Whats the math that you have to know and understand when evaluating a rental property ?
You must know how to calculate real world cash flow. You must know your target area market values and rents. You must know the discount that you are buying at. You should know how to put together a personal financial statement. You should know how to calculate the rehab costs. You should know how to put the numbers into a mortgage calculator to find the mortgage payment.
It’s really pretty easy.
Mike
income > expenses
Sorry, I couldn’t resist.
To add to the others you should also figure in on what you are looking to do with the property and what way the real estate market is and is headed in your area.
All these miracle formulas offered by experts who are only trying to peddle their latest greatest ebook, cant and shouldnt be rules for anyone trying to invest. There are formulas you can use for a general idea but they dont take into account the different equity rates in varying markets, tax advantage, sure you can buy high cash flow properties but what would be better.
property 1 bought for $100,000 in a 1% equity area that generates $200/mo in cashflow bought with 5% down.
or
property 2 bought for $100,000 in 7% equity area that loses $50/mo bought with 5% down
In the first example in 5 years you would have
just over $5,000 in equity
and would have generated $12,000 in cashflow
In the second example in 5 years you would have
Over $37,000 in equity
and would have lost $3,000 in cashflow.
So which ones better.
12,000 in cash and 5,000 in equity = gain of $17,000
or
-3000 in cash and $37000 in equity = gain of $34,000
If you continue to carry the numbers out the difference grows even more.
I think there are certain “authors” or rental gurus in the forums that would have you walk away from any property that has negative cashflow. So is there any special formula that always works NO!
Watch out for the know it alls, theyll get you everytime.
Eric Medemar
Eric,
I’ve never heard the term “equity area”, could you please explain?
p.s.- Grow up!
In my market there are parts of town that have average 9%-10% equity growth/yr for the past 10 years, less than a mile away are the low income areas that have seen less than 1-2% equity growth for the past 10 years.
If you havent experience this then maybe you need to step out of dannyville, USA.
Eric Medemar
P.S. If I grow up could I be like you. Pretty please.
Okay. Okay. My revised formula is:
if ( ! aSpeculator )
UseTheFormula = Income > Expenses;
else
UseTheFormula = HopeAppreciationContinues;
Hi Eric thats great but it also called speculating. What if prices dont go up in the aforementioned way. Yes in recent times they have but 15 years ago they dropped like a rock in most areas then you are left holding a property that loses you money every month. Isnt it better to have a solid monthly income coming in from properties and have appreciation as just icing on the cake?
In my market there are parts of town that have average 9%-10% equity growth/yr for the past 10 years, less than a mile away are the low income areas that have seen less than 1-2% equity growth for the past 10 years.If you havent experience this then maybe you need to step out of dannyville, USA.
Eric Medemar
P.S. If I grow up could I be like you. Pretty please.
I’ve never heard appreciation called an “equity area”. I’m not sure how much appreciation matters when calculating the cash flow of a rental property, but whatever helps you sell your vast array of knowledge. You teaching newbies about real estate is like the blind leading the blind. This could explain why you constantly run into walls face first when you come on here spewing your feeble-minded garbage that you call advice.
When you decide to grow up, there are many things to consider. First and foremost you should think long and hard about suicide. It may benefit someone like yourself! It would certainly benefit everyone else in the world.
I am not calling appreciation an “equity area”. I am calling an area that generates a different equity gain an equity area, but evidently you would just call areas of differing equity just “appreciation”, to each his own I guess.
Appreciation does not matter when you are trying to figure out cashflow. Cash flow is what it is. When evaluating a property appreciation is extremely important if not the most important depending on what kind of investor you are. Many fortunes in real estate have been built on appreciation, many have been built on cashflow, it just depends on where your at in the country. A investor in an expensive market like Sanfrancisco or Vegas would have a very difficult time getting started if they were to follow the formulas pushed by the “experts” in this forum.
There are countless markets in the US that your magic formulas would all but eliminate the possibility of being a successful investor. Yes, what the property manager says does make sense, but it is far from the end all be all rule of real estate.
I would never even come close to saying that my answer is the only answer, I couldnt possibly know every market in the U.S. I can only say what I know to be true in my market.
I dont sell anything to any investors, I had to stop phone consulting because I couldnt afford to do it. Put it this way the site was free and everything involved was free, except for my time. It turned out my time was more valuable than $99/hr, so I stopped.
Anyway back to the question of appreciation yes you would be speculating on appreciation but last time I knew real estate has been appreciating for years. Yes it does have its ups and downs but so does anything else including rent. If you decide to buy based solely on cashflow rather than appreciation you are essentially speculating that appreciation will not happen either way you are speculating.
Appreciation is one of the greatest parts of real estate, combined with leverage these two have a synergy unlike any other wealth vehicle on the planet.
Whats better $300/mo in cash on a $200,000 investment
or
$16,000/yr in equity and a break even or slight loss investment(8% equity on $200k)
If your a cash strapped newbie the cash would be better everytime because you couldnt be in business without it, but if you have enough money to handle a slight loss in cashflow then the strong equity property might be a better idea.
My feeble minded garbage has made me alot of money, so call it whatever you want, if it makes me money then its all good by me.
You on the otherhand alway run around acting like your ideas are the best ideas, yet you never give examples of anything that you have actually done maybe you should call yourself “Danny the Great Pretender”. I like the sound of that.
I can prove everything that I have said that I have done, I even post my county tax records sight so you can go verify every thing that I have said.
I am not on the forum to make friends, only too give advice on what I know. Im sorry this place is your entire social life and some new guy had to come and ruffle your feathers but it is what it is.
As far as your suicide comments, I can appreciate suicide as I have known several people that have done it. Its not pretty, so until you have actually seen someone with half there head on the wall and the other half pooring blood on the floor you should keep your mouth shut. If you would like to take it up with me, I will once again send you my phone number, and you will once again tuck tightly in behind your virtual social life.
Eric Medemar.
Eric,
I’m just going to have to bite my tongue dealing with you. I think that’s what your supposed to do with children.
Have a nice day, Sir. 
Danny,
I’m beginning to think that he’s a troll. It would be hard to believe that anyone could misunderstand these basic issues to this degree.
I had to stop phone consulting because I couldnt afford to do it. Put it this way the site was free and everything involved was free, except for my time. It turned out my time was more valuable than $99/hr, so I stopped.
Let’s see, he doesn’t have time to do phone consultations for $99/hr, but he does have time to spread his nonsense on here for free! That doesn’t make any better sense than any of his other posts.
On his website, he said that he had an investment library of more than 120 books. They must be for decoration.
Mike
Along with his book decorations, I’m sure there are plenty of pictures of himself hanging up. He is in love with himself.
It’s probably the picture of himself on all of his websites that he uses on his business cards to promote his $99/hr phone hotline for men interested in “Real Estate”.
call me anytime 616-292-4009 I would love to hear from you
We may have just discovered what his real talent and expertise are in… certainly not REI!
Hi Mike, I don’t know what problems you have with Eric M., but to me it appears that you are the one who does not know what you are talking about.
Eric M provided a link to the public records in his county showing a list of properties that he owns. You can confirm that he is a Licensed Real Estate Agent in the state of Michigan.
If you like, you can call his broker.
Unlike you, Eric M. is a doer and not a talker.
I’m a new poster on this board and perhaps I don’t understand all the nuances of your disagreements, but Eric M. is a REAL DEAL as far as I can see.
And I’d ask that you please refrain from your unsubstantiated critiques of the ways he does business, as I’d hate to see Eric leave this forum.
Thanks in advance for your understanding…
BigV,
I have absolutely nothing against Eric personally. I don’t even know him.
This forum is dominated by new investors. The purpose of the forum is to provide information that will actually help people be successful. Everyone is free to express their opinion and people do so. However, the experienced investors on this forum will not let someone paste information which would harm newbies without questioning it.
From almost the first post, Eric violated the forum rules by directly advertising for his coaching. He presented himself as an expert that newbies should follow. He also posted information on things for which he has almost no knowledge. For example, he claimed in his posts that operating expenses for rentals and insurance are the mortgage payment. Then, when questioned, he stated (as did his website) that operating expenses were taxes and insurance. The problem with pretending to be an expert and posting this is that newbies will believe it (just like you seemed to believe it). If a newbie were to buy rentals based on that post, they would certainly fail and be out of business in a short period of time. The things that comprise operating expenses are well known. They are not a gray area. Even the newest newbie knows that and Eric simply DID NOT, even though he was presenting himself as an expert.
Moreover, he claims to have a library of 120 investing books, but he isn’t even familiar with the most basic terms. How can a person be an expert and not know the basics?
To summarize, I think everyone that questioned Eric did so because they are concerned that he will harm new investors with misinformation.
Mike
Hi Mike,
I see your point. However, would it not be better to ADD to Eric’s posts instead of calling him “inexperienced”? In other words, is not gentle correction a better way of handling things than calling someone you don’t know names?
I don’t believe Eric calls himself an expert in landlording. From reading his blog/website, he appears to be a wholesaler/rehabber first and foremost.
As to the coaching, I don’t know where the line is with advertising/promotion of own services or products (I mean, if I placed a signature saying that I’m a Real Estate Agent, that would be advertising, would it not?), but I searched all the posts posted by Eric and found that he already provided a TON of information for FREE on these forums.
That’s why I’d rather have him post more not less.
Thanks for listening