Is this plan pie in the sky?

[Bill B.]

I'm trying to break the paralysis of analysis. I've done one bad deal.

I see REI as the only viable way to accumulate wealth for my family's circumstances.

1. The following is in outline form so that I don’t worry as much about the prose. We have 50k to invest.
2. We have personal POF of 100k cash.
3. We don’t want to put all our eggs in one basket.
4. We live in Southern California.
5. My plan is to cash flow in Wisconsin because I have family there.
6. I believe that Scott Walker is turning the state and prices will rise.
7. I plan to purchase in emerging or low crime established areas.
8. I'm looking for properties needing little prep/rehab before renting to preserve capital. i.e. limiting to properties that need only paint and carpet and other very minor items.
9. My targets are single story SFR or single story duplexes.
10. My research is showing that market for properties meeting my criteria are anywhere from 85,000 to 150,000.
11. The aim is to have at least three properties cash flowing by the end of 2013.
12. I want to make all cash offers to acquire the properties at 80% of market or less.
13. Analysis of all prospects must determine at least $300 per month net cash after PITI, reserves for repairs, reserves for rehabs, utilities, yard maintenance, management. (what have I forgotten?)
14. The multifamily properties must have separate utilities for each unit. i.e. I have to option of tenants paying for all their own utilities.
15. After acquisition I’d pull 90% of market out at the best rate available for 15 year payoff.
16. I’d repeat steps 10 through 13 until I have at least three properties cash flowing. More if the money is there.
17. We’d save six months of net for “oh no”, (that should be about $5400 of accumulated net cash, on top of reserves)
18. Then we’d accumulate all proceeds until we have enough to purchase another using the same guidelines outlined above.
19. We’d save six months of the net for that new property. After that the net proceeds are added to the accumulation for more purchases.
20. We want to pyramid this until we have at least $10,000 per month in net rental income per month. i.e. before income taxes. That amount would allow my wife to quit working and would replace my income from a job that left town.

To the questions:
Where are the problems with the points I’ve outlined above? Blast away!! Don't hold back!!
Am I delusional? Can I really, REALLY do this?
Where do I get bulk discounts on antacids?
When does the shaking stop?
When does the sleep return?
(i.e. I'm not a know it all newbie. I'm a what am I missing, scared to death newbie.)

Thanks to all in advance.

Bill

[Matt Devincenzo]

Originally posted by Bill B.:

11. The aim is to have at least three properties cash flowing by the end of 2013.
12. I want to make all cash offers to acquire the properties at 80% of market or less.

15. After acquisition I’d pull 90% of market out at the best rate available for 15 year payoff.

These are the two I see in my cursory look.

12. That is a decent level to shoot for, but you say you have 100K with 50K that you actually want to invest. So on your 80-150K homes after the first one you're stuck and even if there is a cashout refi after the second you'd likely be fairly stuck without infusing some additional cash at least for a short term until you can refi again. Also this is contingent on your personal income qualifying you for mortgages because they will not count rental income until you have 2 years landlording experience so make sure that is doable as well.

15. This one goes with 12 and is the much bigger one. Banks generally only allow cashout refi's after 12 months, some are starting to see 6 months, so this will limit you to completing one deal this year and possibly getting your cash at years end.

There is a new cash purchase refi option here: http://themortgagereports.com/6336/delayed-financing-rule-cash-out

It allows you to get cash out of an all cash purchase up to 70% LTV so buying at 75-80%(of normal market) you would leave approximately 15% in there right? But if the home sold for 80K then isn't fair market 80K since the best comp for a property is itself correct? So I'm not sure how they do the valuation but you may end up leaving 30% of your cash in the home not 10-15%

Also a 90% LTV on an investment isn't going to happen(that I know of). All investment loans go 65-80% LTV max. You can do a HELOC for the additional but it will be a higher rate and fees.

All this is to say make sure whoever is doing your loans knows exactly what it is you need to be able to do after purchase and can do that for you, or you could end up with all your money tied up longer than you plan on.

Another option would be make a cash offer with your POF, then after acceptance if you can find a private investor to fund the deal(cash offer doesn't prohibit financing it is just saying you intend to close cash and have no financing contingency). You could purchase, rehab and rent and then do a rate and term refi which is easier to obtain. So if your investor does 70-80% of the purchase price you could turn around and refi a few months later no problem.

But that's the biggest hole I see in your plan is the lending side. You just need to make sure that you take care of that and that you know exactly what is expected of you by the lender, and they can actually do what you need them to do for you.