I think he hasn't read through this thread...it's not a good investment. And requiring the assumption that the property value will continue to rise is especially bad - haven't you been paying attention to the news lately? That assumption is why the biggest investment firms are going down.

durk - before I had the chance to give them my lowball offer - the house sold (

That area is/will have great opportunities like that though - I'll keep you guys updated.

Thanks a ton again.

Why are you taking 55% of the $2200 rental income?

A couple things I see here are that most of monthly mortgage payments go towards interest, not principle so that's not a good argument to keep the house AND he's clearly not building any equity through appreciation if the house is worth $40k +/- less then what he paid for it, if anything he's building negative equity, and without cash to carry this it could get ugly.

With that being said in five years I would bet the property value is higher then what it is now for(if it's not there's been a severe crash in the real estate market), in two years I would think the value will be pretty similar to what it is today though, maybe up slightly. You have to run some numbers and see how long and how much money it's going to take to carry you to the break even point.

You're going to lose $610 for the next 12 months, $500 for the period 12-24 months out, and $350 for the period 24-36 months out(assumptions obv). $7320 loss for year one, $6000 year two, $4200 year three = $17,520 loss in the next 36 months, plus I would think it's going to depreciate at least for the next six months and then the value will be stagnant for the six months to follow(if you're lucky). I'd probably just sell it now if you can because it's going to take a while to catch the rent up with the debt service/expenses. You'll probably have to hold onto this property for a very very long time for it to be profitable/break even so cut your losses.

I'm not really sure what your living situation is but you could just move into this place and make it your home instead of renting it out, that wouldn't solve your problem but it would justify holding onto the property.

He already owns it, so getting out without losing too much won't be as simple as just walking away from a bad deal. No harm in trying though.

thank you spex giddyup tein and others, i learned a ton of valuable information from this thread.

and alot of ppl really need to read spex posts throughtout the thread to see his correct mindset for deals. most important thing i gained from this thread

Expenses, repairs, vacancy rate, etc etc.

Seems high in both % and dollar amount, but I don't know a whole lot about individual home rentals, mostly commercial stuff on a bigger scale.

He is taking 45% out for expensive. It's the average for the US.

No he's taking 55% out

No, look again. Really.

Yeah I see it now. I didn't do the math just looked at the % in the post. 55% would've been awfully high.

55% is not that high, sometimes properties will be well over the 45-50% range. The properties I'm buying have lower then average rents and much lower then average sale prices, but a new water heater still costs the same amount of money.

You can do as many 1031's as your heart desires. "like kind exchanges" have no limits. My partner in my RE business was a CPA before he realized sitting behind a desk 60 hours a week and doing returns for guys making 10x his salary sucks. He quickly realized where the true money is at. Real estate.

If you have particular questions please PM me and Ill be glad to pass questions on to my partner.

Thank you for taking the time to respond to my post.

Just curious... how are you going to proceed from here? Have the responses changed your mind?

Most of the time these are grandfathered in for multifamily use. A lot of the time the city has down zoned certain areas. If a property was already converted to multifamily use before the down zoning occurred, it'll retain the multifamily designation until the use of the property is changed.

If, however, the property isn't grandfathered, then its an instapass. If a neighbor gets pissed the city can shut you down.

So if I make 50k this year from playing poker and i make a 20k down payment on a house, how much of it is tax deductable?

all?

I think none, but I'm not sure

Talk to an accountant but I did read this somewhere. A new Housing Bill passed allows for a $7,500 tax credit for a all homes purchased between the years 2008-2011. Any buyer will recieve the tax credit in the tax year they purchase their home. This tax credit will help many homebuyers help offset the cost of down payments and closing costs.

I just read that, not necessarily a reliable source but worth looking into.

None, however, you can work the system. Buy your house in Jan and your interest write off will be a sig portion of that downpayment (inversely related to downpayment). ROugh numbers in my head are that a 20 percent downpayment would return about 25% from writeoff.....5% downpayment would return about 150% (based on 400k for example, 5% = 20k, 1st years interest = about 30k).....

do the math.

there may be some programs for first time homebuyers are federal and state level also.

My guess would be none, but I honestly don't know. I don't buy houses. Johnfortune sounds like he knows what he's talking about though. Best advice is to contact an accountant.

very nice thread, sorry if this has been asked before but are there any books or resources which you think are "must haves" for someone with no experience in REI looking to get into it?

thanks

Thanks to everyone who has contributed to this great thread (especially Spex!) Its been a great education tool for me. I think I may be on the verge of my first real estate deal, and I've enjoyed looking at the numbers of specific deals in this thread so much I figured I'd throw mine in here as well.

Please let me know what you guys think and if I'm forgetting or misunderstanding something...

First a little background:

Two-unit building being sold by an investor who has 50+ properties and is downsizing (getting ready for retirement) and selling his lower value properties. Advertised purchase price is $59,900.

Unit 1 is a 3br/1bth with long term section 8 tenants paying $670/month.
Unit 2 is a 1br/1bth with a long term tenant paying $325/month.

Advertised PP = $59,900
Target PP = $56,306 (94%)

Gross Rental Income = $995/mo
Property Tax (includes trash/sewer) = $80/mo
Insurance = $42/mo
Water = $51/mo
Maintenance (estimated) $125/mo
Management (already in place at 7% of GOI) = $70/mo
Total Expenses = $368/mo
Net Overall Income = $995-$368 = $627/mo and $7,528/yr

Seller Financing (10%) = $5,631
Terms = 8.25% for 5 yrs

My Cash Payment (10%) = $5,631
Estimated Repairs are minimal. New roof 2 years ago, new furnaces, new carpeting, etc.
Assuming 2% = $1,126
Closing Costs (3%) = $1,689

Total Down Payment (Seller Financing + My Cash Payment) = $11,261
My total Cash Investment (10% + 2% + 3%) = $8,446

Mortgage Amount (Target PP - Total Down Payment) = $48,639
Terms (assumptions) = 7.0% for 30 yrs

Monthly Payment to Seller = $115/mo
Mortgage Payment = $324/mo
Cash Flow (NOI - $115 - $324) = $188/mo and $2,260/yr

Cap Rate (NOI/PP) = $7,528/$56,306 = 13.4%
COCR (CF/CI) = $2,260/$8,446 = 26.8%

These numbers look pretty good to me and leave a little room for extra maintenance or repair costs if need be.

Questions/Comments? Thanks in advance!

I am going to keep it. In my OP I made it sound like I owe 435K on it, I only owe 360K, and have 30K equity still. The value will drop more, but I am ok with that.

The rent will rise and it will be incredibly easy to keep rented.

Everything is new and should not have to be replaced for quite some time. If anything breaks I have a home warranty that will take care of it ($200 yr from fidelity)

The area it's in will recover and the property will eventually be worth much more than it is now.

This was a long term investment, and it is still a good one imo.