All Forum Posts by: Bill Pate

Sorry to be the voice of doom, but my minds eye tells me if you don't have the down payment then you can't afford it.  If you don't have the money for a down payment then what are you going to do when one of these properties needs maintenance.  Because they will and at some point one of them will need a major item like furnace, plumbing, etc...

Personally I have had tenants offer this.  The only way I would accept it would be from a well established tenant.  Anyone new that offers this sets off alarms in my head.  Personally especially with new tenants I go by the property and collect the rent every month for at least the first six months just to make sure they aren't moving in people/pets they are not supposed to.  Also to make sure there aren't any unattended maintenance issues.  Then once I become comfortable that they are being responsible I will let them mail the rent or setup ACH.

Originally posted by @Mike D'Arrigo:

Originally posted by @Bill Pate:

Take a look at Ohio.  Last time I looked Cleveland, OH(my hometown) is one of if not the cheapest real estate market in the country.  I have bought three properties in the last year with no more than $35k invested a single property.  The $35k figure includes all renovations needed to get the property rent worthy.

If I'm understanding his question correctly, he's asking about costs of taxes and insurance by state, not home prices. On that basis, OH ranks around 12th highest for property taxes and below average for insurance.

 He said most affordable, which usually means home price, taxes, insurance, etc...  You are probably correct on property taxes being that high, but home prices are definitely one of the cheapest in the country.  I just closed a week ago on a duplex for $30k that generates $1100 a month in gross rent receipts.

No interest = price is too high.  Guaranteed.  You would be amazed how even a 10 dollar reduction in the monthly rent charged will make a 300% difference in interest.  How are you advertising the property?  I personally use zillow, hotpads, facebook, and craigslist.  All are free and generate tons of interest.  I always keep my rents in bottom 5%.  You don't make as much as you could, but I get less turn over and I have a larger pool of good applicants to choose from.  Learned that lesson on my first rental.  Tried to keep the price just below the highest rents charged and got almost zero interest.  Dropped the rent to the bottom 10% and I had 5 people waiting to see the place when I did a showing.  Don't bother advertising that you dropped the price.  It only tells people you were overcharging in the first place.  Make sure you put as much detail in the ad as possible include room dimensions, pet policy, address of property, and TONS of pictures.  The more descriptive the ad the better.  I always look for what comparable properties are renting for in the area and then I make my rent $10 a month cheaper than the cheapest one.  People love to have all the amenities you describe, but at the end of the day everyone thinks with their wallet.

I have done both a 401k loan and withdrawal. Personally I agree 100% with you that a 401k just locks up your money into limited investment options. In the last year I have withdrawn over 100K from a pension and 401k accounts, paid taxes, and penalty. This was done solely to invest in real estate. For me the pension was very questionable whether I would ever get it, so I took the money and run. I have purchased 4 rentals in the last year with the money and I know it was the right move. Was looking at possibly getting $900 a month when I was 62 or possibly getting nothing depending on if they changed the pension rules again for service time requirements. Well I make over $1200 a month off my rental investments from the money right now today, so this seemed like a no brainer to me. Now I only put enough money into 401k to get the maximum match. Before I was putting over 20% a year in there for two decades. Please keep in mind I already owned three rentals for over a decade before deciding to make this move. It wasn't done willy nilly it was a calculated risk. My accountant flipped when I told him what I did, but I have not a shred of doubt it will pay off in spades over the long run. If you do decide this path is for you don't get stuck on a certain type of deal become a value investor. In other words don't worry about only buying multi-family or only single family etc... I own two single family, three condos, and a duplex. The only investment that doesn't produce at least 15% ROI is one of my single family houses. That's only because I bought the house as my personal house then decided to make it a rental when I got married in 2007 because the market was terrible. I had that as a rental for 5 years and lost money every month before I figured out how to make that property actually turn a profit. Don't make very much on that one, but hey you have to start somewhere. Paid approximately 40% right off the top after taxes and penalties. I may have over paid and will get a refund when I file this year, but I didn't want to be under and get stuck with a huge tax bill. I would still do it again in a minute because where I live(Cleveland, OH) real estate prices are the cheapest in the country just about.

You are probably going to have a really hard time. In my experience banks will give you every excuse in the world why they won't lend on a property when in the end it boils down to they just don't want to lend on a rental. I know you live in one of the units, but the loan officer is going to look at it like you are borrowing on an investment property. I own 6 rentals with no mortgage and couldn't get a HELOC on any of them. The banks wanted me to have six months of operating expenses on hand to do a HELOC. I told the guy if I had 6 months of expenses I wouldn't need a loan!! I ended up working out financing a different way. Don't give up. Very smart move by the way buying a four-plex as your primary residence. I wish I had done that 20 years ago when I bought my first house!

Don't look for a type of property look for value. In the last twelve months I have spent $100k of my own money on rentals. I purchased one SFR, one condo, and one duplex. I bought the properties simply because of the value. Value meaning NOI and return on investment. If a property doesn't return at least 15% a year I won't even consider it. Typically I try to really shoot for 25% plus, but if it's the right property meaning in a high demand area and in great shape I will purchase if the return is 15% or higher.

Take a look at Ohio.  Last time I looked Cleveland, OH(my hometown) is one of if not the cheapest real estate market in the country.  I have bought three properties in the last year with no more than $35k invested a single property.  The $35k figure includes all renovations needed to get the property rent worthy.

@MarieChele Porter I would shoot for an ROI number personally. I don't look at properties based on what they need I look at them based on what they provide. In other words if a property costs $100k including all rehab and the net cash flow is $10k a year then that's a 10% return. Personally I won't buy a property unless there is at least 15% return after all expenses. I have bought properties that only needed paint and carpet cleaned, and I have bought ones that needed gutted to the studs and rebuilt. Both turned out to be very good ROI, but one takes more work. If you don't invest local I wouldn't even consider a rehab because of all the potential problems that can pop up during the rehab. You need to be onsite managing the problems yourself or all the money you put in the front door will walk right out the back door.

@Sam Shueh you only buy a personal residence using FHA and VA loans. You would have to live in the property for a given number of years before you could turn it into a rental. Now you can buy a multi-family property with FHA or VA I believe, and then live in one unit and rent the others. Legally I believe you can only have 4 mortgages in your name. If you can find the right property that cash flows good it is definitely worth a shot.