All Forum Posts by: Christopher Derr

A MLS listing $69k 4 bed 2 bath came on the market.

It is a 1 story recently converted to a 2 story new siding, windows, roof, AC, in 2012 when it was converted.  I believe market rent will be between $800-850 (I am going to have my property manager give me her opinion)

Taxes are currently $540/yr but it has a special assessment and military/homestead credits so I think it will be closer to $1200/yr once the purchase price hits the assessors office.

Repair 10%/Vacancy 5%/Prop Management 8%

Insurance $50/mo.

I want to see $200/mo cashflow and 12% cash on cash.

Portfolio lender will loan upto 85% BPO no specific downpayment requirement aslong as it has a 1.25 DSCR and 85%. 25yr not 30.

Do I put more down to make $200 cashflow but reduce my Cash on Cash or do I leverage higher get $155 cashflow and put less down so my ROI goes higher? My mindset is more leverage gives me more $ for another deal, but I don't like reducing cashflow. $200 feels a lot better than $150. (its closer to $200 if it was a 30yr loan but its 25 year commercial at 4.6%)

Thoughts on my numbers or opinions on what you would do?

Thanks

Ooops you can move this if it shouldn't be in new members, I have been a member for awhile, just not actively participating, only reading.

So I recently got an accepted offer on my first SFH intentional rental. I have had a rental for 5 years previous owner. During the entire process I've read every book I can get my hands on, cash flow quadrant, rich dad poor dad, build a rental property empire, millionaire real estate investor, set for life.

My head is literally going to explode. 2% rule, $100/door, DSCR, Cash on Cash, it feels like you can manipulate any number you want to make a property fit one of the categories, and everyone says to figure out what works for you. Since I am starting out I don't really know what works for me yet, I am sure I'll adjust and find out.

So I have a local lender that will do commercial loans aslong as the DSCR is 1.25 or better. I bought a rental that could rent tomorrow if I wanted to but we were going to do a little bit of updating hoping to increase the rent a bit. The house was 49k. 5k down 25yrs at 4.5% (P/I)=$244 Taxes =$64 Insurance =$42 Property management =$52 (will decrease after 3 rentals) Maintenance at 10% $65 vacancy 5% $32.50 = $151/cashflow (assuming $650 mo rent, possibly closer to $700-$725 with updates and 1 pet, althought id increase maintenance by the difference probably). This is with 5k down and 1k closing. Obviously I could increase my Cashflow by putting more down, and typically I know people are forced to do 20% with traditional mortgages. Also it could be more cashflow if compared to a 30yr loan vs 25yr.

I can buy $70k SFH with $10k down and cashflow $190 plus on 25yr loans but I am putting more into the homes, slightly better neighborhoods, I know you don't count on appreciation or liquidity, and eventually I will get into multi family houses that cashflow better but we wanted 3-4 SFH to make 100% sure this is something we can handle and want long term.

Do you put more down to increase cashflow, do you put less down but leverage to the gills?  I can buy 2 properties with 10k down and cashflow $150 each or I can buy 1 with 10k down and cashflow $190+.

Every time I think I have it figured out I throw a new scenario in there, Anyone start a certain way and make an adjustment later, I'd just like a couple feel good stories on different peoples approach and how it ended up working for them or what clicked to make you change your strategy?

P.S. I currently have a great job (I will continue to invest $1,500 of my own income each month into rental properties and roll all income generated in as well) Cashflow is reinvestment only not to live on or use for bills so I don't know if that changes anything in someones opinion?

Thanks in advance for your response.   I FINALLY PULLED THE TRIGGER, thats a huge step in itself.

As mentioned above single family rentals, eventually maybe apartments, flips or buy and sell on contract are a few of the investment vehicles I'm looking at.

Some of my questions just off the top of my head are should I set up an L.L.C, how do you structure them so people can't peirce the corporate vail,  do many people set up C or S Corps? 

Do most people always get 30yr loans on buy and hold properties to increase cash flow, what are many people doing to get more than 4 loans?  

DTI ratio do you get to count rental income if so when what percentage? How does that factor into getting a mortgage, if you flip a property or buy and sell after 2yrs on contract a 1031 allows profits to be reinvested without paying taxes for a more expensive property correct?

These are just examples of the type of questions I'm thinking about... obviously I don't expect someone to answer each in one post but it's just the tip of the iceberg on questions I'll be researching.

Thanks 

Hello all, my name is Chris Derr and I live in Garner, IA.  

I joined BiggerPockets awhile ago probably did the introduction and fell out, as many probably have.

I currently work for a great company in the fortune 150 as a site manager and hopefully with in 2 weeks will know if I will be promoted to regional manager, so for the area I have a respectable income to hopefully help build a good portfolio.

I don't really have a mentor, I know a few people who have rentals and other things (myself included) because we couldn't sell our last house when we built a new one so I do have 4 years of rental property income on my taxes which should help for loans and such in the future.

I am interested in more buy and hold single family rentals, flips if the opportunity is right and also at some point multi-family rentals, I am also very interested in learning more about buying and selling homes on contract as I feel like you could get some decent cash flow for 2-3yrs then basically treat it like a long term flip when you're asking more for the property than you bought it for at the end of the contract date, but I am still learning that side of it.  

I feel like I am in a great location for 2% rule rentals (although I might be tagged by some as a slum lord)  we have a bounty of $20-30k homes that can rent from $450-600/month with some elbow grease.

I literally have hundreds of questions and I hope to be more active than in the past, I just read Rich Dad Poor Dad and whether you like the author or not, wealth is truly about making your money work for yourself, my wife is on board and I think it's going to take a true partnership one you already have a family to make this work.

Thanks in advance for any and all comments or help in the future.

@James H. Yes my vehicle is 0% for 60 Months. I would be upside down on it if I sold it so I don't plan on it. Our last vehicle lasted 10 years and my wife works in the home so we usually don't put more than 10k miles a year on it so it should last another 10. I understand this doesn't change my debt obligation.

My and My wifes combined income is about 105k/yr

Income $8,750

Debt - Current Residence $ 1,450, Auto loan $650, Credit Card $100, Mortgage on rental $350, HELOC $100. Total $2,650

$2,650/$8,750 = 30.28% DTI ratio

I wish I could sell that House, I tried for 2 years while it was rented to a friend with 3 total looks 2 of which were the first month It wasn't bought as an investment property it was our residence for 5 years before we built our new home. The good news is the new renters may want to buy after a yr.

@Michael B. Don't worry about offending me or offering up honest opinions thats why I asked. People need to hear the honest truth more often than not and if I thought I had it all figured out I wouldn't have even asked, I would have just asked which deal was the best.

A little back ground on my consumer debt. Rental house was a previous house we couldn't sell, Home equity on that house was taken out to remodel and paid off but never closed. Credit cards were at $0 when we built the new house. I had 50k down for the build. Bid was 240k it came in at 280k The builder under bid the house and got cancer in the middle of the build. He ran out of money before it was complete and I bought all the supply's to finish the house on the home equity line of credit from the old house and my credit card (labor was free for the last 30 days) thinking at the time I could sell my rental house and use the profit to pay off everything. HELOC was at 7k and C.C. was at 12.5k 2 years ago when We finished the house, I've since paid off 3k of the heloc and 3.5k of the C.C.

The car no excuse just what we wanted.

Unfortunately the circumstances dictated some of my debt because I really thought I was doing good going into the build having 50K saved up to put down.

I am not typically a spend first kind of guy (our new family vehicle was our 1 vice) I drive a 2002 ford focus with 200k miles ive had for 6 years and bought cash. The house was only 16.5% of DTI. And was suppose to be 15% until the under bid.

I don't think I have a problem (although no one ever does) with spending. But what I have gathered from both of you and probably the smartest thing is to get the Credit Card and Home Equity paid off first and get some more cash reserves then re-evaluate. Not to mention I have 3 mortgages so I would probably have a tougher time getting a 4th.

I am currently at 12% on my employer 401k and match is only 7%, I put $100 extra in another Roth IRA and $100 in a mutual fund so if I pause everything beyond the match it will free up another $500/month to hit it harder. I do have $4,500 in a savings account (about 3 months reserves), $2,200 in a money market account, and $23,000 in a non-retirement Mutual fund, I could just knock out the Home Equity and C.C. with that but I don't want to pay the long term capital gains or add it to my income for the year or I start to lose my rental expense tax breaks over 100k.

Thanks for the input guys, got some debt snowballing to tackle! Gives me more time to research and learn :)

I see the first house is now on Craigslist looking for $700/more rent so my guess was decent on that. I think I'm going to keep looking for awhile but if I see it after a few months my guess is they may be getting more motivated to sell. If not I don't think it was to great of a deal to pass up

I would agree until you need an out and you sit on a property that's vacant when your trying to sell it at which time it can easily eat up your profits or you sell it at a loss.

I can get a loan up to 80% of assessed from my local community bank they would keep the mortgage and not sell it on the secondary market on the first one, and the 2nd one I can get a home equity line of credit for then after rehab roll it into a standard mortgage. I have about 90k in equity in my residence. Both are in the same town of about 30k with a community college. So distance is the same.

My thought process is cashflow will only be used for additional property purchases, I want to use them as additional retirement income or selling them when my small children need help with their first home purchases. Tax depreciation will also be nice although no investor truly counts that. I am not trying to supplement my current income.

I am looking at 2 properties for my first true investment property purchase! I have a rental that was my previous home that I couldn't sell after we built our new home.

#1 2 bed 1 Bath (full finished non-conforming basement) SFH Assessed at $67,980 Listed 3/21/13 for $68,500 dropped to $59,500 6/14/13. I was thinking of offering $54,500 Turn Key (BEAUTIFUL) currently rents for $750/mo but its a friend of the owner who bought it to rent to her (Not sure if she plans on staying haven't made it that far yet) if not I'd conservatively say $700/mo. $700 - 350 (50%) = 350 - $262 P&I =$88 or $750 - 375 = 375 - 262 = $113 Cash flow.

It is 23 miles from my residence so I plan on doing the managing which will help the cash flow about 8%

in the 2% rule I am at 1.37-1.28% Plan on Buy and Hold.

#2 TLC Duplex

2 Bed 1 bath lower, 1 Bed 1 Bath Upper separate electrical. Assessed at $62,300 Listed 7/30/13 for $29,900. It was listed last year 8/7/12 for $19,900 so I think it was removed and some mechanical renovation done, and they are trying to recover their renovation costs. Will probably take 10-15k in renovation but that is site unseen. I believe the upper unit will rent for $350-375 and the lower for $450-475. Total cost plus renovation upper end $45k.

$800 Rent - $400 expenses - $240 P&I = $160 or $80/door Cash Flow.

Close to the 2%

Maybe I don't have enough information on this one to make an educated assessment? Plus its my first real fixer up. I renovated our first house included complete bathroom gut so I am capable just not sure I want to take on this task unless its a far better deal than the first one.

I feel a lot more confident (less risk) in the first property but I think the potential in the second one could make it a much better investment for cash flow especially if mechanics are good and its all cosmetics not sure about long term for resale if its not a SFH.

Thoughts? And thanks in advance!