All Forum Posts by: James H.

I read a post in here somewhere that someone stated that they only buy long term investments in neighborhoods that are on the Path of Positive Progress.

I grew up much of my life in Austin, Texas and witnessed neighborhoods that were "war zones" 15 years ago become gentrified and very expensive at present time. The biggest example of this trend is the east side of down town. I guess the increase in value had to do with the proximity to down town in a very congested city. But it took 15 years for that change to mature even though the traffic was always there!

I have also seen a LOT of newly constructed neighborhoods go from middle class to working class and worse over the same time frame. These were supposed to be areas that would "appreciate".

Nowadays I live in the Dallas/Fort Worth area and am interested in very low priced houses for cash flow. But if I could find those pockets that will go way up in value over the next 10 to years, that would be great.

I have heard from some people that virtually all neighborhoods have their ups and downs and that cycles in neighborhoods usually go from 10 to 20 years. I have noticed, though, that the very best neighborhoods tend to always be the best over their entire existence.

Do any of you guys that invest in super low priced real estate look for indicators that the neighborhood could turn around? Do these indicators influence what part of "bad" neighborhoods you will invest in vs parts you won't? If so, what do look for to see that a neighborhood is on a Path to Positive Progress. Are there any general indicators that would apply anywhere regardless of local variables?

That is what I am seeing Jon. It seems a little ironic what banks like and don't like, but I'm sure there are just things that I'm not educated on that makes me think that.

Honestly, I have only called about 6 local banks and my credit union, but have heard the exact same thing from each one. I might just have to call around more.

I recently shared about my first deal consisting of a rental unit that I have 13K in cash and about 12K in consumer debt (interest rate 12-14%) invested. The rent is 550/month and it is currently leased. I have had it for about 2.5 months.

Several BP members suggested I get a HELOC, to reduce my interest rates on the borrowed portion. I can't find a bank willing to do that on a rental. So far that appears to only be an option if it is my personal residence.

Right now, the property barely breaks even or is slightly negative (using 50% rule)in cash flow until the credit card debt is reduced over time. Our current plan is to just apply all the net rents (cash reserves already established)and all the extra money from our paychecks to pay the debt off in about 12 to 18 months. Then the property will be free and clear and cash flowing nicely.

But at that point, it will be a year to a year and a half down the road and we will be started back at square one just starting to save up for the next deal. So in all, it could be 2 to 3 years before we are ready to act again. I really enjoyed the process of my first deal and would like to do another one sooner...

If I get a mortgage on the house, I'll probably be looking at 3000+ in closing costs, which is a lot compared to the amount invested. And that will affect my debt to income ratio for future financing. Plus I don't want to take such a large mortgage that the property is not profitable. The mortgage payment would have to be around 150 or less to meet my minimum long term cash flow goals for the property. So, it just doesn't look practical to do a mortgage. I think the house would appraise around 30 to 40K, maybe as high as 50K.

What are your thoughts on refi strategies or strategies to move forward quicker.

I think your biggest concern is do you want to sit on a vacant unit for 6 months. You will need to pay for insurance (and I would want the utilities on)during that time. Insurance usually will only insure cash value if the unit is vacant for more than a couple months. So you would need to factor those costs plus there is a greater chance for vandalism.

I don't think these things would be deal killer for me. You might find better prices during the winter season because you won't be competing with spring investors and home buyers.

Gold is really high right now and you can only speculate where it will be in 6 months. Chances are it will be about the same to a little lower in price. I think over the longer term it will go back down quite a bit - if history is an indicator of future behavior.

I don't know about REOs, but if you are dealing with private sellers, the only reason to even have EM at all is to provide consideration for the contract. Otherwise the contract would not be binding. As Rodney said, shouldn't need to be more than $10.00 - just something to satisfy "consideration". The wholesaler I bought my house from used $25.00 as EM and gave that money to the title company to hold until the deal closed.

Owner financing will work out however you can best negotiate it. So that is one option. Subject-to is another option. Curt's use of HML is another. If you have a large enough investment portfolio (stocks and bonds) or IRA, 401K, etc, you could borrow against it. You could find a private investor to partner with you to buy a package of REOs - this would look like HML except you could try to convince them to agree to interest only payments and put a two year stop at which point you refi and pay back the principal. I have never done any of these things but have learned of them in the forums. Maybe you could refi and/or do LOCs/HELOCs on your existing properties? I have found no luck getting a HELOC on my rental since it is not my residence.

On a side note, could you share some of your amazing rehab techniques? What are the biggest savers?

Maybe when its time to replace the studs (if they ever need replacing) you could also frame in a shelf (if it would be practical given your space) so that it wouldn't need to be addressed again.

Nathan,

I like that question. My goal is to just have 6 months gross rents in reserves and use rental property cash flow to rebuild if/when the reserves fund is tapped for expenses. I will reinvest what is accumulated after the reserves are replenished. This should make for a consistently and reliably maintained property, but a fluctuating income stream.

But since I am new myself, I would like to know different strategies out there.

I'd by 10 to 15 solid 3 bed 2 bath properties cash with 1 million. Then I would pay a property manager to handle the properties but still keep some oversight.

With the other million I would invest it.

The real estate investment should generate easily around 6000 to 9000 per month after expenses depending on your deals (estimating 1200/month rent average)

The other million should probably generate around 30 to 40K per year after adjusting for inflation.

So in total I'd be bringing in about 100 to 150K combined.

Then I'd worry about what I want to do with my annual income. Maybe do some small flips here and there because I enjoy carpentry. Otherwise just enjoy life, travel, read, hang out at Star Buck's, do volunteer work, ride motorcycles, weld.

I like the full investment idea where you don't buy property, but I'd need something to keep life interesting and have a sense of purpose.

Then you'll end up buying an Iphone! haha!