All Forum Posts by: JT Spangler

@Spencer Chapman: Ha, thanks! I'm glad it made sense, because I was headed out the door to pull up flooring on this rehab I'm doing and was typing in a hurry. :)

 I know it can seem hard, but the truth is you need to try a lot harder. Call 20 real estate professionals in your town and tell them you're young, excited, and will work for cheap if you can learn the business. I mean developers, agents, flippers, landlords, property management, brokers, etc. 

Get a secured credit card through your bank (your banker can explain more about this to you) -- anyone can get this because the money on the card is already in your account. To further build your credit, I would talk to your parents about adding your name to a household bill that is ALWAYS paid on time.

You're in great shape, truthfully, because you're young. Learn everything.

@Seth Mosley: sure! A Home Equity Line of Credit is a line of credit secured by equity in your primary residence. Basically it's a credit card with a limit set by the equity in my home, lender terms, and my credit score.

So, let's say my house is worth 200k, and I owe 100k. I have 100k in equity. Most of the banks I've talked to will do 80% LTV, which means they'll take 80% of the value of the home, minus what you owe, and that's the amount that is in your line of credit. In our example, 200k * 0.8 = 160k -100k = 60k you can use however you like. Rates are typically prime +1% (more or less, depending on your credit score). You only pay interest on what you use, and you can make minimum payments for terms of up to 20 years. For me, it's a source of cash I can use short term with rates way better than hard money.

If you use a HELOC to buy a jet ski, it's a horrible idea. But if you use it to invest in an area where returns exceed the interest you'll pay on the line of credit, I think it's a smart play.

Would love to talk to you more about your investing -- let me know next time you're coming up to Nashville and maybe we can grab a coffee or lunch.

You've got a lot more experience than I do, but I'm planning to access a HELOC to finance renovations on the basement of a duplex I just bought in East Nashville. I may as well use my equity to make me some money, because right now it's just sitting there.

If you want to invest in real estate, the first thing you need to do is get a better job. Minimum wage is not gonna get you where you want to go. Decide which part of real estate you want to be in, and start calling everyone in your area who does that, asking them for a job. Even if you stay minimum wage you'll be learning from someone who's doing it in your market. 

Beyond that, make sure your credit score is in good shape; if it isn't, start building good credit.

Looks like a killer deal, but I'd want to know the answers to Nathan's questions, too.

I'm an electrical engineer by training; the code always says when a disconnect is required. Sometimes interpretation varies, and I've definitely seen a lot of cases when the inspector wanted something above and beyond the code, which is part of their job, even though it's really frustrating when you're the person doing the work or paying for it. 

Anyway, I didn't think you were blaming the inspector -- I was just chiming in to comment on the picture. And one of my consulting jobs is training electricians, so I can tell you for sure that there are many that think they know the code a lot better than they actually do.

If you want to really be frugal and focus on investments, you need to get out of the biggest and nicest space in your triplex. That'll put a few hundred real dollars in your pocket immediately, and every month.

As far as this deal goes, the cashflow sucks, but since you got into it for so little (and at such an amazing interest rate!) COC is pretty stinking good. And maybe one of your goals is to give family members a nice place to live for cheap, which is pretty cool of you. I don't know your family situation so I can't comment on that. I can only say that, for me, if it's an investment for me and my family, I'm not taking the hit to give people a cheap place to live. I'm either running a charity or a business. But my way is definitely not the only way, so by all means, do what works for you. :)

Everything? Man, everything is a lot.

Let's see: first, I would want to make sure that the property is an attractive investment an and of itself (meaning, when you move out it's still a property worth owning as an investment). 

I don't know where you're at, but let's assume if the 2bdrms rent for 1200, your 1 bdrm rents for 900 (also, kudos on taking the smallest unit -- that's baller right there).

So, GRM is 4500 on a sale price of 430k (is that a reasonable price? Get a good realtor to pull comps and make sure -- remembering that you make your money on a deal when you buy it).

That's a 1% property, which is maybe good where you live, and maybe not. But let's assume that's ok.

You put 3.5% down on an FHA loan (does the property qualify for that type of loan? It'll usually say on the listing if so), which is ~15k, plus the MIP required with an FHA loan, plus maybe some closing costs, so you're out of pocket let's say 20k at closing.

You finance 415k (430 - your downpayment) at 4.25% for 30 years, so debt service is $2041/month

The 50% rule says you'll spend half of your monthly gross income on non-debt service expenses (taxes, maintenance, vacancy, management, capex, marketing, etc). If the building is in good mechanical shape and you self manage (since you're living there), I think you can keep those numbers lower. But you want the deal to work with worst case numbers, so 4500/2 = $2250/monthly.

Just using really rough numbers, we have debt + expenses = 4241/month, and gross rents of 4500. So monthly cashflow is 259 bucks a month. I would have to say that that's not great. It's 65 bucks per door, when most people shoot for $100-150 MINIMUM. But, since you're getting into the deal for not a lot of money down, your Cash on Cash is ~18%. That ain't bad. 

THAT SAID, I used some really wild *** guesses in coming up with those numbers. You need to figure out what's a fair price for the property. If it's 410k instead of 430, that changes things quite a bit. You need a quote on insurance, and you need to find out what fair market rents are for the space. You need to figure out if any of the units need upgrades, and if so what it'll cost and what they'll rent for after the upgrades. Every dollar you take off of the monthly expenses go straight into your pocket. 

Not knowing a lot of stuff I'd want to know before I considered the deal myself, I think it's borderline. But, if the building is in solid mechanical shape and good condition, and rents aren't above market, and you can get discount on the sale price, and find out for sure about utilities and insurance, I think you could get close to $100/door here, which would start looking like a good deal. And really, to get to $100/door, you'd need to basically cut expenses by $150/month, or raise rents (in total) $150/month. Then your COC goes above 25%, which I really like. Cashflow, a place to live, kick *** return on your money, depreciation and mortgage interest deductions, and the icing on the cake (if and when it happens) property appreciation! Sign me up!

Man, you guys are really making me think I should be hunting deal in the Indy area. My gf lives there so I'm there once a month anyway.