Chapter 35 – LEVERAGE (THE VALUE)
- Leverage = Cap rate – Loan constant
- seeking high positive leverage rate, avoid negative leverage rate
Chapter 36 – BOOSTING RETURNS WITH LEVERAGE
Viewing cash flow in two parts:
- down pay * cap rate – this is the cash flow generated by cash investment
- loan amount * leverage rate – this is the cash flow generated by leverage, can be + or –
Chapter 37 – RETURN ON EQUITY (ROE) AND REFINANCING
ROE vs COC
- ROE = Cash flow ÷ Equity value – as time goes, this rate typically goes down, as rent increase is slower than equity increase.
- CoC will increase as time goes, since rent increase, the initial cash investment stays the same. In this sense, CoC cannot measure the efficiency of using equity
Solution:
- trade-up
- cash-out refi
Chapter 38 – TRANSACTIONAL (ACTIVE) VERSUS RESIDUAL (PASSIVE) INCOME
- transaction income – job, pays the bill
- consulting, job, biz owner, RE sales/agent, flipping, wholesaling, syndications,
- the stuff you have to spend time to earn it
- residual income – investment output. If investment is large enough, it could generate enough income to sustain the bills.
- dividend stocks, bonds, rentals, lending, notes, multifamily, commercial
Chapter 39 – THE FOUR WAYS THAT REAL ESTATE GENERATES RETURNS
- Cash flow
- Appreciation
- market appreciation
- forced appreciation (remodeling), more specific for commercial property
- Amortization
- Tax benefits
- Depreciation
- 1031 exchange
- Tax-free borrowing against equity
- Interest deduction
- Capital gains exclusion on the sale of a primary residence
Chapter 40 – THE COMPOUNDING MACHINE
compound interest, we all know.
Chapter 41 – ANALYZING DEALS
transactional deal vs residual deal
Chapter 42 – ANALYZING TRANSACTIONAL DEALS
total cost = purchase cost + rehab cost + holding cost + selling cost
Chapter 43 – ANALYZING TRANSACTIONAL RETURNS
- ROI = (Ending value – Starting value) ÷ (Starting value)
- Annualized ROI = ROI ÷ Years held
- IRR
Chapter 44 – ANALYZING RESIDUAL (CASH-FLOWING) DEALS
nothing here
Chapter 45 – ANALYZING A BUY-AND-HOLD RENTAL
50 Percent Rule – NOI = 50% of gross rents, in another word, expense ration ~= 50%
Chapter 46 – EVALUATING A BUY-AND-HOLD RENTAL
nothing here
Chapter 47 – ANALYZING AND EVALUATING A BRRRR DEAL
nothing here
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