All Forum Posts by: Dan D.

 I understand where you are coming from, but something good happens if people due these two steps and stop analyzing from there.

1.  They learn about the true costs to own which you started to detail.  

2.  As expenses pop up, they find a way to pay for them.  Sometimes what that does is it gets people out of spending their free cash on toys, and instead on improving a property.

I think #2 is the side-effect, or unintended consequence of taking the plunge on a property.  That money being spent to replace the furnace that just went out, now becomes and investment into a higher efficiency furnace which will lower cost for the next renter.

The cost to replace the old almond or white fridge now can be used to buy the stainless steel fridge that will maybe help raise rents.

The cost of new carpet / updated flooring will also drive value up in your investment for future tenants or future owners.

If you don't have the property, that money isn't being spent on a forced re-investment into your property.  It's money that's getting spent on who knows what.  At best, the only other alternative is the stock market.  <shudder>.  What's better, your investment is an expense on the tax return in many cases.

People over analyze too much and in some cases, I think it would be better to take the plunge, find a way to make it work, and get the education which is free.

I've read a lot and listen to almost all of the podcasts.  I've analyzed numbers, and to me it comes down a simple two step program for success.  Any more that this, and you're getting into the weeds.

Step #1:  Buy a nice house.

Step #2:  Rent the house.

That's it.

In more detail, buy a decent house if you can.  One that doesn't need a lot of repairs if you can help it.  Buy it at market value if you want.  Offer a little less, but buy something. Something affordable is good.  Something that can rent to a family with an okay income that could rent for a decent price, but go ahead and buy a house for $150,000 with 20% down and rent it.

Step two, rent it.  A nice house in a good community that you would pay at retail prices should get your rent around $1,100.  Sure, it's not the 2% rule, (or the 1% rule for that matter) but you want a nice house that "might" appreciate in time. 

If you do these two things, and even if you don't do it well, if you have a job, or a little bit to get you through hard times, chances are you'll do fine.

Results of doing so:

The numbers:

$150,000 house.  20% down,  ($30,000).

Rent $1,100 a month.  Mortgage at 4.5% = $608.02.

Gross rents minus mortgage at the end of year one will be $5,900 to pay taxes, insurance, expenses.  

Equity gained from mortgage paydown will be: $1935

Property appreciation at 1.5% (a safe bet if you straight line it over 30 years) will be: $2,250

Depreciation deduction (25% tax bracket income): $1,363.

Total end of year one: $11,448.

Worst case, you have some higher than usual expenses year one and a bit more vacancy landing that first tenant, but for the $11,448, you can fix a fair number of things year one and still pay insurance and taxes.

At a 50% rule for expenses on gross rents, and including a 10% vacancy rate, you still clear $3,500 year one.

The best news is, after year one 90% of the work is done the money gets better each year after as more debt is paid down, rents increase, appreciation wealth increases, and you've locked in your biggest cost for 30 years by securing that 30 year mortgage.

That $600 payment in 20-30 years will seem like $300.

I think if you go much beyond this, you are starting to over-analyze.  Yes, there might be better deals out there, but for $30k, I'd suggest this is a better way to go than buying a car or perhaps paying for a college education.

I'm just into this a little bit, but I hear the "slumlord" talk.  I'm currently refinishing two houses, and I'm taking a ton of photos of the rehabs.  Planning on showing them off when refinished.

I think the comments about "slumlord" will decrease when they see the houses I rent are nice than the ones they live in.

Yes.  Possibly.  Sounds like that is what I should be seeking out.

What brand / color tile is that?  I might have to try that!

Hello,

Does anyone know the right terms or profession I should be looking into to find an "exterior designer"?

I am looking to change the siding of an existing home, and would like a visual representation prior to making expensive decisions on what finishes to go with.  (Stone, siding, etc).

I know some siding companies will do this, but I'd like to get it done independently of an installation company so I'm getting a unbiased view on this.

Am I looking for an architect in this case, or is there a different name for this.

Anyone with any suggestions in the Minneapolis area, feel free to offer a recommendation or PM me.

Thanks.

I've been to the MnREIA meetings.  I went for a while, and then quit.

It was largely centered around having gurus come in, speak, try to pump you up, then possibly take their bootcamp.

There was good information, but none of the speakers ever discussed an important aspect of real estate investing.  "Cash flow".

In the 10-12 meetings I went to, the gurus never took time to give any rules of thumb on that which I found "funny".

I didn't know you were new to the area.

Minneapolis is competitive it seems so finding good deals can be tough.  Might be better off looking other directions as well.  Good luck!

I "know" the area but don't "know" it well.

It's not an area that I'd really look to though.  Not my niche trying to turn neighborhoods around.

Depends on what you're up for.  

 And we're so friendly...