In the last few weeks I’ve focused why I think now is the absolute perfect time to throw cash into hard assets like income-producing real estate. I’m not going to deviate from my pattern just yet, but I am going to dial in on an idea that is fairly obvious when you think about it, but one that no one else is talking about on any of the blogs or forums I read everyday.
One of the ideas is based around the thought that although Memphis properties are provided astronomical net cash flow and cash on cash return, can you imagine how great the returns will be when the market rebounds and the rental market goes back up to the levels of 2005-2007? I’m not a big fan of the abstract, so let’s talk about a house that is still listed on our website, although a contract is pending to an investor who is a native New Yorker living in Israel.
The house is located 6298 Brightwood, in an area known as Bartlett. It’s a no-brainer investment b/c it’s a 3/2 brick house with car storage in a fantastic area that will provide about $275/month of net cash flow for its investor. The rental rate on this house is $850-950, so let’s call it $900/month. Guys, a few years ago when I joined MemphisInvest,, a house of this caliber in this area would never go for any lower than $950. I think it’s safe to say that rental rates are down $50-100/month in most areas that we invest in, but that all points to greater profit margins for investors as the rental market rebounds. Mr. New York is sitting on a gold mine, and the beautiful thing about it is he knows it. He’s a smart, savvy investor who had a very easy decision to make once I told him about how this house is zoned to excellent public schools and how he would have both immediate equity of over 20% and cash flow $275/month. And oh yeah, don’t be surprised if you look up in 5 years and your cash flow is $150 higher.
One of the market trends that I have noticed since I’ve been running our sales department as I pour over the details of each house is that our cash flow and IRR numbers really haven’t changed much as the prices have fallen over the last year or two. In fact, it’s been pretty consistent. Our average cash flow is still somewhere around $250 at 75% LTV and our rate of return is generally in the 10-13% range, but if you’re buying these properies right, that is, buying today and locking in the lowest prices on record, then I’m betting on the horse that says your returns and cash flow are going to skyrocket with the rebound in the economy and the re-stabilization of the rental market whenever it may come.
Sure, your portfolio of 5 houses that all cash flow $250/month is impressive, but don’t tell me the thought of all of these houses cash flowing $400, reapplying half of that back into your mortgage and paying your note off in half the time doesn’t pump you up.
In short, is now the best time to go buy 10 properties and beef up your portfolio? Well, yes it is actually, but it’s not for today’s enjoyment. You’ll thank yourself and you’ll be glad you listened to me 15 years from now when you’ve paid them all off and you own them free and clear.
Chris Clothier
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