All Forum Posts by: David J.

This thread should be deleted. 

Pretty much most neighborhoods outside of Beltway 8 should be good cash flow burbs as long as you buy right. Your numbers are the sweet spot in my opinion so pick a side or two of Houston and get to know the neighborhoods that trade in those price ranges. Then you can move fast when you recognize a deal. 

They would not let me have more than 5 landlord policies, and they would only let me write policies to an LLC if I was the sole owner.

Once the conventional bullets are gone and you go commercial you get 15-20 year amortizations. If you are buying well enough to cash flow and cover the notes with a 15 year amortization the accelerated paydown will ouypace the cash flow. In your example, the 15 year loan is paying down principle at double or more the rate of the 30 year note. You are just pushing would be cash flow to principle paydown. If you can buy well enough to get the increased paydown on the shorter amortization and the same cash flow you will be killing it. In my market it is a rent to price ratio of about 1.3% to do this. Finding these is a bit of work, but we'll worth it when the 5-7 year arm rolls around on the commercial loan and you have 30% of the loan paid down instead of 10% on a 30 year amortization. 

A 1% rent-to-price ratio in a Texas market with 2-3.5% property taxes is not scalable in my opinion.  You can do better than that all day right off the mls.  The only thing that makes these numbers even remotely tolerable is the low interest 30-yr financing you put in place.  Even with this financing, your margin of error is so small that one flat tire will derail your return for a half a decade. 

I am not discounting the service MI has provided, and I am glad to see this was turned into a great PR moment, but in my opinion, the risk does not outweigh the reward with these numbers, and these numbers make sense for capital heavy investors that have to deploy enormous amounts of capital.  Hedge funds (often characterized as dumb money) don't even buy 1%ers in the Houston and Dallas markets. 

TKs obviously have a place in the market and provide a service, but remember there are no "lemon laws" protecting consumers of these products.  Buyer beware.

And remember when @Ben Leybovichgave himself credit for the $100 a door standard?  Priceless

These numbers seem so low to me.

I ordered MDF doors from these guys before and they turned out great.

http://www.lakesidemoulding.com/

http://www.lakesidemoulding.com/

Paint grade MDF cabinet doors are $20 and wood start at $45. I have purchased both. If painting, I use MDF. No one can tell the difference in my rentals. 100-150k houses. 

No harm.  Jst know what you are doing.

@Account Closed

Don't be embarrassed.  You are going to kill it.  Here are your steps with numbers that are more consitant.  Youe methodology is quite possible.  You have to get all the ducks in a row, but it is very possible.  I have done this more than a handful of times.

1.  Find a house worth 100k

2. Buy it at a good deal for 65k (REO, pre-foreclosure)

3. Private lender funds me the 65k plus another 3k for closing costs and another 15k for rehab at 11% interest (interest is annual so you monthly payment is about $761 a month). You will also need $761 a month for the period the house is vacant and you are rehabbing it.  Let's assume 3 months (long for me but ou never now.  That puts you all in (your money) at about $2,300 ($761x3months of rehab and rent up).

4. Hold the property for a rental cash flow.  Need this baby to rent for $1,200-1,300 a month to be safe here and likely needing to manage yourself while the private money loan is out to make the expenses/rent ratio work, but at $1,200 a month you are left with $439 a month for all the expenses associated with the rental (taxes, insurance, repairs, etc. - I'll let you get to that but with the 50% rule your expenses would be $600 a month so you are playing dangerous if you have a big repair with no reserves).

5. Pay the lender interest only for 1 year (or how ever long the term is for) at $761/mo.  You want the term to be the minimum time period it take to replace the interest only private money with long-term financing.

6. After "seasoning" the property and waiting the year, cash out refinance the property with a fixed 30yr at 80% of the ARV (which is now 100k) - You can bet there will not be much appreciation n one year and the bank you are getting a loan from will be very suspect if it is a ton. Let's assume no appreciation. (your payment will now be roughly $450 a month assuming 80k loan 30 yr fixed at 5.25%.

7. After refinancing costs, you will net about 76k (this assumes only 4k to refi and that it is not rolled into the loan.  If you roll it in it will increase your payment and the house will need to appraise for more than 100k.  Use the 76k from the cash out and pay back the lender his 80k (leaving you paying 4k out of pocket to clean this all up.

8.  After all is said and done, you will have $6,300 out of your personal pocket when all the dust settles.  You could have a little less if your expeses running the rental for the first year were less than expected, but the expenses will come whether this month or next (referring to the $1,200-761 interest payment while the private loan is in place. You will also have a property with a net cash flow of about $200-300 a month (depending on who manages and how the expenses roll out).  Leaving you wth a estimated 35%-55% cash on cash return and an equity position of about 20k (less sellign costs which would be around 6-8% of the sales price).

Now you can adjust each of the numbers for actual based on a close to true scenario.