Ask me about real estate investing - Page 51

Tien · 06-30-2008, 12:12 PM

If you know how to manage the person managing your properties, then go ahead and travel around.

TraiViet · 07-07-2008, 01:20 PM

Quote:

Originally Posted by Central Limit

More questions for Spex et al:

Looked at a house today. Owner is asking 89k, but hinted that he'd be willing to come down to 85k. There is a section 8 tenant in the house currently. Tenant pays $180, government pays $670 for a total of $850/month rent.

Taxes are low here. House is messy and ugly but seems structurally sound as best I can tell. I'm going to estimate expenses at 40% of rent.

NOI = $510 / month = $6120/year.

If I put down 30% and take a 30 yr morgage at 6.5%, I get a monthly payment of $376. So, I'd be looking at $134/month positive cash flow.

The cap rate would be 0.072. To get a 10% cap rate, I'd need to negotiate the price down to 60k. Owner says there's no way he could come down that low.

Here are my questions:

Do my calculations look right?

Do I just offer him 60k and walk away if he doesn't take it? Spex said earlier that he'd take any price if he could get the right financing. What sorts of financing options would you consider here?

Thanks for any help.

I havent' run your numbers to see if your caculation is right but i can tell you a simple rule that i learned.

if rent is $850. you gotta purchase the house at $42,500 or less for it to be a good rental deal.

If you follow the 2% rule. basically it's the monthly gross rent divides by the purchasing price must equal to 2% or higher. for example, if the gross rent is $850, the purchasing price must be $42,500 or less to satisfy the 2% rule.

Now there are other special exceptions. for example, when there is so much equity in the house (50% or more) but it just doesn't rent well. Remember, this is a very rare scenario, usually if you buy it cheap, it should satisfy the 2% rule.

so based on your numbers above. it's a bad bad deal. even at $60,000.

RikaKazak · 07-08-2008, 01:46 AM

Quote:

Originally Posted by TraiViet

I havent' run your numbers to see if your caculation is right but i can tell you a simple rule that i learned.

if rent is $850. you gotta purchase the house at $42,500 or less for it to be a good rental deal.

If you follow the 2% rule. basically it's the monthly gross rent divides by the purchasing price must equal to 2% or higher. for example, if the gross rent is $850, the purchasing price must be $42,500 or less to satisfy the 2% rule.

Now there are other special exceptions. for example, when there is so much equity in the house (50% or more) but it just doesn't rent well. Remember, this is a very rare scenario, usually if you buy it cheap, it should satisfy the 2% rule.

so based on your numbers above. it's a bad bad deal. even at $60,000.

I just hit "last page" and saw this thread (no idea what you're responding too)

But i have "run the numbers" on probably 2K+ properties now..and I have NOT ONCE seen a 2%...I have not even seen a 1.5%...nor a 1.4%...the best I've EVER SEEN was a 1.3% that was a retarded seller/fluke (and I picked up less than 1 hour of it going on the market

)

1% in an "ok neighborhood" is the sex/standard

I'm going to have to call BS on your 2%

p.s. if anyone brings me a 2%...pretty much in ANY market...and I will pay a HUGE finders fee/be ready to move on that property same day cash (aka 3 days ldo)

Tien · 07-08-2008, 08:16 AM

What market are you in?

I know for a fact larger metropolitan areas will rarely have a deal like that but in the rural areas it is much easier to find it.

Some dude that lived 4 hours away in a rural area of town that had to liquidate his properties emailed me with a deal like that, I had to pass..... Maybe I should not have.......

RikaKazak · 07-08-2008, 06:01 PM

Quote:

Originally Posted by Tien

What market are you in?

I know for a fact larger metropolitan areas will rarely have a deal like that but in the rural areas it is much easier to find it.

Some dude that lived 4 hours away in a rural area of town that had to liquidate his properties emailed me with a deal like that, I had to pass..... Maybe I should not have.......

well...in REAL RURAL areas you can...but hard to get loans cause no comps in the area (plus horrible as an appreciation play/very unstable)

imo getting 2% at 100% down is worse then 1% at 10% down

edited to add: other reasons to avoid ultra rural is stuff like no property management companies...tough to rerent or to sell (most of the time people are forced to do owner financing which may or may not be something you wish to do)

TraiViet · 07-09-2008, 01:28 AM

Quote:

I just hit "last page" and saw this thread (no idea what you're responding too)

But i have "run the numbers" on probably 2K+ properties now..and I have NOT ONCE seen a 2%...I have not even seen a 1.5%...nor a 1.4%...the best I've EVER SEEN was a 1.3% that was a retarded seller/fluke (and I picked up less than 1 hour of it going on the market )

1% in an "ok neighborhood" is the sex/standard

I'm going to have to call BS on your 2%

p.s. if anyone brings me a 2%...pretty much in ANY market...and I will pay a HUGE finders fee/be ready to move on that property same day cash (aka 3 days ldo)

2% is the basically the rule of thumb when it comes to rental real estate investing. I usually use this basic rule to filter houses that i get from my realtors. Now there are exceptions where one would go for lower rent but higher equity or even speculate on appreciation. i look at these too as well but i try to stick to the cashflow side of the investment more. I would think that anything over 1.5% would be okay to invest in. 2% is def. a good investment.

As far as where you can find deals with 2%? Try craigslist for cities like Buffalo, Rochester, Dallas, etc.

Sifmole · 07-09-2008, 09:17 AM

Quote:

Originally Posted by TraiViet

As far as where you can find deals with 2%? Try craigslist for cities like Buffalo, Rochester, Dallas, etc.

However, if you aren't local to those areas you will have a hard time getting 2% from these properties won't you?

spex x · 07-09-2008, 10:01 AM

Quote:

Originally Posted by RikaKazak

I just hit "last page" and saw this thread (no idea what you're responding too)

But i have "run the numbers" on probably 2K+ properties now..and I have NOT ONCE seen a 2%...I have not even seen a 1.5%...nor a 1.4%...the best I've EVER SEEN was a 1.3% that was a retarded seller/fluke (and I picked up less than 1 hour of it going on the market

)

1% in an "ok neighborhood" is the sex/standard

I'm going to have to call BS on your 2%

p.s. if anyone brings me a 2%...pretty much in ANY market...and I will pay a HUGE finders fee/be ready to move on that property same day cash (aka 3 days ldo)

I'm pretty sure that all the properties I own produce at least 2% of the PP in rents. Its not an apples to apples comparison because I buy commercial properties. But I wonder how you are shopping for properties that you can't find deals like this. Obv you aren't going to find these deals on the MLS.

I dont' use 2% as a guide. I'd rather just use GRM, which is basically the same thing except that everyone knows what it means. But the obvious problem with either GRM or 2% is that they don't consider expenses. That is why, IMO, cap rate is a much better indicator of the strength of an investment property.

Obv getting 2% from a property that was built in 1909 that has been a rental for 45 years is not the same as getting 2% from a property that was built in 2002 and has never been a rental.

A lot has already been said in this thread. I suggest that anyone who wants to add something here spend the time to read through the entire thread first.

spex x · 07-09-2008, 10:14 AM

Quote:

Originally Posted by alvincat84

Spex:

What kind of lifestyle does being a RE investor allow you to have? You say that you are financially free, but are you tied down to your job geographically? Does REI permit someone to travel carefree, or are you required to be near your investments?

This is a hard question to answer. Its like asking Phil Ivey what kind of life playing poker professional allows him. I bet he's say "well....it allows me to play poker all the time, which is what I love to do." That is kind of how I feel. I like to make deals. I like to talk to other investors. I like to operate my business.

At the same time, I've deliberately structured the business so that I can pretty much work as much or little as I want to. The staff deals with tenants and stuff. I do most of the bookkeeping, but I also have a lady that will do my bookkepping for me if I need her.

So pretty much if I want to leave for a few weeks or something, its not that big of a deal. This didnt' happen overnight. It takes time to find and develop your staff. But yeah, I guess I could go ahead and travel carefree if I wanted to.

11Aether11 · 07-11-2008, 06:19 AM

Did you get a real estate license and is it useful at all?

nuffgreed · 07-11-2008, 11:03 AM

Hey I got some time to read through this thread - Ive been VERY busy with my recent property purchase and thought I'd add some of my thoughts to this thread.

- The 2% rule is bogus, I agree with Rika, not really sure who/why came up with this. I have asked a couple times, and I'll do it again, someone show me a property where the gross rent is 2% of the purchase price. 1% is seems more realistic.

I want to see a 200K property bring in 4K rent... lol

- Spex has also mentioned deducting 45% off the gross rent for 'expenses'. For his situation where he has 100+ properties and has people doing most of his work - its fine. But for the beginner - I disagree with this rule. It is a very broad estimate of expenses since property tax/insurance will be calculated dead on - maintance is taken care of tenants.. etc. I'd say putting away 20% of gross rent for misc. expenses is MORE than enough - but thats just me...

celiboy · 07-11-2008, 03:05 PM

Just wondering what everyone thinks of this property:

http://www.mls.ca/PropertyDetails.as...ertyID=7214649

It's a 1 bdm condo about 4 blocks from a local college and about 8 blocks from the downtown core. Mortgage would be $675 per month based on full asking price and condo fee about $170. I think I could get this for around 90K which would mean a mortgage of close to $600. I could sell existing investments and pay cash but I'd be losing the advantages of leverage and writing off the interest for tax purposes. The unit is currently renting at $700 per month. It might seem high for a smallish condo but an average home here (Edmonton) is pushing 450K. Vacancy rates in my city are about 3% which is up from last year when it was virtually zero.

bwana devil · 07-11-2008, 03:40 PM

Quote:

Originally Posted by celiboy

Mortgage would be $675 per month based on full asking price and condo fee about $170. I think I could get this for around 90K which would mean a mortgage of close to $600. I could sell existing investments and pay cash but I'd be losing the advantages of leverage and writing off the interest for tax purposes. The unit is currently renting at $700 per month.

so you will have a $845 monthly payment and the unit will bring in $700 for rent. how many of these can you buy until you go broke?

TimM · 07-11-2008, 05:07 PM

Quote:

Originally Posted by celiboy

Mortgage would be $675 per month based on full asking price and condo fee about $170.
[...]
The unit is currently renting at $700 per month.

Does the renter pay the $170 common charges on top of this $700 or as part of it?

RikaKazak · 07-12-2008, 02:53 PM

Quote:

Originally Posted by bwana devil

so you will have a $845 monthly payment and the unit will bring in $700 for rent. how many of these can you buy until you go broke?

Robert Kiyosaki is in the house

just teasing

There's more to think about then just cashflow...however for a first investment...I ALWAYS recommend + cashflow only (gotta learn to walk before you run imo)