All Forum Posts by: Ryan B.

Go talk to a small local bank, not one of the big boys.

My local bank is giving me construction loans that I use to purchase and rehab rentals. When I am done with the rehab, they then refinance me into a balloon loan that they do for investors. As long as everything comes in under 85% ARV then I end up with nothing out of pocket except closing costs.

Small banks have a lot more wiggle room when it comes to creative financing.

You can make a ton on them with Section 8 but it will require a good deal of management. That many people in a house has a way of causing a lot of maintenance issues.

If you can find a good family to rent it to, they will usually stay for quite awhile since it is a pain to move so much stuff and there are not usually a lot of rentals available with that many rooms.

Paint is cheap and it will become your best friend as a landlord. It is unbelievable how much better a place looks with a new coat of paint. Get a gallon of kitchen paint for the cabinets, it will help keep grease and finger smudges off of them.

Mitch,

I am situated in central Illinois, 2% deals are pretty easy to come by. Getting $600 rent on a $30,000 house not in the ghetto can be found. These are working class neighborhoods, not many shootings, just the usual drunken redneck fights.

Now I can go to another side of town and get about $900 rent due to many bedrooms and Section 8. But then I am dealing with shootings and all that crap. There was a recent crime study that listed the Springfield metropolitan area as the 5th most violent area per capita in the nation.

That being said my current plan is a mix of both cash flow and appreciation. I buy cheap rentals in town that are just for cash flow and then I use the cash flow to purchase nice rentals in the small suburbs that will appreciate down the road.

Kyle,

I see both sides of the cashflow vs appreciation play, that is why I try to do a little of each. There is a large amount of money in blue coller neighborhoods, you just have to know how to extract it :) In my area though, the low income rentals sell a lot quicker than the newer rentals in great neighborhoods.

Depends on the neighborhood. If it is a nice area that is going to appreciate in the long run I would say 70k - 80k.

Low income area where you are getting that much rent just because it has a bunch of bedrooms, I wouldn't give more than 40k max.

I have both, guess which one I hear from the tenant once every 6 months and which one I hear from each week.

Not to sound like a jack@#* but wow that sounds like a horrible idea on so many levels.

I see Jon's point about getting better rates than a HML, but the downside seems like too big of a risk to me.

Very good point Bryan. The numbers I was using above were just used for the example. I definately agree that cash reserves are a must. Some people seem to like to have reserves of 6 months gross rent for each property. What are your thoughts on this?

Nathan,

Some may not agree but this is the way I do it. I have a business checking account. All gross rents comes into this account and all expenses are paid from this same account. I have a specified minimum level of cash that I like to keep in the account at all times. Once I have surpassed this level, everything stays the same and more cash just keeps building up in the account.

Since I do not take any money out of this account unless it is related to the rentals, all the money left over after paying PITI just keeps adding up. PLEASE PLEASE PLEASE realize that
Gross rent - PITI is not cashflow, I have all the other expenses that will have to come out of this account also.

When this account grows to the point that it has the specified minimum amount I feel I need for reserves plus a large enough extra amount for a downpayment on another property I start looking for my next rental. When I pick the next rental property up, I raise the minimum level in the account a little bit more. I also have access to a $10,000 line of credit from the bank that I keep as a last line of defense, so this is why I only raise the minimum level a little and not double it.

Example: I start with 1 property and I want to have $3000 minimum in reserves. Once I hit the $3000 mark I wait until the account grows to $5000 ($3000 minimum + $2000 for downpayment on another property) I buy the other property and now instead of wanting to have $6000 in reserves ($3000 per property) I move it up to around $4000 in reserves combined for both properties. Now after the account grows to the point that I have the $4000 reserve and enough for downpayment on another property I go looking for another rental again and repeat the process. If I have to pay for a new roof and it takes the minimum amount below where I want it to be, it does not take long to get back to that point since all the extra money from each property flows back into this one account.

Since I do not take anything out as "cashflow" and I do all the management and maintenace myself, what is left over each month after paying PITI takes care of all the other expenses on the rentals and then some. Like I said, some people may not agree with this, but again I do not take a penny out of this account unless it is related to the rentals.

I do not like to have idle cash sitting around collecting a miniscule amount of interest in the bank (except for specified reserves), I would rather put the cash to work making more money for myself.

Nathan,

I would recommend putting that extra $4000 back for times when you will need it (new roof, hvac, meth-head tenant).

I think most people use the 50% rule as a quick guage of if a property will cashflow or not. But use it just as that a quick reference tool. There are many other ways a property can turn a profit (mortgage paydown, tax shelter, depreciation, future appreciation).

My full-time job supports my family so any profit I see from my real estate investments just gets plowed back into more real estate.