All Forum Posts by: Mr Good

Hi,

Thanks for all of the useful feedback. I was thinking that cash payment for a home now, and let rates settle back down because they may fall a bit more, then refinance it. I know it really goes against the grain to buy an investment property without a loan. I will seriously re-think my strategy. Based on my initial research, I can refinance a home that is 100% owned, and get the same rate as if I were to get a loan to purchase it. Is that not true? Perhaps I did not word it well. As for hiding assets, that is a good thought. I am somewhat paranoid of this too. But I already have my name on a very desirable property of an amazing 6+ acres in one of the most desirable communities here. Frankly, nobody owns that kind of land here, I got it by luck and hard work. Any lawyer who sees that will instantly jump unfortunately at what I already own, should the case arise that I am being sought out for lawsuit asset search. If you know of any good umbrella policy I would like to hear about it. I do not want to be a landlord without a good policy. Thanks!!

Wow with all due respect, I am sure you are far more experienced than I am, but that is just hilarious!! I have to laugh about that response but please do not take it personally I am just sharing the thought. I am in Seattle WA. The home is less than 1 minute drive to the freeway and there is a bus stop in front of the property. The location is excellent. If you wanted to buy something for $110k then you'd have to drive literally 2.5 hours away. The low end for any home, a rat-infested fixer with a bad roof, is $250k. Using your figures nobody would ever own a home to rent out. I think longterm appreciation and hedge against inflation is a factor here. CDs are poor investments in my opinion but everyone brings a personal strategy. I can say that here in this area at this time, to be able to buy two dwellings in an area central to tens of thousands of jobs (Boeing less than 3 miles away, and millions of square feet of retail is within walking distance) nothing can be purchased for under $300k. This is a nice house.

Thanks a lot for the numbers breakdown. 50% sounds like a tough rule but I am sure experienced people in the business have come up with that figure.

I am unconventional in terms of my taste for debt. I don't like debt so I save and buy what I can afford. However, my idea with this property would be to pay cash, get it situated, then within 5 or 6 months refinance it and seek another property. Ideally I'd like to use the $300k saved in order to get two properties, and go from there. I realize that is likely far more conservative than many investors but I don't think prices will rise much in coming years so my focus is on paying the bills not hitting an appreciation jackpot.

Any further feedback is appreciated.

Hi,

I want to buy a single family home as a longterm investment. I already own a nice home and I have around $300k in short-term CDs ready to invest. I like the idea of earning rental revenue far more than the stock market or bank rate of interest.

I found what looks to be a nice home that meets my general criteria. It's in good shape (same owner since 1980), initial review looks good. There is an upstairs area with 1.5 ba and 3 bdrm which I can rent for about $1400/mo. There is a separate downstairs, with private entry, with kitchen, 1 br and 1 ba, I can rent this for $800 easily. So total is $2200 rental revenue. It is not a legal duplex but I believe in this area I would not have a problem renting it to two parties.

The owner has it listed at $370k on the MLS but the owner said there is a clause that says they can sell it independently as FSBO. I already purchased one home with FSBO and I have no problem with this. I found the home via For Sale By Owner advertisement.

What do you gurus say about the numbers--assuming $2200 per month and basic cost of maintenance, what kind of price should I pay today if I expect to get 5% on my money per year irrespective of property appreciation? Right now the market is very slow so I will likely at least start with a lowball offer, but I wonder what pricetag gets me 5% return assuming rents of $2200/mo.

Thanks for any responses!

Thanks a lot for the advice.

Everyone brings their unique philosophy, and I personally believe that the US economy will suffer a heavy bout of inflation. I am thinking of a home purchase as a solid hedge against inflation. If inflation does not occur then I lose, relative to what I *could* have earned in CDs but I am willing to take that chance.

I like the idea of using a property manager if even for the first year only, to let them deal with client screening. I spoke to one awhile back and was not impressed with what they said in terms of their ability to screen clients however. The law favors applicants for sure, but I wonder how much weight I can give to criminal background check information.

As for the home that started the thread, the plot thickened here the last day as I did more research, thanks to the internet. I won't go into too much detail but if you care to read the following article about organized crime rings involving Vietnamese, and how they tear into homes to setup growing operations, installing air scrubbers and ventilation systems to pump out humidity associated with basement growing operations, the home I was looking at is one of these mentioned as among 100 in the Seattle area that were part of the ring.

They go into nice neighborhoods and set these up. In the case of the home I looked at, in the basement you could see where they had cut a big hole in the chimney. I saw the hole and wondered what the heck it was there for. There were also some other telltale signs such as a row of brand new vents on the roof. I imagine if you started looking over the home you'd have to repair the roof, and even though I could not see any damage, there may be some issues with mold or otherwise owing to the existence of moisture from the operation. I doubt the moisture is a big issue because it seems they pumped it out, and here we have loads of rain and homes that get full of moisure.

But the question is always there, and I am not sure if the title is marked that the home was temporarily seized as a drug house. It's too much for me at the moment so I'll continue my search. My own philosophy at this point is focused on a nicer home in a decent neighborhood, relatively close to a train station or public transport point.

Any other feedback is appreciated.

I can't post links so you have to cut/paste if interested to read about it.

http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=kingcountybud05m&date=20070705

Thanks a lot for taking the time to respond.

I've been attending the county foreclosure auction the last few weeks. A lady there said that a year ago, it was packed with bidders. Now there are just a few bidders. Each week just half-dozen or so properties are auctioned. I've seen some nice deals come along but it's an odd prospect because those homes may be occupied, and there is no inspection before bid, other than what you can see from the street. Several of the auctions have been 2 or 3 bdrm condos for around $100k which is well under the market, but I am not very interested in condos for some reason. I like homes. I've seen a few homes go for $240k up to $270k, in that range, frankly none of them looked as nice as what I'm eyeing here at $270k.

Initially I called the listing agent and said $270 is my target (asking over $300k at that time) and he said that will never work. Two weeks later I called again and said I'm still interested at $270k, then eventually he came around. I wonder if there might be a lot of such opportunities for people who aggressively fish around and find sellers who will take "whatever the market will bear" regardless of how low it might be (within reason). I think a lot of other sellers have a limit price, if they don't get that they'll stay put and not sell.

Hi Jon,

Thanks a lot for the thoughtful response.

I can likely rent the place for is $1400 per month or a bit more. Others offer homes around there for more. $1400/mo is the lower-end for a home like this. Assuming half will go to maintenance, insurance and property tax, equates to $700 per month to me which is lower than my 5% CD rate on $270k. But interest income is taxed. With rental income I can write off expenses and overall I should expect to pay lower tax.

Call me a dreamer but I expect the home price to rise over time, just like home values have risen here handsomely over the last few decades as I recall. I realize that the Nasdaq or Dow Jones average may have risen equally, but I don't like the stock market so it's not a good comparison. I won't play stocks. I feel lucky that I have done well in stocks though, I am not a bitter guy as I did make money on BA, MO, and a few others, but it was a relatively small amount of money (portfolio was never more than $60k, years ago, and overall I did not lose).

If I can make a $700 return per month on a $270k investment, use the collateral and experience to get more investments rolling over the next few years, and sell the home in 6 or 8 years for $450k, it would seem that 5% taxed income on CDs is a poor alternative.

I may try to rent out the 1400 sq ft basement, which has a full bathroom and separate entry, to someone who might have an ebay-type business. I should be able to get $500 or $600 per month on that, granted it might create some problems with neighbors but a one-man-show packaging books or collectibles in a basement is not likely to cause much trouble. That is one avenue for added income. I may also finish out the basement a bit, make a nice office and a pool table room, and there is already a place to put a staircase from the top level to bottom. That would likely enhance the sales price if I were to sell.

The nice interior and design of the home may not help the bottom line in terms of keeping a nice return on investment for rental return, but in my mind it makes the investment more attractive because it should be easier to rent, and if I decide I don't like being a landlord I should be able to sell it without too much difficulty. As the current owner paid $320k and is offering to sell it for $270k I think he has suffered the downside risk, perhaps not much left on the downside.

I was born and raised here and know a lot of people in various areas, including construction, plumbing, electrical. I can't get free services, but my connections here are good, and won't screw me on rates. The current owner bought it as an investment and lives out of state.

Hi,

Thanks a lot for your response. Glad we share the same outlook on the stock market.

As you might guess I am very conservative so it's hard to get loaded up with loans, go put money down on a lot of properties, and sleep at night. I may do that at some point though. I want to buy with cash and keep the home, so no monthly mortgage to pay other than the semi-annual property tax. Rent it out and get a feel for what it's like to be a landlord. If I like it and see other opportunity to buy more, just refinance it with the collateral, and buy another. And go from there. Start with one, and buy more with collateral/refinance. That is probably a backward strategy not traditionally known in the business, but maybe it is.

As for liability, I wonder if a good insurance policy exists for homeowners who rent. I did not know that owning a property outright offers less legal protection to the landlord.

One thing I was interested in knowing is how much an rental applicant can be denied based on criminal record. If for example someone wanted to rent from me, and a background check revealed three speeding tickets in the last two years, it seems irrelevant. But can I use that to deny him, because I have a "sense" that he's a douchebag and will lead to trouble? I have heard that landlords have very little rights in my county in terms of screening rental applicants. This makes me nervous. What if someone's backgrounds shows domestic violence or theft, or any other crime that you do not like the looks of. Do you just not call them back and hope they never ask why?

Thanks for any further advice.

Hi,

Great response. I thought my post was long enough already so I did not want to explain my goals. But I can elaborate since you asked. Thanks for reading my post.

I don't like the stock market. I don't want to invest there. I don't like earning 5% bank depoits either (taxed) because I want to invest right now, at this moment (or in the next few months) in real estate. I believe inflation is on the way and for my money, a home purchase is a great longterm hedge against inflation. There are very few buyers right now so good deals are to be made.

I think there is a psychological slowdown in housing because banks are not lending, so sellers may get a bit panicky. The home I am looking at sold for $320k two years ago, buyer wants out, no takers. I am quite sure a year ago he could have sold it for $330k or so. Timing is everything I guess. I think there will be weakness in prices but a lot of that is in the $550k+ range, of which Seattle area is full of. Under $300k I do not see a great deal of risk for a well-built home. Construction costs are high and not going down. Look at the Canadian dollar. We get most of our wood from Canada. Higher prices.

I think I can get a decent return but not stellar from rental income. My outlook is 10 years in the future. It will be worth far more than bank deposit interest. Even if the housing market has a nice uptick and people start really scratching for homes near the train areas, this could be a $425k home in relatively little time, in my opinion.

There are sellers of "rental homes" in rundown neighborhoods where I would never want to live. My philosophy on rentals is to own only where people will be proud to live. Of course you should not invest in a home that is "too nice" and use it as a rental. I suffered this problem a few years ago when I owned a very nice rambler, I offered it for rent but the money I could get out was too much, and the house was way too nice to rent and see it deteriorate, so I sold it. My kids were younger then too so I did not want to be a landlord. At this time I am ready. The other good draw with this place is proximity to public transport (rail). It's about 15 miles outside of Seattle downtown.

The house is nice. A lot better than the typical rental. At $270k I don't think it's a bad deal. I was thinking of being very careful about who I would rent to.

With that in mind please let me know what else you think. I looked at a few homes today where the owners are asking $400k and they are really not even as nice as this place. They may not get that price of course but that is the general asking price for a decent home.

Thanks again.

Hello, I am a new investor to real estate. I want to buy a home with cash outright, to keep as a longterm investment. Rent it out. I may refinance it later and buy another if it goes along well.

I found a home for sale in the same neighborhood I grew up in. Nice neighborhood, not many rentals there, the cheapest house anywhere in the are is $250k for a really small ratty place, but those are few and far between. Most of the homes are $295k up to $550k in this area.

I hope someone can give me some things to think about.

Good things about the house:
Quality construction from 1968. Very good solid home, no problems. One lady from a prosperous family lived here from 1968 until 2002. Sold it for $200k, it was sold again in 2006 for $320k. The current owner is out of state and wants out. He is offering it on the mkt for $300k. Given market conditions (very slow compared to 1 year ago, very few buyers right now) he will take $270k cash from me. I asked via phone and listing agent came back two weeks later saying $270k works.

House has a decent view of the city. It sits on a hill, no flooding issues. House is on a quiet culdesac. No busy traffic. Can walk to brand new transit station, or drive (1/2 mile) and park there and take the train.

Nice interior design. I hate to say Frank Lloyd Wright, but it's unique and elegant. Flows well with the land in my opinion. No garage but large two car covered parking and a third covered walkway to double-doors. Inside, the house shows very well. Dual fireplace, one room has all marble floors. Nice deck the length of the view-facing wall. Master bedroom has slider to deck, and view, and door to full bathroom. Upstairs is about 1400 sq feet, 3 bdrm, 1 3/4 ba. Totally unfinished basement (no windows except one sliding door for entry) is another 1400 sq feet and has a full bath.

Bad things about the house:
Poor "street appeal". It sits down and when you drive up all you see is the roof. It's a low-pitch, almost flat roof, torch-down. Looks a bit ugly from the road to some people. Personally I think it looks ok, not bad, but others say it looks ugly. I have to take their opinion seriously. I brought out my dad and stepmom because I like their judgment. Mom said the street appeal issue will hurt future sales prospect.

Despite 12000 sq ft lot, the house has zero grass. Landscape is just pavement (odd, the owner paved over loads of dirt, I guess to avoid yardwork, as a landlord I see this as a good thing). Hate to quote my 70 year old mom but she says that people want to buy a home with a yard, so trying to sell it later will be a problem due to the lack of yard. I think people live in condos and apartments and other places all the time with no yards. The other 5 houses on the culdesac have no yard either and people live in them. If you wanted to landscape it, the property slopes so grass is not a good possibility regardless.

The unfinished basement was used by the last renters to grow marijuana. Renters came in and grew pot, Vietnamese guys. I have heard several stories about gangs of Vietnamese folks going around setting up operations. The basement is very clean and nice, concrete floor, the cops took out all of the plants. Renters had rigged up some wiring to light the basement, and tapped into plumbing for water, but this is all very basic and can be capped off, I know an extremely good electrician. There is zero report of meth here in this home, and I believe it was checked already but I will do more to cover myself on that.

Please share your thoughts on the home based on what I said. Thanks!!