panda
Well-known member
Qwerty,
Thanks for your insight.... Qwerty, you are a very smart guy and I can see your comments are well thought out. I don't plan to put all my eggs in one basket. The asset allocation I am striving for 2012 is 40% real estate, 40% in my small business, 20% in FOREX. I don't feel comfortable allocating too much in the stock market as when Bernanke pushes a green button stocks go up and when he pushes the red button, the stock market goes down. Atleast you can make your investment decision on real numbers when you are dealing with your small business and real estate.
Thanks for your insight.... Qwerty, you are a very smart guy and I can see your comments are well thought out. I don't plan to put all my eggs in one basket. The asset allocation I am striving for 2012 is 40% real estate, 40% in my small business, 20% in FOREX. I don't feel comfortable allocating too much in the stock market as when Bernanke pushes a green button stocks go up and when he pushes the red button, the stock market goes down. Atleast you can make your investment decision on real numbers when you are dealing with your small business and real estate.
qwerty said:Panda said:Qwerty and Trojan.... there are couple of homes i am looking at with the following specs. My strategy is simple. Buy one SFR every year from 2012 - 2020 with 20% down. Buy the cheapest, and the newest SFR in the best school cluster in GA, and buy and hold.
School District: Sharon Elementary: Rank #2 / 1176
RiverWatch Middle: Rank #3 / 479
Lambert High: Rank #7 / 400
SFR
Home price : $250,000
4 bed / 3 bath
2600 sq/ft : .25 acre
Rent: $1800 - $1900
I know i can get $1800 easily as the rental supply in the Lambert cluster is 1-2 months and I've seen the comps and time on market.
Numbers look like this:
Rent: $1800
Mortgage: $938.88 - 4.25% on 30 fixed on $200k
HOA: $50
Insurance : $50
Tax: $176.66
Cash Flow: $539.46
Annual cash flow $6473.52
12.9% cash on cash return on $50,000 invesment (20% of $250,000) with 0 appreciation.
What do you guys think? You think this is scaleable?
If we get an appreciation of 5% in JC - I am being conservative here with my numbers.
Appreciation: $12,500
amortization: $3383.67
Cash flow: $6473.52
Annual gain: $22,357.19 with $50,000 investment = Total of 45% ROI.
Trojan, I think i would totally suck as RE agent, but I can see myself doing something like this.and maybe even flipping in the future.
My inspiration comes from the Irvine SFR my wife and her family lived in paying $1900/month back in 1996....
http://www.zillow.com/homedetails/28-Foxhill-Irvine-CA-92604/25487946_zpid/
....oh.. also inspiration comes from my 2 fortune cookies.
those numbers are impressive at first glance, however, i would recommend doing a more detailed cash flow calculation and include maintenance, vacancies, property mgmt fees (im guessing you wont want to deal with the headaches of being a landlord directly) as well as include the income tax components (deduct interest expense, depreciation of house only, not land, etc.) - in essence put together a true detailed P&L. Just so you have the most accurate P&L and set of cash flows available. Taking your purchase prices and monthly rents at face value, the investments look pretty solid to me. 12.9% cash on cash returns are hard to beat. the 30 year tbill rate is about 3.0, so you are earning almost 10% above the risk free rate. I would use 3% for the appreciation, i believe that is the national long-term average, i think that tracks with inflation. Still an overall imressive ROI.
Here are my comments:
1 - i would not rely on any appreciation for the purpose of this investment, which is fine because you still have a 12.9% cash on cash (COC) return - about 10% above the risk free rate. if you do get appreciation that is just gravy. i guess the COC return will be lower once you factor in maintenance/property mgmt, etc.
2 - the equity build up is good but this can potentially evaporate, be responsible with it.
2 - do you think those rents are sustainable over the long-term? you have a decent cushion on a monthly basis to absorb any downward pressure on rents so you are probably ok
3 - if it is that much cheaper to buy (about 500/month), why would people rent instead of buying. Im guessing you have a good handle on the demographics (people lacking down payments, etc) and believe there will always be a good pool of renters.
4 - im guessing you will have enough cash reserves to cover personal expenses for an extended period of time as well as having multiple properties vacant for periods of time.
5 - are you going to tie up alot of your capital in this? if interest rates rise, the return on tbills will improve and decent returns may be available with no risk, making your real estate investment less appealing. i guess what im saying here is dont put all of your eggs in one basket.
overall its sounds like a pretty decent plan to me assuming you are comfortable with 1-5 above - looks like you are investing in real estate the old school way, by using fundamentals and other peoples money. Or you can just give your money over to USC and he can give you 20% returns trading options. ive thought about doing something similar to you back home where im from, but dont want to deal with the hassles of being a landlord. Good luck man. Keep us posted on your Trump like empire to be.
