CalmCobra

2Joined Jul 2022

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CalmCobra's Shortform

 I disagree, 20% is a damn fine return. Yes,  the key is using leverage. (I doubt you assumed I was talking about buying properties with cash before.)

Do you do leverage  trading? On first thought, it scares me not having any equity. If leverage trading gets nearly quadruple decent regular returns, why isn't there EA discussion groups and such around that then? It seems significantly more risky. 

CalmCobra's Shortform

Second, the link is about real estate investment trusts. There is various figures and statistics about macro-level trends, but nothing really about residential, self-storage or renting out commercial buildings. It discusses "investment properties" solely in terms of appreciation and REITs.

So what is the difference between CoC and ROI? Besides how CoC doesn't factor in equity, CoC doesn't account for appreciation. Therefore, ROI will usually be higher than the CoC return.

CalmCobra's Shortform

Do you understand the difference between cash on cash (CoC) return and ROI?

Because CoC return is all about reliably/monthly earning a return. The mortgage, capex, maintenance, insurance, taxes and vacancy reserve are put into the equation: 

(income - costs - mortgage)/(down payment + closing costs + rehab)

 

Detail

=(((totalMonthlyRent*(1-vacancyReserve)-mortgage-monthlyMaintenance-annualInsurance/12-annualTaxes/12)*12)/(downPayment+closingCosts+inspectionReport+estRehab/10)

Within the first year, I account for capital expenditures by fixing most everything and replacing old utilities with new. It's bundled into the estimated rehab variable and divided by 10 years. Then, for internal rate of return calculations, I figure $500/unit/year after those first 10 (considering warranties last about that long).

 

Example 

=(((600*(1-0%)+600*(1-10%))-438-120-149-48)*12)/(19200+4047+500+9230/10)

= 18.7% monthly CoC return 

 

This is my current and first property. Except, I naively got a 15-year mortgage instead of a 30-year. The bank just went with that choice. But hey, that's why I'm looking for a mentor. 

CalmCobra's Shortform

It doesn't seem like most EAs are interested in real estate investing (REI). Besides more riskier day trading, entrepreneurship and playing the lotto, REI done right garners significantly higher returns (think 20% and up, excluding equity, appreciation, depreciation recapture and capital gains). 

I focus on the cash on cash, CoC, return (REI without equity) when analyzing potential investment properties, and make goals with cash flow (e.g., net $300/mo per property after at least 20% CoC return).  My current goal is to attain $10k/mo cash flow within 12 years (again, after at least 20% CoC with most doors under anther's management). 

I use spreadsheets with PMT and IRR calculations, then double check with the DealCheck app/website. So far I only have one investment property, but I'm always going to open houses and analyzing potential deals. Self-storage seems to be booming. I'll probably eventually get more into commercial too. 

Anyway, I haven't seen much interest in REI in the EA community--despite higher returns. So I'm a bit perplexed. But the other half of me doesn't care and just wants to find a mentor.  

Open Thread: June — September 2022

Anyone interested in real estate investing want to potentially be my mentor? 

I was thinking we would eventually talk on the phone maybe twice a month. 

I am a young electrical engineer, childfree, in Wisconsin. I'm plant based at home; try to eat vegan when going out to eat, but usually end up eating vegetarian. I used to donate 1% in college (per GiveWell's student pledge), but since then I'm more focused on end of life donation (Earning to Give). Or maybe I should set up a trust or something. 

I am analytical and resourceful. I am refining my cash on cash return and cash flow calculations for REI. I own a duplex, and should sell when I move to a bigger city (probably in 2023). For prospective properties, I have analyzed some deals in Milwaukee and Chicago. Although, I should find a web crawler/scraper on GitHub to automatically extract this information into a spreadsheet.