All Forum Posts by: Brian Pleshek

Oh and I just noticed that you were in Trenton.  That's nearby.  :)

HI @Julia Geiger. The 1% or 2% rule applies to when you're doing a quick evaluation to see if BUYING a property for an investment makes it worthwhile. It's just a heuristic. That doesn't really work for you when you already own the house. Your house will rent for whatever the market rate is in your area. You can look at many places online to find out what the rent comparables are for your house's area and price it accordingly. Rentometer is one such website, but there are a lot of them.

But to answer your question about the 1% rule, take the value of your investment, in this case the cost of your house and the monthly payments should exceed 1% of that value. So you intend to purchase a $100k house. The rents should be greater than 1% of 100K or $1000/month. The 2% rule says $2000/month.

Also keep in mind that there are costs involved in holding your property that exceed just a loss of value. Then there are repairs.  You might think your house is in great shape, but tenants are often very needy and very hard on what's not theirs.  They will sometimes call for a burnt out bulb or a clogged toilet and at 4 in the morning.  Do you know how to screen tenants?  Are you familiar with the Fair Housing Act?  Can your write a lease?  Will you pay a management company or will you self manage?  Plumbers are expensive when it might be a 59c part at Home Depot.

If you bought your house for 200k and it's worth 190k it might still be worth it to sell. Every month it sits there vacant there is the possibility of squatters, thieves and other issues.  If you rent it, true you might be able to get rent to offset the mortgage, but also keep in mind that some lenders will not treat your rent income as rent income until you can prove to them that you have done this for awhile. This might be 2 years of income. So that means, even if you rented it out, you may not qualify for a loan in Florida due to income-to-debt ratios(with rent income excluded). 

I can tell you that it may be cheaper to sell at a loss than becoming an accidental landlord and doing it wrong.  Without knowing more about your situation, it's hard to guess.

Good luck

Brian

That would depend on your personal level of risk. Do you want to put your place to live at risk because this investment doesn't pan out? I would only use a HELOC to do short term financing with an eye toward finding a permanent financing solution afterward. In other words, I might use one to close a deal quickly, because a HELOC is immediately available where-as getting a loan might take 30 days or more. But I'd cash out refi after doing the deal to remove the risk to my personal residence. If anything bad happens, I want my place to live to be safe. That's why they charge higher rates for investments.

Brian

Even though I am learning, I wonder what they qualify as learning.  Certainly not just reading blogs and books.

Hi, @Colin Simpson.  I would think whether you plan to live in the area would have a great deal to do with what you decide.  While many on here do real estate across the country, many of those are experienced investors.  I can tell you that managing them personally from a distance of 500 miles was a chore.  I didn't use a management company because I didn't have enough, in my opinion, to warrant using one.  If you are starting off, i would get some near where you live.  Others will disagree, i'm sure.  But I like the option of driving by if I need to.  

Option 1: real estate is expensive.  If you're only going to live in the area a short time, be aware that buy and sell will come with RE agent fees which might make it cheaper to rent in the short term.  Maybe you're looking in the wrong areas of your town for your investment opportunities.  You say you can't find much in the way of cash flowing ones.

Option 2: There is nothing wrong with doing this.  Just keep in mind that, again, being a landlord at a distance may not be for a beginner.  The question here is are you making any headway to rent and rent out your place.  Is there a cash flow benefit to you for this?  You mention that you would worry less about the location in this option.  Why?  While it's possible that you have different standards for yourself, do you think it any less safe an area?  Or is it just too far from work for your commute?  Personally, I am willing to live in any of the places that I purchase.  If not, I am not sure that I'd buy it.

It's possible that you can locate a "turnkey" property somewhere in the country with property management and just rent or buy whereever you are.  But as many have said before, purchasing a duplex and living in the other half is probably your best first bet.

Good luck.

Brian

Personally, I set up a bank account for each of my tenants at a nearby bank and tell them to deposit the money into that account. The bank does all the keeping track of on-time or not and I get a text when the money arrives. I deal in SFH with rents 2-2.5x the "low" end rents for my area. So maybe I have a different clientele? Of course, there are turkeys at every income level.

Brian

Thanks @Waylon Gates.  I will.

@everyone, I see the following options for this lady:

1. A buyer comes along and buys the house from her.(Best for her, but DOM is >100).

2. A Short Sale.(This probably isn't an option because it can't close before foreclosure date)

3. An investor comes along and buys the property for cash.(She might break even).

4. Subject To.(Some deal that puts cash in her pocket).

5. She allows the foreclosure to occur in which, she'll probably have nothing.(Worst for her).

As time goes by the closer she gets to the bottom option. 40 days out from date, option 1 becomes precarious and 30 days out it's probably off the table because it can't complete in time.

Are there any other options for her?  I know she can declare bankruptcy and delay the inevitable, but besides that?  Because, even if I can't make a deal with her(and I found out that another investor has already approached her and she rejected whatever deal he had) i'd still like to help her out even if it's just to show her her options.

Brian

I guess the reason that I ask is that after I have been in a deal for awhile, I could sell the property and put the entire amount toward more deals.  So how do I make a determination whether to sell and invest otherwise or hold for the good cash flow?

When doing your calculations for ROI, do you base it on the actual amount you have in it or on the amount that the property is worth(ARV, etc)?

As investors we're always trying to get properties for as low as possible. So say I get a market price property of $100K for $65K and put $5k into it. I'm in the property at $70K. When I make my ROI calculations based on rents, say 1300/month, am I basing it on the $70K or the $100K?

The reason I ask this, is that I have a property that has been rented off and on for 10+ years. I only owe $35K on it. I was in it for $89K, but it's "worth" $130K. The difference between these numbers can represent an opportunity cost. Obviously, my ROI looks much better if I use $70K for my basis than the $100K.

The sample numbers are similar to a cash purchase I made recently. Paid $69K, ARV is $130K, cost to renovate is $10K. Rent is $1300. If we use the 50% rule, that makes cash flow 7800 per year and that makes cash-on-cash 8.76%. But if I turn around and sell instead of holding, I get the $130K less fees and taxes on the gain. That's why I'm wondering if there is an opportunity loss calculation that needs to be part of this equation?

So now 5 years from now, the amount I "paid" into the property may be less relevant. But the market price is. So do the calculations shift after owning the property for awhile to use the market comp price to calculate ROI? If that's the case, then it seems that ROI might go down since the discount of equity goes away in the calculation?

I know I like the cash flow in any case.

Thoughts?

Brian

@Brian Gibbons.  Does it change your opinion if I don't lease the property back to the daughter of the original owner(who doesn't live there now)?  I could pay cash for this property.  I have an 800 credit score, so I could finance it as well.  But if I take over payments, then I can preserve more of my capital to do more deals.  I thought that this is one of the things that a wholesaler does.  A wholesaler markets to people who are being foreclosed on and tries to come up with a solution that works for both the seller who is in distress(putting money in her pocket) and the buyer(getting a deal), and the bank(getting payments on a non-performing loan).

Does it change things if I notify the bank?

I read this blog from @Karen Rittenhouse and it seemed like a way I could do something to help this lady.  I was going to use my real estate attorney to write up the deal and a title company at closing.  I was really looking for the steps to make sure I didn't forget any due diligence.

@Blair G.  I'll have to listen to that one.  I'm only up to #58.  The ones that I listened to were, I think, from the various wholesalers they had in the #1-58 podcasts.

I have read up more on subject to(now that I know their name) so can answer some of my questions in the OP, but I still would need help with knowing all the things I need to gather so I can run the numbers.

Brian