The short answer on "best location' is where the 25-35 yr olds want to rent.

At an early point in my career I thought it'd be a good idea to invest in a suburban duplex in the town I grew up in. 5 miles from downtown, paid $245k, spent $110k on renovations, re-fi'd everything, ended up w a $2870 nut and only $3100 income for $230 gross per month.

If i had put that $110k into a building within walking distance to the clubs, my monthly gross would be exponentially higher.

Follow up:

The best looking property I own, which is the duplex in the 'burbs, makes me the least money ROI. I'm hoping some knucklehead will come along and buy it based on the school system.

The best monthly net properties I own are multis in the city that I wished I owned since my 20's instead of my 30's.

Portfolio lenders are different than BofA and that ilk. Any kid looking to get serious about RE investing should try to develop a portfolio lender relationship.

My whole premise is that buying a rental property is an arithmetic problem, owning a rental property is a people problem.

Numbers-wise, I'd buy dozens of these type deals since you're bascially making back your down-payment, after taxes, within 3 years.

I'm jaded though. $150k 3 families that rent non-sect 8 for $800 per in MA are not on Beacon Hill. They are probably in one of four areas. North Shore to include Lowell/Lynn, Attleboro and surrounding, Worcester, and Springfield. I would definitely do this deal if it were in Chelsea/Everett/East Boston because you would never have a vacancy.

Whichever the area is, you will not be dealing with mensa members as tenants.

-what's the comps for 3 families in the area?
-what's your typical tenant?
-what's your exit strategy?

Not saying this is a bad deal, but am saying that it should be a stepping stone to get you into the rental mecca of Cambridge, Beacon Hill, North End or Somerville.

I don't believe in the high returns, low end property strategy.


You'll make a lot of money every month, but your headaches will be exponentially more.


I agree with August123


Buy something with less returns, but in a good area. Basically a property you can be proud of telling others or showing other people you own. It's much much easier for the beginning investor. And you'll end up lasting in the business.

hey quick question about a deal involving commercial real estate.

We made a bit on a property for x amount. We got an email congratulated us on the offer being accepted, and that they were going to send over the contract.

They send over the contract, we sign it, and send it back. They then want us to send earnest money, we do, about 5 percent of the total bid we made. They also want us to show we have x in our corporation, our bank confirms we do. They then want us to show that the corporation is in our name, and our name has that much money, again our bank confirms this.

Today they asked us to provide a valid passport/birth certificate. This is raising my concerns because I feel they most likely have received a bid higher since they sent us the contract, and are giving us the run around.

This is my first time making a deal in commercial real estate ( and residential ).
Is this type of stuff standard procedure? Whats our next move?

I feel like we are getting screwed around with, and will most likely get our lawyers involved shortly.

I'll let other with commercial RE experience comment, but your lawyer should've been handling this from the beginning no reason why you should be going back and forth with them like this.

I just have a small percentage of the property, so I was letting their real estate agent handle it for us, everything was going smooth until today. We never spoke to anyone, our real estate agent was doing it all the back and forth with them.

Great thread.

I haven't made it through the whole thing, mostly because I became so intrigued that I started Lonnie's book via kindle. I apologize if this is redundant.

I have such a newb question that I'm almost embarrassed to ask...

Could someone please point me to something that does or articulate to me what/how the "boxes" he keeps using work?

I get that "N" means length of note. "I" is interest? "PMT" is payment ldo. The one I don't understand is "PV"..?

I'm obviously going to have to read that book and this thread many many more times. Awesome info and thanks to all for taking the time to share your knowledge/experience.

PV = present value I believe

how much do you make per year?

That would make sense. Thank you.

hi all - i haven't been by in a while. i hope everyone is well!

i have a real world financing question. i am not smart enough to know which route to go here. any thoughts would be greatly appreciated!

the property in question is a rental unit.

it was financed in april 2004 $320k at 5.875%; PI = $1,892 / mo.

current prin bal = @286k; loan amount in quotes below is for $290k. (they over estimated to include all closing costs, unpaid int, etc. actual loan may be slightly lower.) all options 2-5 are "net zero hud" which i'm guessing means i bring no $ to closing?

option 1 = do nothing; pay $1,892/mo for next 23 years.

option 2 = refi $290k on 30 year fixed note at 5.125% w/ 0 points; PI = $1,582 savings of $310/mo. term is now 7 years longer than option 1.

option 3 = refi $290k on 30 year fixed note at 4.990% paying .625 points ($1,816.88). PI = $1,558 savings of $334/mo. term is now 7 years longer than option 1.

option 4 = refi on 15 year fixed note at 4.5% w/ 0 points. PI = $2,223 which is an increase of $331/mo, but term is reduced by 8+ years.

option 5 = refi on 15 year fixed note at 4.375% paying .375 points ($1,090). PI = $2,205 which is an increase of $312/mo, but term is reduced by 8+ years.

assuming cash flow is not an issue, what is the best route to go?!

thanks!!

Don, it all depends on what you want from the property. Are you looking for better cash-flow or quick pay-off to build equity? Are you planning on selling soon or holding it for a long time? I believe the only option that can be flat out rejected is option #1. (Unless you have some specific knowledge that rates will decrease a significant amount)

Strictly speaking from a right now cash-flow perspective, option 2 is obviously best. It would take 6.3 years for option 3 to start being a better deal than option 2. You save $24/mo for 360 payments = $8640 in savings - 1816 points pd = 6824 net (not taking into account amortizing the points paid for tax benefits) It's likely you would sell before 6.3 years anyways.

However if you are only looking at the net effect, it will likely be much much better to refinance down to option 4 or 5.

Option 1- Total payments = 286k principal 236k interest = 522k
Option 2- Total payments = 290k principal 278k interest = 568k
Option 3- Total payments = 290k principal 270k interest + 1.8k point = 561.8k
Option 4- Total payments = 290k principal 109k interest = 399k
Option 5- Total payments = 290k principal 106k interest + 1.1k point = 397.1k

So the answer is, whichever fits your business model best.

For options 2 and 3. You also have to consider the ability from the additional cash-flow monthly to put into other investments, which could likely exceed the interest rate that your paying on the loan if invested elsewhere.

So, in my research I have discovered (and please correct me if I'm at all wrong) that in order to conduct LDs in California you need to have a license...

A $1200 license. Should I just try to get a RE Broker License? This all seems pretty cumbersome but whatevs. I'm in the military (soon getting out) so I'm all about playing by the rules. It just seems kind of cumbersome but I understand bureaucracy and the need to protect the buyers.

*Thanks ahead of time to anyone whom explains to me why/how I'm misguided. I gladly welcome it lol

tyvm sir!

i have no reason to suspect rates will drop significantly, although they did drop slightly since my post

(i just got an email that the rates were lowered on 15 year debt - now the options 4 and 5 are 4.375% with 0 points and 4.25% with points.

although i have other debt and/or other investment possibilities, i don't believe it is significant enough to warrant taking $300/mo now to pay 120k+ in interest on the back end?

my model is to hold these assets as long as possible - i do not anticipate selling any time soon. it is very likely that i will have them for 15+ years. i'm guessing that means i should go the route to pay the least amount of interest possible (ie opt 4 or 5?)


thanks again for the great insight and super fast reply

Get a real estate lawyer involved.

Valid passport / birth certificate is completely stupid unless you are sending it to a closing lawyer.

how hard is it to get financing as a 21yr old with poker as my income for only a year? How would i even go about finding this stuff out? just going to a bank? I'm in chicago if location matters

with only 1 year of taxes i think it will be pretty difficult. most banks want at least 2. i ran into this problem and ended up waiting til i had 2 years.

gl though

Very challenging, especially in the wake of Black Friday. Could be challenging getting that through credit committee even with three years of returns.

@mcleod, what about getting your parents to cosign? or something of that nature

That's a possibility. Two things to keep in mind...

• Few lenders are interested in a multi-family deal under a million dollars right now
• If you don't have experience as a landlord, the deal is dead

hb SFHs?

Single-family rental property is considered a toxic asset by regulators and thus by banks. I don't know any commercial lender doing these loans, either by themselves or as a portfolio.

Just got done reading through this thread, probably the best thread I ever read. Much thanks to everyone who contributed, especially spex.

Anyway, I realize spex has been inactive for a long time, but I managed to accumulate a bunch of questions I wanted to ask him, so I’ll just go ahead and post it if he does return one day. Of course anyone is free to answer as well.

1. What is a typical day like? You mentioned you work 15-20 hours a week, but what do you do in those 15-20 hours. Drive around and check on properties, check out prospective properties, bookkeeping, market analysis, etc.

2. You mentioned a minimum 25% COCR and 10% cap rate. Is there a specific reason for these numbers? Obviously the numbers would change depending on where you live, but I guess I’m just curious.

3. You really stressed having goals. What were your goals when you first started out, and what are you goals now?

4. Have you ever thought about getting into nursing homes? I realize this is somewhat different from traditional RE investing, but there seems to be a lot in common. As an aside, my grandfather was living in a nursing home and was paying around $4k per month. That particular house held about 8 people. The more expensive houses in that area could run up as high as $10k/month. Just doing quick math it seems extremely profitable.

That’s all for now. I’m sure I’ll think of more questions later. Once again thanks!