You heard me say in numerous pieces that leverage (debt) magnifies outcomes. What do I mean by that? Well, let’s examine two identical fourplexes with different capitalization structures. First, here are the operating details: Acquired for $600,000 Annual rents of $60,000 Assume costs of 35% or $21,000 Annual Net operating income (rents minus expenses but … Continue reading “How leverage (debt) magnifies outcomes”
Category: Real Estate Math
All about FHA loans, with Justin Brown, loan broker
[MK: You really, really can buy income properties with as little as 3.5% down through FHA loans. Interested? Read on.] We’ve spent so much time talking about FHA loans, I figured I’d bring in a pro. Meet Justin Brown of Nu Home Financial. Justin’s a loan broker who has recently done some very good work … Continue reading “All about FHA loans, with Justin Brown, loan broker”
Mortgages: Borrowing to save
With a mortgage, you borrow to save. Sounds weird, right? Let’s take a look. Do you know what actually happens with a mortgage payment? Sure, you send it off to the bank each month (or, more likely, it’s deducted from your bank account automatically). But do you know what’s really going on? The easiest way … Continue reading “Mortgages: Borrowing to save”
Introduction to Los Angeles Zoning
Get it through your head: The land is important! Too many buyers don’t understand that the land component of a property is potentially it’s most important aspect. Why? Well, buildings all fall down in the long run. But land is unchanging and often has potential. What do I mean by potential? Well, in the absense … Continue reading “Introduction to Los Angeles Zoning”
Buying a single family home for investment purposes
Recently, I’ve had some people approach me about buying houses for investment purposes. The concept is simple: There are loads of people out there who either can’t or won’t buy a house right now. They choose to rent (hopefully from me!) instead. But there are lots of people trying to sell their houses… both individual … Continue reading “Buying a single family home for investment purposes”
How to estimate what your property taxes will be
When you buy an apartment building, your two biggest costs will be your mortgage and your property taxes. It’s easy enough to estimate your what your mortgage payments will be (try this calculator)… but how do you estimate your property taxes? In California, we’re blessed with Proposition 13, which effectively limits your property taxes to … Continue reading “How to estimate what your property taxes will be”
1031 Exchange 101
The 1031 Exchange is one of the better things about investing in apartment buildings. It’s a section of the tax code which allows investors in investment property to defer capital gains taxes on property sold in exchange for re-investing the proceeds in more property. To understand why it’s such a powerful tax loophole, we need … Continue reading “1031 Exchange 101”
Why more units are better than fewer
Once you’re sold on the idea of buying an apartment building, the next question is: “What to buy?” One of the important principles to keep in mind is that it’s usually better to buy more units than fewer for a given amount of money. To see why, let’s compare two different deals on the same … Continue reading “Why more units are better than fewer”
Debt service coverage ratio explained
Time for some more boring real estate math. I guess this is the blogging equivalent of eating your broccoli. I’ll make it quick and painless, I hope… What is a debt service coverage ratio (DCSR)? It is the result of dividing the annual net operating income of a building by the total annual debt service … Continue reading “Debt service coverage ratio explained”
Silver Lake Income Properties In High Demand
We’ve just completed a review of the data for sales of 2-4 unit income properties in Silver Lake over the past six months. For more on the methodology, please see below. Meanwhile, here are the headline numbers: Median estimated gross rent multiple: 12.7x annual rents Median estimated CAP rate: 5.5% Median sale price as % … Continue reading “Silver Lake Income Properties In High Demand”