesn`t have loyalty, compassion or feelings of any kind.

 

[evanwright]

QUOTE (invst4profit @ Nov 25 2009, 02:46 PM) 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)

Greg,

If one has tenants that are long term and not on leases, what`s the dynamic when installing separate metering and applying utility costs to tenants? Is this legal/suggested?

I also shy away from units that include utilities, but have passed on some pretty good deals due to that fact ... people can simply not be expected to conserve on someone else`s dime ... human nature.

 

[RedlineBrett]

The fact is those cash cow deals I criticise can rarely be found west of anywhere which is why I ride my horse. Then perhaps you should frequent a board for landlords and other investors from a bygone era.. as opposed to this board whose membership is committed to taking action and doing deals that are up to the standards of other proven millionaires that set the system.

I don`t kill deals that don`t cash flow 2X expenses I kill deals where the numbers clearly do not add up to what is being said, the investors conveniently leave out expense details and exaggerate cash flow.

I`ve seen your expense lists and they include large capital expenditures that could well occur after the investors mortgage is paid off or as another poster suggested allow you to build new all over again. Many investors repair or replace these large items at purchase as part of their contracts as well.

I will also critique real estate agents and sales reps that tout high cash flow while conveniently excluding real expenses. Am I stepping on toes?

I am an investor first before I am a broker. I choose to fight fear which is what I think you spread with nearly every post you make. your evaluations force all investment options to surmount the sum total of all possible negative outcomes without including the equally possible positive outcomes. Long story short you remind me of every old person that told me to keep working for the man rather than pursue my dream. Every `analysis` of yours is like saying "you can`t do it" to an excited new investor.

As far as many members being multi-millionaires is concerned what is your point. I may not be a multi- millionaire but at last count I was a millionaire. Besides money makes money.

My point is there are many ways to get rich other than sitting on your hands waiting for a deal similar to the only kind you will accept and your constant assertion that the only deals that truly make money are your deals is asinine. Congratulations on being a millionaire in your 50s..There are many that have done so that are 20 years your junior which is what nearly all REIN members are here for.

 

[JimWhitelaw]

I feel bad for Neil (seeu22) who isn`t getting any real response to his original question. I also think it would be interesting to see what kinds of deals people are making and how they`ve been analyzed. Instead, we`re going around in circles about the 50% rule, etc.

Greg (invest4profit) has a system he believes in and follows. Greg`s method of analysis, particularly the go/no-go aspect of a new purchase decision, differs significantly from the REIN methodology as espoused in Don`s book and ACRE weekends, etc. That`s OK, the world is a big place and we`re all big people who can tolerate some difference of opinion (I hope). Greg`s certainly entitled to his approach and if it works for him, that`s great. Likewise, as Brett points out, the REIN formula has worked well for many investors too. I welcome Greg`s criticism of the system, it never hurts to keep testing assumptions. But I follow the REIN system and don`t plan to change.

However, what I do see happening that I think is unfortunate is that new investors (who may have only read the book or been to an ACRE weekend) come to the REIN website for opinions on their REIN-style property analysis from REIN members only to get hit over the head with Greg`s Gloom-Hammer-of-Discouragement. Again, I think he`s entitled to it, but it`s not always made clear that it`s a significant deviation from the system that REIN teaches.

Greg, I`m not suggesting you be suppressed, but it wouldn`t hurt to make it clear to people asking for advice that you`re not a REIN member and that you recommend a different form of analysis than what REIN teaches.

 

[MarkTorgerson]

QUOTE (JimWhitelaw @ Nov 26 2009, 02:45 PM)
I feel bad for Neil (seeu22) who isn't getting any real response to his original question. I also think it would be interesting to see what kinds of deals people are making and how they've been analyzed. Instead, we're going around in circles about the 50% rule, etc.



Greg (invest4profit) has a system he believes in and follows. Greg's method of analysis, particularly the go/no-go aspect of a new purchase decision, differs significantly from the REIN methodology as espoused in Don's book and ACRE weekends, etc. That's OK, the world is a big place and we're all big people who can tolerate some difference of opinion (I hope). Greg's certainly entitled to his approach and if it works for him, that's great. Likewise, as Brett points out, the REIN formula has worked well for many investors too. I welcome Greg's criticism of the system, it never hurts to keep testing assumptions. But I follow the REIN system and don't plan to change.



However, what I do see happening that I think is unfortunate is that new investors (who may have only read the book or been to an ACRE weekend) come to the REIN website for opinions on their REIN-style property analysis from REIN members only to get hit over the head with Greg's Gloom-Hammer-of-Discouragement. Again, I think he's entitled to it, but it's not always made clear that it's a significant deviation from the system that REIN teaches.



Greg, I'm not suggesting you be suppressed, but it wouldn't hurt to make it clear to people asking for advice that you're not a REIN member and that you recommend a different form of analysis than what REIN teaches.




Personally, I find it rather entertaining (as well as educating) and possibly a little overdue. A little jousting is healthy.

My personal experience is that if I had used Greg's methods of analyzing property, I would have been paralyzed with fear and would have bought nothing. I have purchased 46 doors which most likely would have never happened. I also do think it is healthy to have someone that questions things and play the devils advocate.

 

[evanwright]

I too have been using icx almost exclusively to search properties ... try googling private sale websites with your criteria and chosen location. Also, familiarize yourself with a RE agent in each of your preferred locations .. just don`t sign anything.

How `bout this?

- legal triplex in Durham region (very little inventory ... a decent investment location) ... $354,900.00
- converted house brick and vinyl siding
- 3K in monthly rental and coin laundry income ... solid long term tenants want to stay.
- new roof, windows
- LL pays utilities

With liberal maintenance expense estimates at 2K yearly, 25% down, and a 6%/30 yrs. mortgage, it nets $200/mo. If I was to use an interest only LOC at 1% plus prime, it nets $828/mo.

There were 12 people waiting to view the place at 5pm on a miserable night the day after the listing hit. It apparently had sold previously but financing fell through ... the word was it was going to go for about 360K.

Yeah, i know there are many other questions that need answering, but would anyone buy this place? Any other comments are most welcome.
Evan

 

[REINteam]

Hello All,
Before this keeps going, and great points by all, we`ll need to cool down a bit.

Greg`s method differs from REIN™ in some regards, not all, but in the end it works for him and his style of investing. Many REIN™ members don`t invest in trailer parks, nor do the REIN™ staff so analysis will differ. As Greg has mentioned in a previous post, he spends X amount of hours/week dealing with tenants at his park or doing upkeep (correct me if I`m wrong, going off memory here Greg), but I can tell you most investors I know, including myself, don`t spend that much time at their properties, no where close to it. In fact, I would lose it if I had to spend 4 hours a week of my own time at my properties. Different strokes for different folks and as Jim points out...it works, Greg is happy with his cashflow and his plan...There Are Lots Of Ways To Make Money In Real Estate...so be open!

I do see investors, REIN or non REIN, underestimating costs or leaving some out all together (whether they mean to or not). However, at the end of the day, each purchase will be different and there are many factors that impact your overall cashflow. We can argue the 50% rule day in and day out, some forums clearly do, but what you`ll need to ask yourself is..."is my time best spent arguing property analysis day after day?"

This forum is a great resource, EVERY member should use it at least weekly, I`d say daily, but all the information in the world won`t help if you don`t take action. Some will continue to argue because it`s easier to type than it is to source out and negotiate deals and this is why a number of veteran members aren`t on here - it can eat up a lot of time...especially if you want to fight every fight, and they are too busy. But it is a great learning tool if used properly, so use it often!

Healthy discussions are great, it always helps to see things from another perspective. Take every forum members comments as you see fit, learn from what others have to offer, add perspective and continue learning and adapting in this business...but do your best to remove emotions, even on here! And in the end remember that not everyone on here buys what you buy, invests where you invest, or does things the way you would...don`t take it personally - You have your own motivations and they have theirs.

Don`t be afraid to ask questions, especially on expenses, just remember some do if differently.

Keep up the good work everyone and keep perspective!

Regards,

Ray Reuter
Real Estate Investment Network

 

[invst4profit]

QUOTE (evan wright @ Nov 26 2009, 04:01 PM) Greg,

If one has tenants that are long term and not on leases, what`s the dynamic when installing separate metering and applying utility costs to tenants? Is this legal/suggested?

I also shy away from units that include utilities, but have passed on some pretty good deals due to that fact ... people can simply not be expected to conserve on someone else`s dime ... human nature.


In Ontario unless your tenant agrees to begin to pay for there own utility costs you will have to wait until you change tenants.
New tenant new lease agreement with utilities extra.
You need to understand that not having a signed lease in Ontario does not mean there is no lease. The LTB will enforce whatever verbal arrangement is in place between LL and tenant. The board will generally side with the tenant.

 

[invst4profit]

QUOTE (REINteam @ Nov 26 2009, 05:28 PM)
Hello All,



Before this keeps going, and great points by all, we'll need to cool down a bit.



Greg's method differs from REIN` in some regards, not all, but in the end it works for him and his style of investing. Many REIN` members don't invest in trailer parks, nor do the REIN` staff so analysis will differ. As Greg has mentioned in a previous post, he spends X amount of hours/week dealing with tenants at his park or doing upkeep (correct me if I'm wrong, going off memory here Greg), but I can tell you most investors I know, including myself, don't spend that much time at their properties, no where close to it. In fact, I would lose it if I had to spend 4 hours a week of my own time at my properties. Different strokes for different folks and as Jim points out...it works, Greg is happy with his cashflow and his plan...There Are Lots Of Ways To Make Money In Real Estate...so be open!







Keep up the good work everyone and keep perspective!



Regards,



Ray Reuter

Real Estate Investment Network






The 4 hours is somewhat misleading. That time has been spent upgrading the property the actual time required to do on site management probably works out to less than 4 hrs per month and often only requires a visit to pick up a water sample every 40 days. The park requires very little actual on site management on my part as dirt doesn't need fixing very often.

The nice thing about parks is, because we don't own the buildings, maintenance expenses consistently come in under 30%.



Since we seem to be discussing methods of financial analysis the REIN suggested system, correct me if I'm wrong, is to seek properties having rents 1% or greater of the purchase price. This number works out to a desired rent very similar to that which I seek by using the 50% rule.

In every situation where I get into this discussion with a REIN member the property rent in question has always fallen short of the 1% rule.

That I find interesting.

 

[westboundventures]

QUOTE (invst4profit @ Nov 27 2009, 02:50 AM)
Since we seem to be discussing methods of financial analysis the REIN suggested system, correct me if I'm wrong, is to seek properties having rents 1% or greater of the purchase price. This number works out to a desired rent very similar to that which I seek by using the 50% rule.

In every situation where I get into this discussion with a REIN member the property rent in question has always fallen short of the 1% rule.

That I find interesting.




REIN currently teaches the "10% Solution", meaning gross annual rents should be 10% of the purchase price, or greater (slightly less than the 1% rule you are suggesting). This is taught to be only a coarse filter; one of the first tools to use when filtering properties and deciding what warrants a closer look. Individual purchase decisions come down to many factors that only become apparent on a much closer analysis.



The 1% rule or 10% solution is really only meant to help save investors time by encouraging them not to bother looking at properties that likely won't work.