Low cash-flow properties aren't always bad deals. The hosts break down how condo fees, taxes, interest rates, and property age shift your actual returns, and why comparing cap rates across different locations and asset types can mislead you if you're not consistent about what costs you're including.
Hello.
Hey, everybody.
I guess we're. We're live now.
Yeah.
No record. We're recording. We're recording. Welcome to Real Talk, where we talk about real estate.
Yeah. Episode what, 86.
Yeah, that's right. Vlog number 86.
Yeah.
So I've been working on this a lot lately. Cash flow calculations and how investors buy and that kind of thing. So that's what we're going to talk about today.
Yeah, it's awesome. Good topic.
Yeah, it is. There's a lot of like, very strong convictions missing the extra couple of variables. Right. Those are the things that come to my mind is what are those missing variables we should be thinking about, you know?
Right. Well, I think the first thing there's to kind of hit on. I think we'll talk about it more in the podcast level of this. But it's not a cookie cutter situation for every investor. Some is more of a, you know, what's the appreciation going to be? What's the monthly cash flow? What's my cash on cash overall? And we look at all of those things and some methods are better for some people and some aren't.
Yeah. I know people who will say, I won't buy a property unless it's going to cash flow X.
Right.
And that's all well and good as long as you've calculated all the inputs consistently across all of your potential properties to buy. Right. And all your potential properties vary. Right. So you got some that are recent builds that are brand new construction. You've got some that are 100 years old. We do a lot of renovations and sell a lot of investment properties that are 100 years old.
Right.
So that's a different consideration.
Yeah, cash flow. So cash on cash and cap rates are different based on asset classes too.
True.
So not just the age of the. Of the asset, but location.
Yeah, that's right.
Demographic is. I mean, an 8% cap in downtown Dayton is maybe a little bit juicy on the month to month compared to an 8 cap rate and like Westchester, that's somewhere that's a little bit of a different asset situation. Yeah. So we'll kind of talk a little bit more about those things. And then all the different variables that you mentioned that go into calculating all.
That, you know, there's an element of like speculation too, when it comes to appreciation. Like if you feel like you're. I mean, I get no cash flow out of a mutual fund. You know what I'm saying? Right. But you know, I'm in it for the capital, I'm in it for the capital appreciation. Right. These are growth funds or whatever.
Right.
So when you look at your real estate portfolio that way and you're investing in some up and coming or, you know, gentrifying area or whatever else, those are, those are different considerations.
Absolutely.
Cash flow matters, but it's not the only thing that matters.
Correct.
In your investment. So.
Correct.
So what other things that matter? You know, when I, I, I used to own a condo, I had a rental that I owned and the, there's the condo association fees. Right. So the coa, right. They just raised the rates, you know, 100 bucks a month or 50 bucks. I forget exactly what it was, but they just said, hey, we can't pay for the driveway and the, whatever. All of our condo association fees are going up. Like what? That doesn't help my cash flow.
Right.
So that was like an aha moment for me that, that was one of those variables that are out of my control and now is consistently more expensive and my cash flow is consistently not less.
But looking at it from bigger picture, as an investor with a long term strategy, the appreciation and the property value of that asset has gone up, most likely.
So the whole value of that, maybe.
That 50 or 100 difference per month would have flexed out over a five year period. Oh yeah. When the values had increased, I think.
It was a, it was still a great long term investment regardless of the cash flow that shrunk. But if I had bought that property with a homeowners association or condo association fee, even taxes, you know, something, they can just change and I don't have enough cash flow to buffer a potential change. So what I learned from that is to think about the, the, the breadth, you know, that how much could it vary? Right. How much could those uncontrollable things like taxes and association fees change, you know. Right. Everybody thinks about maintenance and only maintenance, you know, like, oh, you know, a furnace or a plumbing repair or whatever, how much could that cost and what do I got to do to be prepared for that? People miss sometimes that condo association fee, those other big chunks.
Yeah. Luckily we don't usually, we usually don't market and sell properties that have HOAs or condo association fees. We've had a couple, I mean, I can probably name them off top my head, so few. But another factor in that is, you know, when we are building performance and I know our performer just took a little change, we did some editing on how that was structured. But when we're doing that and we're presenting that information like we're doing average and estimated like interest rates and estimated expenses and all of these things based on all the product we've done in the last 12 months on an average that's subject to change. That's right. Big changes happen as interest rates. Like we were calculating a much lower interest rate, and all of a sudden the entire market shifted. And now we have to completely redo how we're doing that calculation. And then it's going to shift again. There's always going to be a variable that's going to change. And knowing that, I mean, it goes back to that, like, marginal difference there, the cash flow changes.
That's right.
Now, it won't necessarily change your interest rate because once you have a loan locked in, you have it locked in once you refinance. But taxes do change. And you said if cashing out is.
Part of your strategy. True. Then an interest rate change could have a big impact on you.
Correct. And depending on how the market pulls and what, what lenders are doing, it could have positive or negative impact, depending.
Well, we could go deep into all this stuff. Maybe we should in the podcast before we get too, too far down the rabbit hole or whatever, because that's a long list of things to consider.
Right.
That's a lot of. That's a lot of stuff. And then maybe in the podcast we can talk a little bit more about our pro forma and how we present our properties and other things that investors might want to consider.
Absolutely.
You know, we don't, we don't, we don't detail every variable in our performance. Absolutely right. So that might be a good kind of add on topic to get into in the podcast. Great. Cool. For now, invest smart, Live happy.
Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss.
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