All Forum Posts by: Account Closed

What Diane is setting as her criteria is a "cash on cash" return of 20 percent. For example, if you pay $100,000 for a rental and put $20,000 down, your net cash flow after all expenses, including your mortgage, should be $4,000. She may be including closing costs in her "in money." In the same example, if you put $20,000 down and had $5,000 in closing costs, ypour "money in" would be $25,000, and you would require $5,000 in net cash flow to meet her criteria.

Hi Dave:

The bank is not really getting back the additional amount you owe. They are taking the additional amount you owe and stretching out that number out over time at a zero percent interest rate. When you discount that income stream back to present worth at a market interest rate, the value of that income stream is less than half of the additional amount owed. They are accepting the equivalent of $314,693 today in future payments on both mortgages

Also, a mortgage broker is not a fiduciary. It's not their job to fully understand your financial position and make recommendations about which mortgage is best for you. You need to understand and look out for your interests in any mortgage transaction. As an inexperienced borrower, that's tough to do.

Dave:

I'm heartened to see Wachovia pro-actively working with their upside down but performing borrowers. It means the banks and the investors holding the paper are finally being realistic and working through their problems. Once this process is in place, the market value of all that paper floating around will become easier to determine and the banking system can finally begin to recover.

How I would value what the bank is offering you is to do a discounted cash flow analysis on the payments the bank will receive on the second. They will receive no payments for the first three years, and then they will receive monthly payments of $176,000/(27x12), or $543.21. Discounting that flat revenue over the 27 years at a market rate of 6 percent (0.5 percent per month) gives a value of $87,055. Discounting that lump sum for three years on an annual basis gives a current value of $73,093. Someone out there may have a different opinion of the appropriate discount rate, but the principle is the same.

From a financial analysis viewpoint, the bank and investor are willing to accept the principal on the new market rate first at $241,600 plus the discounted value of the second at $73,093, or $314,693 instead of the $409,000 you owe. That's a better deal for them than foreclosing and getting $250,000 and paying all the costs of a foreclosure.

In your shoes, if I felt I could manage these payments and the house would likely be worth at least $314,693 plus selling expenses at the end of my projected holding period, I would seriously consider the offer. It beats the alternative of a short sale or a foreclosure. I would also try to negotiate the rate on the first before I agreed, as rates continue to drop. If the offer was made back in early November, you should get a better rate today.

Good luck, and be sure to apply the lesson about the plusses and minuses of leverage from this experience in the future!

Kilz works on slabs because it forms a barrier. If you are over a basement or on a raised foundation, some of the urine may have penetrated to the subfloor. Also, it may have gotten behind the baseboards and in the gaps between the wood floor and the wall. You will have to pull the flooring up anywhere the urine has gotten to the subfloor. The subfloor may also have to be patched.

Water and urine can soak into a wood floor to the extent that sanding will not be enough to get to clean wood. Be prepared to do a lot of patching if that's the case. If you can get the smell out but not the stains, refinish the floor in a dark color to help hide the stain.

I have not found Nature's Miracle to be of much use,

In the Phoenix area, the winter vacancy problem is more of a "not wanting to move during the holidays" problem. November and December are the most difficult months to rent.

If I get a winter vacancy, I lower the rent below the competition and make sure the house is clean and move-in ready. That way, the few renters out there will pick my property over the competition. I would rather lose $50 or even $100 a month on an $1100 house, rather than have a two month vacancy.

I will also consider six month leases in the winter, as long as I get a little higher rent to compensate for the turnover. I just did a seven month lease at $1,050 on a house where the asking rent was $995. These folks could not find anyone else to do a lease for less than a year. They were honest enough to say they only wanted to rent through the end of May, rather than taking a one year lease and then breaking it.

I put a clause in the lease stating all changes and improvements must be approved by the owner in advance and must be removed from the property at lease termination. I charge the tenant to remove anything, permitted or not. I just removed an unpermitted trampoline and charged the departing tenant. I also remove swingsets, diving boards, and other injury causing items when I buy a property. These are injury and liability suit magnets,

I'm with Connie except for bedrooms. I use cheap pile carpet in bedrooms and tile for most other applications. Tile seems to work better in Phoenix because the floors feel cooler during the summer.

I use two colors of carpet. One goes where the tile has more gold or brown and the other where the tile has more gray or taupe tones. I have been using the same carpet and paint colors for years. Easy paint touch up and carpet replacemen/hot patching that way.

In some markets (Phoenix for example) a high percentage of absentee owners are your fellow investors. I often get 10 of these mailings a week, and they go straight to the recycling bin, no matter how persuasive the marketing. If you could find a more refined mailing list (one that excluded folks like me), you would probably get a higher number of responses.

I own rentals with pools in hot and sunny Arizona, and they are big headaches. The issues with indoor pools are somewhat different, but pools in general are expensive to maintain and insure. I suggest you check with your insurance company before you complete this purchase to determine if they will insure you for the risk. You will need a high dollar liability policy for this risk. At the very least, the pool will have to conform to local and state pool barrier laws for you to be insurable.

Indoor or outdoor, I would never leave a pool unfilled. Empty pools are dangerous and the shell can shift or crack. Tenants are not capable of maintaining a pool, no matter what they tell you. If you go through with this purchase and decide to keep the pool, you should fill the pool and provide professional pool cleaning and chemical service. This will be difficult with an indoor pool because the tenant is likely to be uncomfortable letting strangers in the house to clean the pool.

In my experience in Arizona, where pools are a desirable amenity, you are lucky to recover half the pool operating cost in rent. I would guess you will recover less in the Midwest.

The better option may be to fill in the pool. I'm not sure how this would work with an indoor pool. You may want to price this option before you proceed.