You will likely find that you won't be able to get a loan at 5.25% -- mortgage rates on multi-family investment properties are higher than the rates for owner occupied properties.

tien

or OP or anyone else, i have about 200-350k to invest but i require immediate income. are there any RE investment options that will allow me to make about 50k+ a year? i figure my main option would be rental income, but with 350k, will i even be able to extract this much in rental income?

do i have other investment options otherwise? i am not working and am looking for something to invest my time, money, and energy in.

what if you buy a piece of **** house in a bad neighborhood a la odell barnes?

Then you'll get a piece of **** tenant stuck in there driving a nail through your head.

Trash attracts trash.

If you are not savvy or experienced, you will not make 50 000$ a year with 350K. That's a 14% return on your money.

You can find a rental multi unit property to buy, but the realistic returns on those at market prices (depends on area) are closer to 5-8%. 10% returns are normally from lower priced areas (dealing with deadbeats).

I'm not saying you can't make money. Maybe you are savvy enough to find good deals and turn a 100K investment in a property into 200K within 2 years or so through added value. Who knows.

If you read through this thread and get to know your area with the kinds of properties and revenues they provide, you'll get a better idea.

I'm talking about selling the house on a note, not renting.

Why do you require immediate income? You have a nice little nest egg right there to coast for a while it seems.

Is a realtors license worth it (primary goal being REI)? Even if only to get rid of commission costs + have access to listings? Better than nothing, no?

What kind of initial costs are standard for an investment property loan?
What about a primary residence loan ?

Let's say a 100k loan to make things easy

I would assume because he needs about that much to live off of without having to tap into the money he's saved up. The longer he coasts, the less money he'll have to invest...

From what I've read, no, it's not, but don't take my word for it.


Alright, so on to my question(it being did I do my calculations right):

I'm just starting to run cash flow analysis on properties in my area to help me get a feel for the market...and simply for practice doing cash flow analysis. Here's the first place I did some calculations on:

Property Type: MFR (2 fourplexes)
List Price: $299,900
Year Built: 1982
Listed: 02/23/11
Sq. Ft: N/A
$/Sq. Ft: N/A
Lot Size: 16,117 Sq. Ft.


And this is the little blurb they threw in about the place:

Based off of that information I came up with these calculations:

[@ the current $550/month x 8 units in rent]

***Gross Scheduled Income: = $52,800

-Vacancy/Credit Loss(@ 5%): = $2,640

***Gross Operating Income: = $50,160

-Operating Expenses(@ 45%):= $23,760

***Net Operating Income: = $26,400

-Debt Service(Mortgage @ 4.75%): = $15,102

***Cash Flow Before Taxes: = $11,298 or $941.5/month

Capitalization Rate: = 8.80% (300k List Price)
= 9.78% (270k Purchase Price)
= 10.56% (250k Purchase Price)

Cash on Cash Return: = 18.83% (60k investment)
= 16.14% (70k investment)
= 14.12% (80k investment)
__________________________________________________ ______________________________________________

[Estimating $600/month x 8 units in rent]

***Gross Scheduled Income: = $57,600

-Vacancy/Credit Loss(@5%): = $2,880

***Gross Operating Income: = $54,720

-Operating Expenses(45%): = $25,920

***Net Operating Income: = $28,800

-Debt Service(Mortgage @ 4.75%): = $15,102

***Cash Flow Before Taxes: = $13,698 or $1,141.5/month

Capitalization Rate = 9.60% (300k List Price)
= 10.60% (270k Purchase Price)
= 11.52% (250k Purchase Price)

Cash on Cash Return = 22.83% (60k investment)
= 19.57% (70k investment)
= 17.12% (80k investment)
__________________________________________________ ____________________________________________

[Estimating $700/month x 8 units in rent]

***Gross Scheduled Income: = $67,200

-Vacancy/Credit Loss(@ 5%): = $3,360

***Gross Operating Income: = $63,840

-Operating Expenses(@ 45%):= $30,240

***Net Operating Income: = $33,600

-Debt Service(Mortgage @ 4.75%): = $15,102

***Cash Flow Before Taxes: = $18,498 or $1,541.5/month

Capitalization Rate: = 11.20% (300k List Price)
= 12.44% (270k Purchase Price)
= 13.44% (250k Purchase Price)

Cash on Cash Return = 30.83% (60k investment)
= 26.43% (70k investment)
= 23.12% (80k investment)
__________________________________________________ ____________________________________________

[Estimating $800/month x 8 units in rent]

***Gross Scheduled Income: = $76,800

-Vacancy/Credit Loss(@ 5%): = $3,840

***Gross Operating Income: = $72,960

-Operating Expenses(@ 45%): = $34,560

***Net Operating Income: = $38,400

-Debt Service(Mortgage @ 4.75%): = $15,102

***Cash Flow Before Taxes: = $23,298 or $1,941.5/month

Capitalization Rate: = 12.80% (300k List Price)
= 14.22% (270k Purchase Price)
= 15.36% (250k Purchase Price)

Cash on Cash Return: = 38.83% (60k investment)
= 33.28% (70k investment)
= 29.12% (80K investment)
__________________________________________________ ____________________________________________

I took a random mortgage amount based on a little mortage calculator it had at the bottom of the listing page, and it calculated it for the 300k list price. I decided to just use that amount since this is mostly just for practice.

According the the book on cash flow analysis vacancy/credit loss is typically 3-6% so I chose to err more on the high end(from what I've read in here though I should go with 1 months vacancy, or 8.33% though, right?).

I did the varying estimations because I haven't seen the property, it doesn't list how many beds/baths the units have, and I don't know the market well enough, so I don't know what the market value for the rent of these units is, or could be brought up to with some capital improvements(which also is the reason for the various investment #s and purchase price #s).

The thing I was most unsure of when setting up the formulas was whether the expenses were 45% of the Gross Scheduled Income, or the Gross Operating Income. I assume it's probably GOI, but I went with the larger GSI just to be on the safe/conservative side.

If it makes any difference I plan to live in one of the units in this hypothetical, and pay myself rent like anyone else would, while managing the other units myself.

If I did the analysis right, then if I find out that these units can be rented out for around $700 each as I study my market, then this property would require a much more in depth analysis(getting a more concrete picture of the properties expenses, taxes, and what debt service I'll be looking at, actually seeing all the units, etc), wouldn't it?

The 45% expenses based on the national average does include vacancy so you can up your NOI somewhat, however a mortgage at 4.75% seems a bit optimistic I would imagine 5.5 - 6% would be more realistic.

Noted, thanks. However, are you sure vacancy falls under the 45% operating expenses? I only ask because the book, recommended by Spex x, lists vacancy and operating expenses as two separate things.

The calculator was already set at 4.75% and I was tired, I wasn't assuming or even hoping to get that low a rate, I'll rerun the #s based on what you've told me(more practice and this may be a property worth looking more into).

I still need to know though, is the 45% taken out of the GOI?

I'm noticing that since there are 8 units this property is likely commercial instead of residential, what's the differences between the two categories?(I live in Dallas, TX, if that helps). I'm looking for the answer myself, of course, but if someone can chime in and save me time that'd be nice...

Do you have to work for someone or u can work for yourself ?

I'm guessing the book you are talking about is 'What Every Real Estate Investor Needs To Know About Cash Flow' by Frank Gallinelli. I've read it and they just go around it in a different way. The 45% expenses talked about in this thread includes vacancy and should be taken from Gross Scheduled Income (rent at full occupancy) not GOI. You have to remember that the 45% is just the number you can use to quickly calculate Cap rate and COCR to see if the property is in the right ball park. If you are serious about this 8 unit then you should get some detailed expenses from the current owner and plug them numbers in to your calculations. Sorry can't help with your other question.

Does anyone here invest in international property?

I.e. outside of the USA

Hi everyone, first time posting on 2p2. Was wondering if anyone has any info they can share on investing in Florida near Disney. My brother and I were thinking now would be a good time to buy a condo or something down there being that its pretty cheap. He also has an infant daughter and plans on having more kids and I also plan on having kids soon so trips to Disney will def. be happening in the future.

If anyone can advise a nice area, within an hour or so to Disney we would appreciate it. An area that would be a nice year round destination too would be sweet. Possibly near a beach?? Florida noob here obv. Thank you for any info.

Personal / investing use only.

Alright, just making sure, thanks. And of course I'll do a more in depth analysis eventually, but for now I'm just running preliminary calculations for the practice.

Also to add to this, how do taxes differ when comparing investment/primary residence properties

.

Initial cost for investment loan? If it is a large commercial type loan, you may have to pay a loan fee, perhaps about 1% of the loan.

This, plus evaluation (depends on size of building), and registration of loan could run you a few grand. Evaluation runs from 600 for your ordinary duplex to even 5000 depending on property size.

Primary residence loan you can even negotiate to pay zero fees. Zero lender fee, zero evaluation fee, but you will be stuck with the registration cost. You can even negotiate that. It all depends on the kind of rate and loan you take from the bank.


Taxes are state and country dependent. I know in Canada you do not pay taxes on any profits if it is primary residence. In investment, it is capital gains.

Although in the US, you get to have mortgage interest write offs.

What are you trying to buy?

Tine thanks for your time

I was more talking about buying a place and in between buying it as a primary residence or investment property and trying to weigh the pros and cons for each

it took me a while, but i made it through the thread. awesome information here, thank you all for contributing so much.

after several years of wanting to get into REI, im finally going to get started. thank goodness i didnt start eariler, as i would have foolishly made huge mistakes. im sure ill still make some, but at least now i have the tools i need to analyze a property and i have a plan that makes sense.

a little background:
30 years old, have a well paying job (90K+), good credit (770+), and some capital to work with (~50K)

im looking to use spex model: buy low, rehab, rent, refi, hold, repeat
theres deals to be had in the area i live, but not as many as i was hoping for. i wont jump into something on a whim, i have to make sure the numbers make sense for me.

im sure ill have questions to post, but for now i just wanted to say thank you

Alright, getting more serious about all this, and I could use some help.

Basically, I need to know who all I need to talk to so I can get this rolling. I've got financing kinda in order(I've got bankers willing to work with me, and, so long as the numbers check out on a property I want to invest in, they'll do it). But, I need to know who all I should talk to with regards to setting up a business entity, and/or to help make this REI run properly (I'm assuming a lawyer, and a tax attorney specializing in REI, is there anyone else?).

I'm also looking for good REI Clubs in the Dallas/Ft. Worth area, as well as Landlord Associations, so if anyone knows of some, or a good way to find them, please let me know.