All Forum Posts by: Jay Patel

@Sharon Barry. I can understand that at first the $22 a month free cash doesn't look too impressive. But here is the bigger picture: I put up $50,800 for this home, I am pulling out $60,000 (I have all of my money out plus more to look for more deals and grow. I'm not too concerned with the cash flow at this point). Lets say I hold this home for 5 years: 

• During that time, the tenants would have paid about $16,000 of my mortgage down.
• I would have collected $1,320 in free cash (assuming I actually spent $9,000 of my capEx reserve, If I happened to not have to, that is great, more cash. But I'm being conservative) 
• Lets say, when I sell it after the 5 years it only appreciated 6% and I sell it for $53,000. That covers all of my selling costs (its already worth more than that if a bank is willing to loan me $60,000 on it... at 75% LTV, that makes its current value $80,000. But I don't like to count on appreciation). That leaves me $16,000 after the sale (since the tenants paid that part of my principal to the bank, I pay the remainder of the $44,000 from the sale)
• I get to write off mortgage interest for the 5 years

So to summarize, with 5 years of owning this home, I walked away conservativly with $16,000 (principal pay down) + 1,320 (cash flow) = $17,320 ($3,464 a year or $289 a month) all while having none of my own money tied into this project. 

In regard to your question "Why can't you just figure good ole simple costs vs income flow?". In effect, that is really what we are doing. That basic principal will never change. But we add in things like vacancy, maintenance and long term CapEx to ensure that the property will always be able to cover its dept service so we don't loose it when say it stays vacant for 2 months, or you get hit with a $5000 AC repair bill etc. 

If I can show positive cash flow with all of those items built in, I know that I will be able to pay my mortgage and not loose the home.

@Percy N. Should not be an issue for me since the monthly payment is not too bad but still appreciate you pointing that out.

@Sharon Barry The vacancy rate really comes down to your local area and the type of home you are renting in terms of class and its associated rental demand. In my numbers above, the vacancy value of $80 a month is equivalent to 1 month of vacancy in a year. For this particular property, one month vacancy is pretty conservative at the current rental rate in my area. We have decent demand at this price point. I have another rental that rents for double the rent of this property, where a 2 month vacancy a year is more realistic because the number of people willing to rent such a home in our area is way less. Once you begin to understand your market, determining vacancy wont be too much of a challenge. Local property managers should be able to help you determine what kind of vacancy you can expect. Hope that helped.

Thanks @Darren Eady. I will be following up with the bank to clarify on fees and pre-pay penalty.

@Andrew Syrios - Thanks for the info. That is very reassuring. 

Thanks for the responses @Shaun Weekes 

Darren is correct, this isn't going to be a Fannie/Freddie loan as this bank will be originating and backing the note. 

There will be a 0.5% loan origination fee and an approximated $1,500 - $1,800 closing cost according to the bank. The only other thing I can think of asking is if there would be an early pay-off penalty. Is there something else I should be concerned with?

@Darren Eady - Do you mind going a little more into why this is a good find? What is your opinion of the variable rate? Please ignore my ignorance, this is my first mortgage/cashout refi.

Hey guys, 

So I am trying to cash out, refinance one of my rental properties. A little history: I purchased this property back in Feb 2016 for $50,000 with $800 closing costs (All in: $50,800). I have 100% equity in this property with no current mortgage. I have been talking to my small local bank and these are the terms they are offering: 

Loan Amount: $60,000 (I'm assuming they appraised at $80,000 with 75% LTV - this was not stated specifically)

Am: 15 years

Rate: 5% fixed for first 5 years, then 1 yr treasury + 350 points (5% floor) 

Monthly payment: $477 (approximately)

Here are my numbers on the property:

Property Curently Rents for $935 a month:

This would allow me to pull out more than I put into the property. I don't have any deals lines up per say, but I could begin searching for the next deal with these available funds.

My questions are:

• Can I do better with the terms/rate of the loan?
  • The variable rate after the 5 years scares me a little given the feds will probably be raising rates

Please let me know your thoughts.

Welcome @Ryan McPherson. I own a unit (SFR) in Eustis. Its a good area with some good people. I am always looking for more deals in that general area.

Feel free to reach out if you think I can help in anyway. 

I have a SFR in Eustis. Like everyone mentioned above, there are areas that are not preferred and other areas that are great. I am self managing right now as I don't have that many units to juggle. Let me know if I can look at a specific property you are interested in. I live in this area so I am familiar with most of the areas in Eustis.

@Sebby Gabre Madhin Not to be nosy but I recognize your name. I believe you bought a property in Leesburg (Triplex on Line St.) that I had my eye on earlier this year. I would love to know how you are doing with it. From what i recall it needed a decent amount of work. I will inbox you :) 

@Wayne Brooks Thanks for the advice!

@Wayne Brooks I was doing my own searches through the clerk of courts. The  was that I was bidding on a house (which I believed to have NO title/lien issues) which I ended up loosing to another investor. A couple of weeks later, I found out that the auction was actually for a second mortgage and that the primary lien holder was now foreclosing against the guy I lost to. I went back and spent a while trying to find this primary mortgage through all of the recordings with the clerk but found nothing. I immediately stopped bidding until I can come up with a solution (which may end up being paying for a professional title search.) I became uncertain with my abilities in doing my own searches at that point. I knew the dangers of bidding on a second lien and all that going in, but almost made a big mistake regardless. 

@Account Closed I understand.

I am looking to see if anyone has any ideas to get the cost of running those title searches down. I got quoted $100 for each search which would add up quickly, especially when I decide not to purchase or get outbid and cant recoup the costs.  

I may approach others at the auction who are doing the same and propose splitting costs since we would all be running searches on the same properties anyway.