What does my ego believe in real estate? Cash flow or increase in value and why?
# Entrepreneur of the Week Alon Aboksis & Alon Avgi
# Post 2
Hello friends and good night again from hot New York (boiling more correct! It was 32 degrees in the city today and hell humidity! Good to be in the air conditioner at last) Glad to see that the introductory post aroused interest in the group and I would love to start giving some value from our personal experience.
What is our self-belief and investment strategy? And what are the criteria by which we enter into a transaction? I will try to detail what parameters we adhere to and will give you practical tools for examining your next investment.
First of all in the market research base we make sure that in the market we operate there are strong employment foundations, a large number of jobs, huge companies and public companies which are an anchor in the local employment market where we have chosen to invest.
As a base strategy we are big believers in positive cash flow and target mainly singles and multi-families in B + C areas with relatively low crime areas for the same area in parallel with a positive correlation between rising rental prices and property value.
A market with stable asset prices and at least a 1% minimum RENT-TO-VALUE RATIO What does this mean?
If the property is purchased at $ 80,000 the gross rent should be at least $ 800 at the low threshold.
And why? Because our goal is to stay with a positive cash flow after all the expenses (taxes, insurance, management company, balts, one month in the year the property is empty, etc.)
If you go down to the micro and the level of the property then after examining everything I wrote above we make sure the property is in good physical condition and no more than $ 10K maximum cosmetic renovation or $ 5K per door in multi, good old tenants who pay below market price and room to streamline property management.
As a strategy we focus on cash flow and less on value, which is in itself an excellent bonus and yet for us it is just a bonus!
Yes also in markets like Houston which in the last year has had an insane increase in value of 16%.
At the core of our belief real estate assets are just a tool to allow us to live a stable and better life and build wealth for future generations to be stable and established and with as few risks as there are in new construction, land, flips, complex improvements and time consuming processes.
A strong and positive cash flow allows us to see a steady income on a monthly basis that is constantly growing if we persevere and do things smartly and professionally in the long run.
It is important to note that I am not saying that the other approaches are incorrect and I know quite a few flippers in some countries who do corps and also quite a few friends who build entire neighborhoods from 0 and yet it is less suitable for us risk haters.
Of course the ultimate goal after the improvement is to refinance according to the new value of our property that will allow us to spend most of our investment and that of our partners and move on to the next deal with the same capital (America's Magic BRRRR).
(Which will lead me to write in detail in the next post whether the BRRRR model is currently dead due to interest rate hikes and more difficult refinancing options)
And in a slightly more orderly way so that it will be easier for you to get into our heads when entering an investment:
- Thorough market research on employment places, average time of a property on the shelf, business anchors, etc.
-Purchase price of a single at least $ 50K-200K
- Easy renovation $ 10K maximum for single and $ 5K for door in multi
-Markets as of May 2022: St. Louis, Houston, Detroit, Long Island and Cleveland.
Neighborhoods with at least a 15% increase in rental prices over the past 5 years.
-Positive correlation between rising rental prices and rising property values
Ability to add value to neglected assets, mismanaged assets and relatively outdated assets.
In the last post, we will also share our excels built by the company's analysts for anyone who wants to and will help you calculate every possible parameter I mentioned and dozens of other parameters in a convenient and easy way for efficient decision making.
In the next post we will expand on the hottest topic today "Has the BRRRR model died as a result of a significant increase in funding options as of May 2022?"
Good night / Good morning to friends in Israel.
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