All Forum Posts by: Chris Kendrick

This whole perception of properties having to rent out for 1% of the purchase price is ridiculous. Newbies want to know why they are so nervous to pull the trigger have to look no further than this type of kool aid drinking to instill a deep fear in making life changing moves. 

Equity and appreciation matter. It's huge and people barely talk about it here. You see lots of posts from flippers about ARV, but you never see posts from newbies talking about value. You see posts asking if "this is a good deal" with numbers like this:

-Purchase price $250, rehab $25K, market rents of $1800- is this a good deal?

Well, if the house is worth $350k, and you are in a market where rents reliably increase by 5-8% per year- then yeah, it's a GREAT deal, but if you are only looking for a 1% deal, you miss the part where you are walking in to $125k in equity that you can leverage. 

Buy and hold is a marathon- if you only pay attention to how much cash flow you make on the first month, you've already lost the plot. 

Make reasonable moves, give yourself some grace and get out there~

Best of luck!

@Chris Kendrick

i want to chime in here, but i'm struggling with what to say, because you've posted a bunch of variations of this question and you don't seem to like the responses.  you have hit on a few important concepts:

-that lower-priced properties have higher rent to price ratios than higher priced properties;

-that a lot of the advice on BP from 10 years ago doesn't work anymore; and

-that it's really hard to cash flow, and you will quickly burn up all your capital, if you go on Zillow, pick a random property, and pay 20-25% down.

but, you're not allowing for for the diversity of markets, strategies, rates, timing, etc.  i'm working on BRRRRs for example.  yep, they take 5 or 6 months - they're slow and difficult and a grind.  but if you do them right, you get rewarded with substantial equity and a rental where the residents pay the mortgage down.  they're not easy, the deals are difficult to find, and some of the info on BP oversimplifies the process and understates the expenses.  OK - that's table stakes.  you've made your point that it's difficult to get started.  agreed!

let me ask you this - where are you located?  

Properties are not cash flowing. If cash flow is what you are looking for you will need to look in cheaper markets or put more money down. 

@Chris Kendrick, if they are long term tenants you might nonrenew them when their lease is up to get them out to rehab it.

Or like I said, you might just use an interest only mortgage for 10 years so that it cash-flows even at the low rents and then refinance again after the interest only period ends when rents are likely much higher.

As I said to start YOU have to make things into a deal. Nobody wants to just hand one to you. 

@Chris Kendrick, if they are long term tenants you might nonrenew them when their lease is up to get them out to rehab it.

Or like I said, you might just use an interest only mortgage for 10 years so that it cash-flows even at the low rents and then refinance again after the interest only period ends when rents are likely much higher.

As I said to start YOU have to make things into a deal. Nobody wants to just hand one to you. 

@Chris Kendrick, people might negotiate it down to $350k, do some cosmetic updates and bring rents up to $900 and then it cash-flows.

Or perhaps they use a loan where the first 10 years are interest only to get some cash-flow and then refinance after 10 years when rents have come up naturally to the point where it cash-flows because in 10 years rents are likely to be a fair bit higher than today. 

@Chris Kendrick, maybe you live in a super expensive market that doesn't cash-flow. Then you just invest in a better market!

Give some examples if you think things can't cashflow? A link for a listing from zillow or just some example numbers. 

I have two rental properties 

One with a $5400 mortgage payment with $6600 in rents coming after expenses ($1,200 in profit)

Another with a $2000 mortgage payment with $3000 in rents coming in after expenses ($1,000 profit)

 

The underwriters are trying to tell me that the $5400 mortgage and $2,000 mortgage counts against my personal expenses but all I can use to combat these expenses is the profit I make from the rents after paying off the mortgages ($1,200 and $1,000)
So it looks like a complete loss on paper.
All they keep telling me is  “well we have to go off of the net profit” and I repeatedly told them yes that is the net profit after said mortgages are paid off from the rents. 

Has anyone ever had to deal with this sort of calculating or do you think the underwriters I was assigned to might not understand how to calculate rental income properly?

Thanks