All Forum Posts by: Sam LLoyd

If you can be sure of the insurance benefit, I'd say it's a no brainer.... taking the outside numbers... a savings of 560/year, and a cost of 3k.... that's a payoff in less than 6 years... more than a 10% return on your money, and you don't even have to go out and find a deal.  Share the love, give the awesome tenants a $100 giftcard to a nice restaurant (or more or Walmart... you get the idea), as a thanks for putting up with the disruption.  Pay a little extra to get a contractor who can leave without a mess, and get the job done timely.

That's my take, but you have to be really sure of your repair costs, really sure of your insurance savings, and oh yeah.... you have to have 3k sitting around.

I love PEX plumbing, and use it in all the building projects I do... which leaves me curious about the reasoning behind all this.

Find the owner on record, and send them a letter expressing your wish to buy the property.  Start a dialog if they reply, then come back here once you know more about the potential deal.  Also, talk to the neighbors... they might have contact info for the owner.

If you can't get a hold of the owner, then you can have a title company or attorney (depending on where you are) look into the legal ownership/liens against the property.

Those are my two approaches... you need more information.

The DTI issue is one that I've run up against with big banks like Wells fargo and Keybank. However, the mortgage broker I use is able to count the income of my rentals against the debt.... so I continue to bump against his DTI limits, but as long as each investment makes sense and has decent returns, I can continue to buy. What I'm running into is the reserve funds that the lender wants to see. For me to make my next purchase, which hopefully will be in the next couple months, I have to show 30k+ just sitting there in addition to the downpayment as reserve funds. So, the answer to the DTI... shop around...

As far as baloons go... you have to think of what return you are getting on every dollar.  Hey, I have cash flow now, and after refinancing with a baloon I still have cashflow... but if you set aside the money to pay the baloon every month, you really don't have any cashflow... I hope this makes sense.

Taxes?  I'm not sure, but I don't think this is one of the bigger concerns. Like you said, it might just be a wash. 

Here's the biggest issue, which affects the rest of your questions.  How long is the seller willing to hold the note?  The longest seller financing I've seen personally is 10 years.  So, your plan is only good if the seller is willing to carry it back for the whole 30 year term.  So, unless you find a seller willing to finance for 30 years, you'll end up with a refinance at some point with a property that is way underwater, loosing way more than you'll ever get with a hundred or two/month in cash flow.

2 thoughts:  First, find out how much you can rent the place for, add in all your expenses like vacancy and maintenance, figure out how much money you want to make (I'd start with $200/unit where I am), and come up with the a payment you are willing to make. It's just a matter of finding the right price and interest rate at that point.  This means you can't have a balloon payment though unless you are willing to gamble on appreciation.

2nd, you could make an offer for 250 with a clause saying that the seller will get their other 50 when you sell the property, or some variation on this.  This is going to be very hard to work through with a bank involved, if not impossible.

Lastly... In my market, there are SFRs in that price range, and it's just impossible to make them cash flow without huge equity, at which point you return on investment is almost nothing.  You are probably in a market where the only returns to be  had are plexes.

Hope this helps.

This is something that I've been looking into very seriously the last few months.  Using PayPal and such have prohibitively large fees.  When selling a camera on e-bay for $50, a 1% fee isn't noticeable.  With a $1,000 rent check, that's $10!!

There are also other things software gives you, such as automatically billing the late fee, giving you a platform to keep track of income, etc...

There are several expensive softwares like buildium that don't make financial sense unless you have dozens of units.  Right now I am trying out RentecDirect because of theses features:  Lower cost than other options, low per-payment fee compared to others, and appears to have good customer service.  There is a learning curve, but I think I'm getting the hang of it.  It remains to be seen weather I'll spend more time working with the software than I used to digging through boxes of receipts and picking up rent.

Total cost to me is about $30/month, and the tenant will be charged 25 or 50 cents when they make the payment.  I haven't run this for more than a month though, so I can't give you a well-informed opinion.

Advice:  Wait till you have more than 5 units before worrying about this.  If you have to have electronic payment, just set up another account at your bank and give your tenant the number so they can do bill pay.  That saves everyone time and money.

This is a great thread.  Here are the comments that I agree with, and my own twist.

Try to find a way to mitigate the hit to your rental income  Pay the tenant to do some lawncare/snow removal, or paint the outside... it will probably need it sometime.  This will do a couple things:  It will help them out without you loosing as much value.  It will also prevent them from feeling like you do give-aways.  Whether they think it or not, they will be more demanding if you give them something for nothing.

Time frame:  Don't commit.  If they are great tenants, and yours is the best deal that they can afford... they'll stay.  Giving them a temporary break until their finances change is also a good idea. Also, at least for me, when a tenant talks about staying forever, buying the house, etc... that's almost a turn off as I've not yet had a tenant say these things and pass my background check.  I would put little to no stock in their long term plans more than a year.

Now for my thought.  If you followed the rule of thumb that 1/3 of a tenants income goes to rent (which I've almost never found.... almost all my tenants pay about half their income as rent... and none of that is subsidized.)  Their income drops 1,000, that means their rent paying power drops 300, or in my case almost 500.  If I worked your numbers backwards right, the rent is 1,000, and they are having a hard time with that.  Without knowing more, like how temporary this income setback might be, I'd say that this situation is not workable, and your best bet would give them a nice guy break of $50/month, ask them to start looking, and remind them that if they clean the place real good, they can get their deposit back.  Whatever you do, don't let them talk you into using the deposit for last month rent.

Hey, I think it comes down to why you are in real estate.  Maybe like me, when you got started 10 years ago, it was the money that was the why.  It's even harder to find deals where I am because property values never really took a hit in 09/10.  I had to hustle over the last 10 years to get to several milestones.  1st, I needed to get the place financially where I wasn't living paycheck to paycheck.  2nd, my wife and I wanted to do start a family, which would require real estate to replace her income.... This was a big motivator.  We adopted 4 boys, and that provided a lot of motivation... and an insta-family.  Now, we have plenty of money work with, but not a lot of time as a family, so my 'why' is to get to the place where I can quit my day job, which will free up almost 50 hours/week.  So, I'm frantically turning the equity we've worked for into cashflow.

Also, there are several business ventures I've always wanted to try, books I've wanted to write, places I'd like to travel to.  These are all motivations to help me want to work on real estate every day.  If if wasn't for these goals, I'd hire a PM for what I have already and go live in the woods somewhere.

So, figure out what your 'why' is, and go after it.  Chances are (in my opinion), if you are honest with yourself, your goals do not require you to do more real estate deals.  Maybe, if your goal is to travel, you do need to hire a PM and just get away.  If your goal is to improve your neighborhood, maybe you should start focusing on fixing up dumps even if the margins aren't as good. 

This is a great idea if it comes from your bank... there are two road blocks I can see because I've run into both of them.

First, the seller is going to need to be educated.  I bought a 4plex last year... original offer was 365... I was cutting it too close for closing costs, so changed it to 370 with 5k back... The seller took a lot of explaining to get her to understand that to her this was the same thing.  I also made an offer on a triplex owned by a real estate broker, and he got upset, saying that 'no one does that, that's crazy'.  I left that one alone... it wasn't that good of a deal to bother explaining.

Second is the lender. All my loans are conventional loans, usually through a broker. The lender is basically just a calculator that makes sure everything fits the right box... the 25 back from the seller is not one of their boxes, and will set off alarms. However!!, if this advice comes from your banker, and you are getting the loan from a local bank, and the underwriter understands that the LTV is good enough, this is a great opportunity!! If the property appraises at 125 or more... and it has positive cash flow.... or a large enough margin in a flip, I'd love to have this opportunity.

Wow, great thread.  Here's my thoughts:

You're almost exactly where I was 10 years ago.... the numbers on those 2 SFRs.... except interest rates are lower.... so I was sitting at level/negative cashflow till I refinanced last year, at which point I have a positive $200/month (and pulled out cash to put into a 4plex, but that's a different thread).

Did I need a nice place to live in a good neighborhood? Yes. Do I regret buying it? No. Should I have done something different based on what I know now? Yes. Things I've learned since investing for several years: Don't be slow to make a low offer.... make an offer where the numbers make sense.... as far as the market is concerned.... you buy now, you'll only loose money if you sell it during a slump, so plan to hold it forever as one of your exit strategies that will mitigate any market downturn. HOA is as bad as PMI, I would have bought a house without if I were to do it again (don't know if this is an option where you are).

As far as avoiding PMI? I think if I were to Owner occupy a place, I would take advantage of the financing, and get 97% financed... then you are out 6k, and have 35k start on your next investment.....Sure you'll be throwing away a couple hundred/month, but you have more flexibility moving forward, and if you wait a year and some other units in the complex go for 250k, you should have comps to prove a new appraisal... and drop the PMI.

Last thought.... which may not apply to your location.... are there any multi's?  I made a lot more progress once I moved into a duplex, and I've never looked back.  Even now, I'm in a 2400sqft upstairs unit, and the whole mortgage is paid by the downstairs unit.  Until next week when I pull out enough equity to leverage another 4-plex... 

Always buy.... and always be careful 

Sounds like you need to nail down your goals.  My goal is to do real estate full time while having my vacations paid for and $1000/month to play with... The hardest part of my goal is to be content at that point.

So, starting with your goals.... is it to have 6 SFR's paid off or to do plexes... or to get that gross rental income.... or do all three? I think that if your goal is to branch into plexes, you're going to have to start using leverage. Pull money our of each SFR and use it as a down-payment for a 4plex. If you buy right, your cash-flow should start to climb. If your goal is to have 6 SFRs, I think your plan of pulling money out of your residence to get 2 more is a good idea, then keep working till you get the next 2... then you can probably quit and still pay off your residence and mortgages while being content with your situation.

There's a podcast/blog thing that might suit your fancy called the mad fientist.  It's not as ambitious as most biggerpockets dreams, but there is some fun information on there.