All property maintance (grass cutting, landscaping, cleaning gutters, windows, snow removal, etc...) are to the responsiblity of the tenants. This is clearly stated in my lease.

Advertising cost me $5 to buy a lawn sign on 2 for my properties. I also listed on cragislist which is free. The location of these properties is in an extremely high rental area, advertising is not an issue what so ever.

DP as in downpayment??? Explain please...

So you mean the routine maintenance not the planning for larger repairs and such that won't be the responsibility of the tenants (roof, furnace, etc)?

Lost investment on the DP, as in whatever money you'd get if you invested that DP in another vehicle minus the appreciation you'd gain on the property

Roof - furnace - foundation are all under misc. expenses since they need fixing/replacing once every 15-25 years... if that.

I would budget for these things to be taken care in an annual budget as you should be putting some money in a lockbox or replacement reserve account to cover these expenditures in the future, if your lender doesn't already require it. There's lots of problems that cost money that will come up with the property, what if your first tenant wrecks the place and it costs you $5,000 on top of the security deposit to get the place in liveable condition again? Or they steal all the appliances, which has happened to me before. Also, I would amortize 4-5% of the purchase price into the loan amount for closing costs depending on commissions, legal fees, appraisal, etc. Shouldn't be a problem but will soften your cash flow minimally.

$5K seems like quite a bit... but I understad what your saying. 45% of monthly income going into expenses is more than enough - in my situation.

The only problem I haddd in my first 2 purchases was that had no choice but to put up 35% on both properties as a downpayment. Doing the calculations now and if I put down 20% or less, I'd bet getting 20%+ cap rate and close to 40% ROI.

Any tips on how I can get a mortgage with a lower downpayment and got interest rate?

Also, I am thinking of flooding the area where I have my properties with flyers/letters asking if people want to sell. (Like those, I buy houses, quick, cash... etc flyers) Is this the best way to find distressed sales?

yup.

spex, comments or suggestions about trying to buy a rental property in a college town?

I am not spex, but I specifically have looked at the college town thing where I went to college. Here is the couple extra difficulties I found.

College kids can be harder on properties, so just make sure you security deposits, etc cover you.

It is harder to find one where the numbers work. I can think of a couple reasons that would make this the case.
High occupancy, so desirable rentals.
Parents who buy something that their kids will live in while they attend school. They will probably pay more for the place than someone buying it purely for income.

I have yet to find anything with much over a 5-6% CAP rate. Which sucks and isn't worth the hassle.

right, that's what I was wondering. I guess I was curious if the economic crisis has hit college towns enough to search? Although I keep hearing that college/university areas are generally unaffected by economic downswongs.

I've heard/read the same things you mentioned, pancho... But who knows, I may look into it. I need to do some driving around town here anyway for mobile homes and hopefully I see something for a house

Would the local banks be a good place to start? (stupid question?)

Another thing is that college towns tend to be desirable places to live even if you're not a student. That drives up prices a lot. In my experience its pretty hard to find good deals in college towns. but like any other market, if you dig for the deals you should be able to find them.

Probably already answered in here but how can I access foreclosure listings/short sales?

Quick!

I thinkkk I found a distressed seller...

House was listed at $230K - after three weeks he's lowered it to $200K. I spoke with the agent and she told me he has bought another property and needs to sell - quick.

The rent in that area goes for $2200 per month. If I can get it for $190K i think it'll be a good deal - but was wondering what some of you with more experience have to say.

The houeses in that area go for $220K avg. Let me know if you need any other details.

Seems like you'd want to get it for less than 190 to make it a good deal.

38k down (20%) with 25yr @ 5.75% on 152k = 950month.

55% of 2200 = 1210

1210-950 = 260/month positive cashflow

That's >12years to recoup your investment.

Edit: Alternatively, with 10% down you have 19k down, 25yr @ 5.75 on 171k = 1070

1210-1070 = 140/month = >11yrs to recoup your investment.

How many years is it good to get your money back?

I think that most tend to think about it in terms of ROI.

At 20% down in my hypothetical, you're getting around 8.2% ROI. However, ROI doesn't compound, which is why it takes 12+yrs of your 8.2% return to get your initial investment back.

I think most investors shoot for >25% ROI (this is what spex means by 25% cash on cash return - COCR - IIRC).

So, I think no more than 4yrs to get your investment back.

edit: So, given that you'll be getting $1210/month in income before you subtract the mortgage payment, you want to find a purchase price where you'll put (e.g.) 20% down, and get 25% of your down payment/year in cashflow. So, basically, your annual cashflow needs to be 5% of the purchase price. There's pretty much no way you're going to get that with this deal.

At 150k, you put down 30k, mortgage payments are $750. $1210-$750 = $460. $460*12 = $5520 annual cashflow. You need your annual cashflow to be 25% of your downpayment ($7500 - aka 5% of purchase price). So, if you could steal this house for 150k, you're still only getting 18.4% COCR.

edit2: The whole reason why you want to put as little down as possible is because putting less down means the COCR numbers start to look a whole lot more attractive. If you put only 10% down, then the same 150k steal price works out to: 15k down, 135k mortage = $845 payments. $1210-845 = $365. Annual cashflow of $4380. So now you're getting 29.2% COCR and the deal is starting to look a lot better.

But, remember that spex has 2 minimal criteria for a deal: min 25% COCR AND 10% cap rate. Since your NOI is 1210/month and $14520/year, a 10% cap rate would put the maximum purchase price at $145000. So, if you can get this place for $145k and put $14500 down, then it's a great deal.

spex, what do you think about multifamily properties that arn't zoned correctly? For example a duplex or triplex that's zoned for a single family.

durka - thank you for anylazing my situation - awesome stuff.

Ok, now we know that if I can get this house for $145-150K it would be a great deal. But how do I go forwared with this? Like I said, the houses in that area average for 220K (lowest possible, a dump, being 190K).

Should I just contact the agent and say, nothing personal, dont get offended by this offer.. and just give it to them? We are asking for 50K below their asking price...

This is my first time finding a somewhat distressed sale and would like to know the best way to approach it. Also, what is the best way to find distressed sales, I know its been mentioned at investor meetings alot of info is passed around, but I am just getting my feet wet here and would like to know how things are done.

Thanks again.

Spex x,

MYNAMIZGREG referred my to this thread which is just fantastic. Thank you for taking the time to do this. I have a question about a rental property I bought 1.7 years ago.

The property is a 3 bedroom 2 bathroom condo is the Bay Area. Pics. I paid 435K for it and put no money down. It is now worth about 390K. The first year I was getting $1800 a month in rent, now I get $2200. I assume this will continue to increase at a good clip, given the state of the real estate market. I also feel the value of the property will increase quite a bit in the longer term due to location.

I would just like your thoughts on taking the negative and sticking this out vs just giving up and calling it a loss. Something to consider is I will not have money for a down payment on a new place for quite some time.

I am able to keep it rented year round, vacancy is not an issue. The quality of tenant in this area is high, and I don't expect to have any (many) repairs that will come out of my pocket. I do not pay any utilities.

1st -2300 (property taxes included)
2nd -140
homeowners -370
rental income +2200

total neg $610 per month

If he's really motivated, offer the 140k and see what happens.

you're losing 610 a month if you never have any vacancy, never have any repairs, never have any legal fees, etc.... I'd just dump the property if the only reason you're holding it is to rent it out. Take the loss now or take it now and later in my opinion.

The property is in an area where property rises in value much faster than Ohio. Did you consider this when you said dump it? This property is right outside SF in a very desirable area.

EDIT: I think I will be break even on it (on a monthly basis) in 4 or 5 years due to rent increases.

Isn't he building equity every month? Probably more that $610, but maybe only slightly after 1.7 years of payments. I mean I know that's not the plan here but to say he's straight up losing $610 a month is not totally accurate.

My main point was that I think he'll lose way more then 610 a month and I don't think that the appreciation or the few hundred that he is paying his principle off are worth it. Honestly it looks like you're trying to justify a deal that isn't that solid.