You leave the san diego area for a few days and this is what happens…
No, the calculator is not specifically geared towards multi units.
The ROE/ROI value in the calculator should be noted is NOT appreciation. Many people do confuse the two. As for those who think it is too high, consider that ROE is composed of several elements of real estate value – appreciation, cash flow, loan reduction savings, and tax benefits. When all four are working well together, yes, virginia you can get ROE’s in the 20% or even higher.
For the San Diego/Mira Mesa area, the calculator is correct – you still have a ways to go before you are able to purchase a property, and have it cash flow as a rental. Certainly you can play with the factors and try to make it cash flow based on interest only or decreasing expenses, but you should do this based on knowing what you’re doing and as a way to compare other properties which don’t have those problems or non-issues. If you are serious about using the calculator to analyze the property, you should try to account for as many expenses as possible and try to also be realistic as to how you can change certain factors to make the property work. For example, you can be stupid and try to put in a 10% appreciation rate, which makes everything look supergoody. However, we all know the consequences of making such an absurd assumption.
As for me being a flipper, I have only flipped one property. My sister-in-law rented out her house in a very far off location, and the tenants trashed it. She wanted to basically jingle mail the property. I gave her an alternative, put in $20k to fix up the property and got it sold and made $20k in profits. I anticipate that is the only time I will ever flip a property.
Still, understand that the purpose of the calculator is not to flip (there are better calculators around for that) or to tell you the obvious – that it’s not going to cash flow in San Diego. The purpose of the calculator is to analyze and compare SEVERAL properties, each with its own ROE calculation, across the country. By using the ROE, you can decide which is a better buy – an SFR in Mira Mesa for $400k, or (in my case) a 4 unit property in Alabama for $115k. I put in there my criteria for choosing properties, but you should consider that for all the properties that meet my criteria, I have to choose which one. So depending on my wishes, I can choose a property with a low ROE or a high ROE, but my minimum is 20%. For more desirable areas and high vacancies, I will compromise with a low ROE (especially if the economy there is taking off). However, for lousy areas, I will require a higher ROE in order to offset the risk.
