All Forum Posts by: Mike Makkar

@Devin Royal, although not the best deal, its not too bad either. As @Sharon Tzib mentioned, you'll have more than normal vacancy rates with 3/1 setup. Just means that you will need to push for an even lower purchase price! See if you can get it for 68k!

This looks like most of the 1st set of deals I took. But, if I hadn't taken them, I wouldn't be getting the current 15% cap-rate deals that I manage today. But since, you've been searching for the last 6 months, my recommendation is that you take this deal. Just work the numbers thoroughly and make sure that you are cash-flowing well. From quick calculations in the South Houston area and other standard numbers (8% vacancy, 4.5 interest and 25% down, 10% maint), I'm guessing you should be cash flowing at 300 per month as long as you do your own property management and control maintenance costs. If you can get the house for 68k, you'll push cash flow to 350+ per month.

Good luck! If your return is not that great, think of it as a learning exercise!

@Mitzi Castiglione! This is nothing more than a math problem!

Flip: 

Cost: 58+20 + Holding Costs of Money (4%) = 81k

Money back to Seller: 175k - (selling costs) 6% = 165k

Profits: 87k, CoC % (assume 6 months):103% @ 6mo

Annualized return of 330% for 1st year (assuming you sustain similar flips)

Annualized return for next 5 years, based on 1 flip = 15.3% return

Annualized return for next 10 years, based on 1 flip = 7.4%

Buy/Hold

Cost: 58k+10k = 68k

Rent: 1200/mo * 12mo = 14.4k

Profits = 14.4k - 35% of Rent = 9.5k

1st year return = 14%

Annualized average return for next 5 years (assume modest 3% increase in rent) = 14.8%

Annualized average return for next 10 yrs = 16%

There you go! Most flippers look for immediate returns and don't weigh it against a 5 yr return of a buy/hold. Surprisingly, your one flip (at 15.3 % return) holds extremely well against a 5 yr buy/hold of the rental (14.8%). However, I've not deducted the longer term capital gains associated with the flip. My personal long-term strategy is buy/hold. But with this particular property, I would actually flip and use the immediate profits to get more buy/holds, :)

@Mark Spidell, I'm an investor based in Dallas. I called up 15 to 20 community banks and credit unions in the Dallas area (including Happy State) and was able to compile a list of banks with competitive terms and rates. Message me, whenever you get a chance. Again, not a lender but pure investor. Your state of residence could pose an issue, but could be worked around if you find a bank with an extension in Colorado and one of the banks I chatted with has a branch.

Welcome to the BP forums, @Gary Lamb

First off, I would look at one of the MLS listing sites; realtor.com, redfin.com and zillow.com. Look at possible prices of properties in the area. Compare them against one of the rental sites like hotpods.com or trulia.com. If rental rates are at least 1% of the price of the property ie. for a 150k property, rental rate is 1500 a month, then you have good intrinsic value to work with for a buy/hold model. Shortest answer I can give you for a process that can have a lot of variables and which could get into a lot of analysis.

Good luck!

@Hernan Guelman, Your cash-flow is $(1132). Its negative! So evidently you are going to get a negative CoC return. Just because you are paying your principal off (albeit very minimal for the first 5 years on a 30 yr term), doesn't put you on the positive for CoC return.

Couple of problems I see with the property, By reverse math of the -1.5% return, I assume the property's purchase price is 270k to 290k. Rent at 2k, means that this is not a cash-flow oriented property. You are banking on appreciation. 2nd, personally, I would avoid properties with HOA's. At $94 a month, $1128 on useless costs per year! Insurance maybe a tad bit high here.

Besides, my opinions on what's wrong with the property, the only way to make this property cash flow positive is increase your down payment to 30 to 35%, this way your debt service will become smaller than your rental income and you'll start earning a $25 a month of positive cash flow.

Austin is a tough market, if you are going for newer properties. Try to find something in the 200k range and rent it for 1500 a month. Although it severely fails the  1 to 2% rule, at least you will be cash flow positive!

Good luck!

@Matt Smith, Try Western Federal Credit Union (not to be confused with western union)

western.org

Based out of SoCal but they started offices in Texas and I've been looking at some commercial options with them. Competitive rates for LOC (locked for 12 mo, as opposed to rotating quarterly) and good terms. Good luck!

@Brian Davis, if you have an interest to code and basic coding skills, apply for the Zillow API's and you can tabulate zestimate and rest estimates and alerts for nearby properties for sale. 

http://www.zillow.com/howto/api/APIOverview.htm  

I use the API's with my spreadsheets to alert me of rent changes and home price changes. I don't rely purely on the numbers per se, because Zillow isn't the most accurate for several regions around the US. But it a good guidance for trends in the market and the neighborhoods that I invest in.

@Dion DePaoli & @Bob E.,

Yes, there's a lot of wishful thinking on my part. But, in my defense, there was a disclaimer that I'm a note noob and wanted to understand the contingencies here. Conquered the buy/hold model with SFRs and MFs. I feel notes is the next step to tackle in this business.

Got it! There may be more behind the story and why they are selling! I'll pass on this! My only interest on this note is because the house is close to my area in Texas and I figured if it got to state of actual ownership, I may be able to manage it.

Thanks, Mike!

@Lian Shi, I answered the original question about the 5 options before going Hard. Signature loans are non-collateral based good-faith loans based on the character of the borrower. The "character" is based on your credit and your ability to pay usually through proof of pay stubs. You could get up to 100k in signature loans if you play your cards right. Go to 4 different banks and ask for 25 to 35k each and show your paystubs. They will do 4 hard inquiries on your credit record, which will affect it by 50 to 80 points. Again only with people with good credit and steady pay checks can do this and is a better alternative to hard money.

@Charlie DiLisio, the only problem with P2P is that it takes time to fund. Since its a P2P setup, other people will have to put money on it and could take 2-3 weeks for it to fulfill. I lend money to lending club and as a loan investor I tend to fund the 20% to 25% category. For most responsible borrowers who get a 6% to 8% interest rates, it could take a good 2-3 weeks before the loan gets funded.

@Cesar Lopez

I feel more and more people are using hard money is because it is much more marketed to the investment community than others. People fail to investigate other sources of money before going "hard". I know of people with reasonably good credit (720+) taking hard money, when they could've just gotten a signature loan from a 3 major banks at 6%.

So, my advise, look at the following

1. Community Bank or CU (You need good liquidity and financials here)

2. HELOC (You need enough equity on your primary residence here)

3. Refi your car (car has to be under 50k miles or newer than 2010, check with bank/CU)

4. Signature loans (need a reasonable Credit score (680+) and paystubs)

5. P2P loans - LendingClub or Prosper (little higher loans %, but they're non-recourse)

6. If all other options are exhausted, go "hard", :)