All Forum Posts by: Michael Win

Is wholesale and off market worth the risks and trouble.  I have a decent portfolio now but always looking for deals.  My goal is to have 50 rentals and retire.  

I have good cash flow and willing to buy cheaper homes and even more expensive places with potential in hot areas of Austin.

Also, there is a similar 6 group of homes that just went under contract that is in a less desirable area on the opposite side of town, rents for only 1400, not growing as fast that asking was 30K more than what I paid for my group of homes.

I see so much potential in this deal.

The medical school is going up, there will be alot more health care professionals that would love to live 5 miles from UT/Medical area/Downtown.

These were my reasons for jumping in to this deal.

1. If this year net income is the same as last years (accounting for all income and costs) I would return 15% on my investment.  Not bad IMO.  I plan on raising rent on all the expiring contracts this year b/c they are on the lower rentals.  This should bump me up to 18% next year.  This area is 5 miles from downtown and people are replacing the old with new homes close to here.

2. I would not say these homes are turnkey.  I plan on putting in 10-15K each property is the tenants do not relet.  If I do this, I should be able to rent them for 2k/house

3. the Seller paid 80k/home 5 yrs ago and the market has not slowed down in this area. I am confident that if I sell one of the houses right now, I could get 190K for them as is. I have seen similar homes/age/size in this area going for 200K+ and staying on MLS for less than 1 wk. I am sure I got a discount

4. Rental market for similar homes in similar areas are 2k+.  These homes are probably less updated and that is why there is a long wait list for similar properties.  You can't get any places in this area for rents less than 1600.  I have checked and the closest I have seen is 1800.

5. I have alot of $$ in the stock market and it was time for me to diversify.  

6. My plan was to get 2 homes this yr, 2 next, and go from there.  This was a great opportunity to do it all at one and not waste any more time looking for one home at a time.  Plus I got a better deal per home than what has been selling.

7. Once I close, there is a renter not reletting and I am going to update this home for 15K (all wood laminate, update kitchen, new appliance, new light fixtures, new doors).  I will raise the rent to 2k and I am sure I will get 1800 minimum.  If I can get 2k, then these homes will easily sell for 220K+.   A home that rented for 2k just sold in less than a week for 230K listing.

8.  I do not need income right now which makes it easier to take risks.  I plan on putting alot of the profit back to update each home once a tenant leaves.   My goal is to take the current 45K in new profit and keep 30K and put 15K back in updates.  in 1-2 yrs, I can buy another property.

9. In 5 yrs, if everything goes well and I can sell the homes for 230K, my principal per home should be about 100K.  With the 130K, I would do a 1031 and leverage my 130K into a 400K Property (30% down).   Either 2 similar homes or a multifamily.  Multiply that by 6 and I could have 12-15 Homes/duplexes to rent.  My portfolio would be right at about 3 Mil.

Hopefully if everything works out I can retire in 10 years right at 50 yrs old.

I already have a 7 figure retirement but it would be nice to quit my job and travel on the property income without having to work another day.  

I am under contract for 6 homes bought as a package.  Seller is doing a 1031.  All 6 homes are side by side on the same street.  The market here is pretty hot and sells very fast.  Also very easy to rent.  A similar home selling without a package deal would be close to 180-200K per my Realtor.  I am buying each for $166K.  Current owner has given my his 2014 profit statement and past lease contracts.

All six homes costs a total of 1,005,000 to close including all closing costs/inspection, etc

All 6 are rented at $1600 and all have tenants with leases ending in 2015 up to 2017.  All rental rates have increased about $100/mo with each new lease.

I have a 4.25 % 30 yr fixed on all 6 and a separate loan for each home.   Put down 300K.  Mortgage $700K.  Monthly costs for all 6 homes:

1. P&I - $3444, Principal $960.  So I take my real cost for the mortgage as $2479.  I am sure others will look at this differently

2. Total yearly = $14000 or $1150/mo

3. Insurance total $7200 or $600/mo

4. Management Fees $900/mo

Best case scenario without any major repairs is $9600/mo.  Fixed Costs above per month(not counting principal payment) = $5129.  Net income=$4,471 or $53652 for 1st year.

ROI on 300K down = 17.9%

These homes were bought for $125k 5 yrs ago.

Thanks for all of the information.  I read up on this and knew most of the issues including 1/2 1st month rent, etc.  I will let my CPA deal with all of the other details.  

I just wanted to make sure The depreciation is taken right off the NOI thus I can avoid taxes at least in the 1st 3 yrs when there will be alot of maintenance.

Also appreciate the capitalization vs maintenance distinction.

As I just started picking up rentals in Oct and now will have 13 unit rentals by next month, its all new to me.  I appreciate all of the answers.  

Hopefully I can use the profit from these rentals and slowly accumulate 2-3 properties a year and retire in 10

I don't understand the 46k after tax either.  What I see is this

Positive cash flow after all pain including taxes/insurance that goes to my bank (accounting for principal) is 60K.  

So in December, I put in 24K in renovations.  So now my positive cash flow on Dec 31st is 36K.  36K is now in my bank.  I take my 36K depreciation and thus I get ZERO taxes paid to uncle same.  The 36K stays in my bank to be used freely to buy another property.

" I'm pretty sure you would have to capitalize the "make ready". Anything that you do before the property is available for rent needs to be capitalized."

What does this mean?  Wouldn't the make ready be the same as any cost to run the rentals (prop tax, interest payment, etc)?

I am doing numbers on a rental complex I am buying and just wanted to make sure my logic was correct. 

1. These are rental duplexes. I assume depreciation 27.5 yrs.  Also 35% tax bracket.
2. Assume home value is 1 Million (not including land but including all closing costs/make ready). Assume Jan 1st for start of rental.
3. (In first year) I make 100K in rent income. 20K Interest mortgage, 5K principal payment, 10K make ready, 10 K maintenence/repairs, 10K property management fee.
4. Thus Taxable income would be (100-20-10-10=60K). I do not believe 5k prinicipal payment is deductible (correct me if I am wrong).
5. So if you can take the standard 27.5 yr depreciation then 1Mil/27.5 = $36,363 (I will round down to 36K)
6. I assume I would then take the 60K taxable income deduct the depreciation of 36k. Thus I would be taxed on 24K and thus 35% bracket of $8400?

I plan on putting money back into the complex yearly to increase rental rates. So if I put all of my profit back except 36K (amount of depreciation I can deduct), then I will essentially get 36K back tax free?

Is this correct? If so, I can leverage the 36K into another duplex or SFH next yr. If I keep this up, I should be able to buy 2 SFH in about 5 yrs.

 Thanks for the insight.  I am looking for homes built from 2005 to decrease maintenance costs.  Maybe I need look at older homes.  

Why did  you put under 70k cash for a 150k duplex?

Bryan,

What is off market mean? How do a person like me get access to them? Are these homes that are not listed to the public/MLS?

Hi Austinites,

I am 40 and finally at the stage of my life where i want to buy SF homes to diversify my savings.  

I have a large chunk of money (mid 6 figures) sitting in cash.  I bought a condo last year and since it has been rented, I am alittle cash flow positive ($100/mo).  I am looking into buying SF homes in the round rock, pflugerville area for under 200k.  From what I can tell, I can get a 10 yr old home for under 200k.  If I can get rent at $1500/mo, I will be alittle cash flow positive.

I plan on buying 2 this yr, and if everything works out well, 2 more.  

Is my thought process reasonable?  I think the home values in these areas will keep going up.  Even if I put 20% down (35K), I would think these homes would appreciate by 35k in 5-10 yrs.  I am sure rental will also go up.

I don't need cash flow right now b/c I am in the 1% of income.  

If I can get to 5 homes and have it paid off by retirement, I could easily live off the cash flow at that time.

Is this reasonable?  Are the RR and Pflugerville areas a good place to start?  Is my thought process flawed?  Anything I should be concerned about in these areas?