The housing market is in for one more big down swoon before this current crisis comes to an end..........we will be back to 1997 prices.

what makes you come to that conclusion?

Well quite frankly the majority of the boom has happened in the last 3-4 years, starting from 2002 (when Alan Greenspan started cutting interest rates). I would say that real estate will drop about 40% from the high point. For example, single family home in Encino(middle/upper-middle class community) cost 350k before the boom and 650k at the height of the boom. I would say, after the boom, it would drop to low 400k. However, this effect may be amplified in low income communities, where there has been a lot of speculation.

I would look at where 1997 prices were and add 25% in price appreciation from that............that is where I believe we hit the bottom.

For example, a $125,000 house in 1997 will be valued at around 155,000 in the next 3-12 months.

Actually, I bought a house in Vegas in 1997 for that 125,000 price tag, it escalated to around 310,000 a couple of years ago and now its market value is about 165,000.......so if my above theory is correct, it will drop another 10,000 in the near future.

By the way I sold this house in 2002 for 160,000.

Some cities are easier to deal with than others. Where I live for example, city council is very pro development and rezoning while still a painful process at least doesn't get hamstrung as often by neighborhood associations. This is definitely a major issue to consider while doing your DD.

The **** is just beginning to hit the fan folks.

On the other hand Spex has been talking about buying cash flowing properties. That way you won't get killed right now.

Spex, Rental Property question.

My basic mindset feels that if I start getting rentals within the next few years (I am 18). and manage them well they will be paid off in time for me to retire and have them as 100% cashflow. Is this a fine plan. I don't see waiting til I am 30 to start investing as being my best bet to get wealthy.

So a few notches in their. What types of issues should I consider when looking at a rental property to buy. How much cash do I actually need to buy the house. Down payment, a few months rent, closing costs? What else. My main concern is with the actual purchasing of a house. What type of criteria should I use? and how much money do I need. My long term plan would be to buy dozens of properties. That cash flow well. But even if I have an $1100/month mortgage for the property. If it brings in $1200/month in rent I am still building equity which is well worth it.

I would be looking at taking over houses that are already occupied. Any directions towards reading that would be helpful for someone new to landlording. I've heard people talk about horror stories with rental properties. Should I be worried about it. Plus how many properties could I feasibly own before I'd hire a property manager. Assuming that I want to pay them completely out of the rental income. I'd likely just hire a high school kid to do all the lawn care and simple day to day stuff. Or maybe get tenants to do it.

Thanks for any incite you can offer into this area. I have been an active reader of the thread and really value your opinions.

Jordan

I'll try to answer some questions.

First; buying a property with a 1.2k mortgage and 1.1k rent is something that sounds like a recipe for disaster. You first say you want cash flowing properties and then you talk about a deal that's certainly not cash flowing.

Second; it all depends on the dedication and time you put into it how much properties you can manage. I suggest you try your first deals before you start thinking about managers.

Third; you make your money when you buy it. Any property can be profitable if you just buy it at the right price. Don't get emotionally attached to a bad deal.

I can only suggest you to read the ENTIRE thread. There is enough information here to give you a great insight in the world of REI.

i could not find in this thread... what percentage of monthly rent recieved should the total cost of the house be?

what percentage would be a bad deal?
what percentage would be a fair deal?
what percentage would be a great deal?

They are in the thread - but they aren't spelled out exactly like that. Instead a lot depends on your goals and the way you finance the properties.

* Spex has stated that he looks for at least 25% COCR (cash on cash return - you should read up here and elsewhere on how to calculate it )

* Others have mentioned that they look for a cap rate of greater than 10% (again, read up and google how to calculate it)

* If you are purchasing for cash-flow, then a broad estimating tool is that you can expect to spend 45% of the GOI (gross operating expenses, which is 12x your montly rents) in operating expenses not including debt management. Your GPI (gross potential income) is, in the most basic version, equal to your GOI - loss due to vacancy (commonly 6-8%). If you subtract your operating expenses from your GPI you get your NOI. Divide the NOI by 12 and compare it to your monthly debt-management; the result is your cash-flow.

very basic example:
1400 / month (rent) = 16800 - 1344 = 15456 GPI
7560 expenses
16800-7560 = 9240 NOI for a monthly NOI of 770

So, if you can finance this for a monthly payment of less than $770 you have a positive cash-flow property, where the cash-flow is $770-mortgage payment per month.

Now, you can use that to compute COCR, CAP RATE, TRIO, etc and determine whether it is a good investment.

We almost need a sticky for this thread. LOL. Same basic questions over and over. Read the whole thing folks before you ask!!!!!!!!!!

There is no set rule for the percent of the PP that should be covered by the total rents. If you want to understand the relationship of income to PP, use cap rate.

yeah, for the most part, investing it into two properties is fine. Check with you lawyer about the specific deal tho.


Yes, if you own and/or operate the property out of a self-directed IRA the taxes can be deferred. I'm not aware of any other way to defer taxes on the income from REI.

Yeah, a major issue in DD, and VERY difficult to know the city's disposition w/ regards to this. I live in a college town w/ lots of history and huge victorian houses. The history buffs have a ton of sway here and they make life miserable for anyone trying to make changes in the established neighborhoods.

Incidentally, if you look on the planning department website, what you'll see is a lot of garbage about how prodevelopment the city is. That is garbage. The planning commission bases much of its decisions on the feelings of neighborhood associations. There is nothing wrong with that model per se unless you're trying to rezone something. Believe me, you'll be seriously considering some assassinations.

It doesn't cost you anything to list the house w/ an agent. I'd say go ahead and try it.

This is an instapass for so many reasons. Forget about it. Stick to cheaper homes. No way would you ever get this kind of money into a MH. Maybe $8k if its a nice double-wide. But $44k? No way.

Calculate out the yield given an average payment. Your yield isn't high enough to justify such a big risk. Take that $8k and go find yourself 4 $2k homes.

I think that you're looking in the wrong place. Go talk to park managers and make sure they understand that you'll put a crisp $100 in their hand for referrals. Ask around in the parks if they know of any homes for sale.

[QUOTE=formypokerstuff;4457139] We are way out of my league here. Sorry, I don't even know where you'd get this kind of information. Not really the kind of "How to make $1M in One year with no money and no credit" bull**** that you normally find in Barnes and Noble...

All right guys! I think I came across my first deal.

It's a 2 unit multifamily, 3 bedrooms in the top and bottom units, finished basement. Bottom unit has new drywall and paint, hardwood floors throughout. The only issue is that there was a "small" fire in the upper unit, but he said he'd fix it and have it like new for $1200.

Rent in the area ranges from $600-750

He's asking $15k, but said he'd be willing to let it go for $12k.

In my haste, I may have completely forgotten various aspects of financing, but I have the money to front on hand. Obviously $12k is way below any feasible mortgage, so I'd have to go through a HML if I didn't just front the cash. Would it even be possible to refi out of such a small deal? What would be the best option?

Conservatively speaking, asking $550/mo rent/unit, I'd be pulling in $1100/mo.

45% aside for vacancy/operating costs leaves me $605/mo, netting ~$7k/year and I'd have my initial investment back in less than two--barring any major complications.

Thoughts?

The 45% estimation is not normally used as including vacancy. Rather you estimate the operating costs as 45% of the gross rents. Then you subtract from the gross rents - vacancy (GPI)

Assuming 8% vacancy (monthly):
GOI: 1100
GPI: 1100*.92 = 1012
1100*.45 = 495
Income: 517 / month (6204 / year)

Is he offering to do the work for you for a cost of $1200? If so then you purchase is $12000 + $1200 + closing costs? Or is the 1200 in the original 12000? Regardless at first look this looks like a decent deal by these numbers.

Re refinancing: You can refinance a property based on it's appraised value typically at 80% loan to value. So as long as it appraises at 15k you should be able to refinance out your original cash.

wow thanks alot for doing this thread, I recently bought a condo(for myself not investment) and am looking into buying homes that are banged up and fixing them up and selling them, not really looking to flip since the market is so horrid more like renting them out for a year or two and than selling them. where I live(San Diego) there are some good homes that with some work can be made to look topnotch and I do have some experience working as a handyman so fixing them shouldnt be a problem. but my main question is whats the best way to appraise homes?

should I get each home I look at appraised by an appraiser or looking up prices in the neighborhood and recently sold homes the best indicators? should I go by $/sf or compare homes with the same number of bd/br?

also would sending out mass lowballing offers hoping one would stick a good idea or is that a good way to pissoff my agent/seller

If those numbers are accurate it looks like a fine deal. Just make sure you have a guarantee that the damage is fixed so he can't screw you.

I love those cheap American houses. The only place in Europe where you can buy cheap houses like that is in former soviet states.

I managed a large real estate company in NYC, this is good advice.

So, question for Spex and other MH speculators:

I drove through a local MHP and,

First of all, um whoa.

Secondly, there were a TON of MH's for sale. Like probably 1:8 were for sale. The vast, vast majority of them were being sold via the MHP's sales office, but some were being sold privately.

What would you make of that situation? I strongly considered stopping and talking to some locals, but A: I was kinda...wary. I have a decently nice car and I got some weird looks. B: Almost all of them have dogs.

The park was actually really nice--for a MHP. Had a community center, bball courts, it was clean,--so why does it seem like everyone wants to GTFO? Found a lot of good prospective deals.

Also!

Let's say I Lonnie deal a MH or two here. I've picked up the local papers, and lo and behold the classified section is a whopping 1 page with a few automotive listings. Apparently they've gone the way of internet listings only.

So, from here let's say I exhaust my preliminary non-technologically based advertising options: I pass out fliers advertising a $100 finder's fee, meet the neighbors, pass out business cards, put up "For Sale WILL FINANCE" signs by mail clusters, blablabla. Basically all your pavement pounding face to face intra-MHP advertising possibilities.

And nobody bites. Because, apparently everyone wants to GTFO of said park due to a...recent parkwide meningitis outbreak or something. (Basically still undetermined why so many of these things are up for sale in this particular park.)

What's the next advertising option? Hitting up those free gas station real estate mags? Mass bulletin board assaults? I'm trying to stay as non-technological as possible--seems I'd be hitting the most of the target demographic by doing so.

Input?