All Forum Posts by: Jason Hendrickson

I may be interested. Are the properties you're looking at on the MLS or off-market?

Makes sense to me provided you're doing your calcs correctly. Here's an example:

- Property cost is $100k and has a CAP of 2% which means $2k/year return. This assumes you're including debt service as an expense PRIOR to calculating the CAP.

- So, you invest $20k for your down payment and finance the remaining $80k. Your $2k/year return is a cash-on-cash return of 10%.

If those are truly the parameters of your deal then it makes sense you're seeing a 10% CoC return.

"The average DOM is about 120 days."

You needed to plan for this during your due diligence on the property and make sure your cash reserves could cover it. No easy answers now - either be patient (if you can afford it) or drop the price and lose some/all of your profit and chalk it up to a learning experience.

What do their current leases say? You inherit the leases and once they're up for renewal *then* you can sign a new lease and raise rents. You can't break their current lease terms simply because you're a new owner. 

How are you coming up with your expenses? For example, your vacancy rate shouldn't be 10%/month, but rather 10%/year. So first off your expenses seem out of whack.

A price of $1.2M @ 6% CAP returns $6k/mo, which sounds like it's in the ballpark to me. Keep in mind that CAP doesn't take your mortgage into account and that's likely why your numbers seem so far off.

Not only can you not 1031 your primary residence, you'd be insane to do so if you could. You get $250k/$500k of cap gains tax-free on the sale of your primary provided you lived there for 2 years and depending on if you're single/married.

Jeremy Gates at Salt City Home Design is fantastic.

Let me make sure I understand: You want to take out a HELOC on your current residence, use that as a down payment on a rental, then do a cash-out refi on the rental and use those funds to pay off the HELOC?

Assuming that's correct you need to think through this a little better. First and foremost, you can do whatever you want with your HELOC. Keep in mind you're going to pay closing costs on your HELOC, then you're going to have financing costs on your purchase, then you're going to have closing costs on the cash-out refi. Assuming you can qualify for a cash-out refi (you didn't explain how you're going to increase the value of your investment in order to build in enough equity to qualify for a LTV that a bank is going to touch with a cash-out refi). What you do with the cash-out refi funds are up to you but I think if you run these numbers you'll find it's not such a great idea (provided you can actually find and purchase foreclosures/short-sales at a 20% discount and be able to purchase them using financing when your competition will probably be paying cash).

These strategies sound great in the "make money in real estate" youtube videos but they really don't pan out in the real world.

What's the return after taxes, HOA, maintenance & repairs, vacancy, etc? I'm guessing about 5% which isn't bad provided you don't have to carry a mortgage. The only downside to condos is that you have to pay HOA dues even if your condo isn't rented, so it goes from an income source to an expense really quickly. Not to mention, as we've learned from the past, Vegas is particularly sensitive to economic downturns.

If it were me I'd sell your duplex while the market in St George is strong (and assuming you can come out ahead), increase your knowledge of real estate investing, determine if it's really for you, and *then* get back into the game (but not in St George). However, I say that with one HUGE caveat: DO NOT BUY REAL ESTATE OUT OF STATE until you ABSOLUTELY know what you're doing. Given your current situation you are a ways off from that. Buying investment real estate before you know what you're doing is a miserable way to gain knowledge and a good way to lose money. 

That said, if you *can* raise your rent to $1,600/mo then do it yesterday. Unless you have a 4 bedroom duplex I'd be surprised you could get $1,600 in St George, at least not without a month or two of vacancy that would all but eliminate any upside to your rent increase for a couple years. 

Lastly, if $1,600 *is* a legitimate market rate for your duplex and you don't have the heart to ask for it then you absolutely need to sell your rental and move onto another avenue for investing. You're here to make money, not do favors for strangers (no matter how nice they might be). If you're contemplating hiring a PM solely to have someone do the dirty work, that's totally fine, just understand you're paying a 10-12% premium (and likely a placement fee of of 1/2 to 1 full month's rent every time the PM places a new tenant) and you need to adjust your financials accordingly.

Sorry for the strong medicine, but hopefully it'll save you some money and headache down the road.