First residential REI post

[biophase]

I guess I'll make the first post in the residential section since Steve O made the first commercial post. Ironically, I probably will be going from residential to commercial in the next few months due to the great Steve O.

 

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[MrPink]

Hey Biophase,

I first want to say nice blog! ++speed

I know you just mentioned how busy you are in the up coming weeks and also how you have a little writers block.

Therefore I thought this maybe the perfect opportunity to ask a number of questions regarding real estate. I can't find the details to these questions on your blog and this maybe due to you not wanting to put it out there (or I just can't find the answers), which I totally respect.

You mentioned your condo fees have increased over the years, how much has this effected the cash flow? It seems that it would be in the 300/dollar range with new renters, but was curious how you made adjustments over the years.

What factors do you consider when hiring a PM? I realize you have a number of properties out of state therefore was hoping you could expand on what you think is important.

What percent of your cashflow comes from which property? I am actually not entirely sure how many you own (some in salt lake, chicago, phx). What percent of your overall cashflow comes from REI (maybe interesting to monitor since your ebizs are just getting going)?

I have a number of others, but not really real estate related. Any input on these subjects would be interesting (at least to me), thanks.

Mr. Pink

 

[biophase]

Hey Biophase,

I first want to say nice blog! ++speed

I know you just mentioned how busy you are in the up coming weeks and also how you have a little writers block.

Therefore I thought this maybe the perfect opportunity to ask a number of questions regarding real estate. I can't find the details to these questions on your blog and this maybe due to you not wanting to put it out there (or I just can't find the answers), which I totally respect.

You mentioned your condo fees have increased over the years, how much has this effected the cash flow? It seems that it would be in the 300/dollar range with new renters, but was curious how you made adjustments over the years.

What factors do you consider when hiring a PM? I realize you have a number of properties out of state therefore was hoping you could expand on what you think is important.

What percent of your cashflow comes from which property? I am actually not entirely sure how many you own (some in salt lake, chicago, phx). What percent of your overall cashflow comes from REI (maybe interesting to monitor since your ebizs are just getting going)?

I have a number of others, but not really real estate related. Any input on these subjects would be interesting (at least to me), thanks.

Mr. Pink

Hi, thanks for reading my blog!

HOA increases directly affect your cashflow on a 1:1 basis. Every dollar it goes up, your cashflow goes down. Fortunately, in my Chicago condo it seems that we have decent investor landlords who have been increasing rents as HOA and taxes increase.

So the HOA increases haven't affected my cashflow because I've been increasing rents to compensate. However, in my other townhomes, my HOA just went up $15 but I am keeping rents the same because nobody else has increased them.

As for finding a PM. It's really a shot in the dark. Honestly, if you live out of town (which is why you'd need a PM) you get to interview a bunch over the phone and maybe see a few in person for 1 hour or two while you're in town. As which each interview, the PMs are always on their best behavior. Obviously, the ones who aren't you don't even consider.

My PMs in SLC are a mom & pop type and I've thought about switching to a bigger company but I'm worried they could be worse.

At least with my current PM, I know what I have. :smx6:

 

[MrPink]

Good stuff. I am probably going to have to look for a PM in the next couple of years so am trying to attain as much information about the process as possible.

The reason I was curious about your percent cash flow is after reading Russ H's posts about developing a plan.

My essential income is quite low, but my ideal income is quite high, hehe. At what point did you feel comfortable in 'retiring' based on needs/wants in regards to your current cash flow?

 

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[biophase]

Good stuff. I am probably going to have to look for a PM in the next couple of years so am trying to attain as much information about the process as possible.

The reason I was curious about your percent cash flow is after reading Russ H's posts about developing a plan.

My essential income is quite low, but my ideal income is quite high, hehe. At what point did you feel comfortable in 'retiring' based on needs/wants in regards to your current cash flow?

Building cashflow in residential is a really slow process. I really look at the cashflow as a means to build a reserve for future maintenance and emergencies. I don't spend it at all.

I really believe that the big money comes from appreciation with time. You can cashflow $200/mo all day long and in 10 years, you'd make $24,000 total. Toss in some appliance repair or replacement, roof leaks, vacancies, deadbeats and maybe you made $20,000. Hopefully the property you purchased has appreciated more than $20,000 in 10 years.

If you look at your job as your income, separate out the home investment, make it stand on its own. You don't want to be spending your $200/mo on food and movies etc... then get hit with a $2,000 AC repair one day. Keep the $200/mo in a separate account and build up the reserves.

Spend the investment money the day you sell and make $XX,XXX.

Of course, eventually if you have 10 houses and $2,000/mo coming in your reserve account will grow real fast. After you've socked away $10-15k, then you can probably start counting the cashflow as a means of living.

 

[MrPink]

I wrongly assumed from your blog that you were living off of the cash flow from your properties.

I like the way you have your rentals set up - essentially on autopilot - its like a big pot of growing money that is on tap if needed.

The tipping point must be when you can start buying properties just based on the cash flow of others. In doing a rough estimate this stresses the importance of buying right.

Example,
If you cash flow 50/month you need 40 properties vs. 200/month needing 10 (rich get richer) cause once your over the hump things would really take off.

You mentioned when things really start taking off in regards to cash flow.. simple numbers, but am amazed at the difference 'small' numbers make when considered together.

 

[biophase]

I wrongly assumed from your blog that you were living off of the cash flow from your properties.

Well it's a combination of both. There is a famous or infamous thread called "Is cashflow king?" that I think I started on Richdad.

Most people believe that cashflow is king and that that is what you need to live off your investments. But you can live off capital gains for a long long time.

Here's an example. Suppose you had 2 condos cashflowing $180 each. They were giving you $360/mo cashflow which is certainly not enough to live off of. You sold them netting $200k in profits - $40k taxes = $160k. How long can you live off of $160k? If you need $5k a month, $60k year = 2.7 years. Let's say you have $1000/mo in cashflow coming in through other avenues. Now you can live 3.3 years. Pretty soon you can extend it out to 5, 10 even 15 years.

This is an extreme example, but you get the idea. In the meantime you wouldn't let that $160k sit idle either. You would be re-investing chunks of it during that time.

 

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