All Forum Posts by: Jim Costa

Insurance costs seem high.  Are you paying $32K out of pocket or borrowing money?  where is the expense/payment for that?   I don't know if I would count on the appreciation of property and rent.  I don't know the Ohio market but if I could find something with those numbers in the PNW I would jump on.  I would watch turnovers and vacancies they will kill you.  Good luck.  What is zip code?

I would stay away from Oregon!  The state and governor just enacted the nations first statewide rent control.  You can no longer raise rents more than 7% + inflation.  If you want to come in and do some value added you will be stuck with old rents.  I have a complex in a rural Oregon town and haven't raised rents for years.  I have$600 rents when market rents should be $850.  I was busy working on my properties with rents 3X's that.  Now I am stuck taking 4 years to get my rents to market rates.  No incentive to improve property but instead enforce rules and hope tenants choose to move so you can raise rents to market rates. 

It really depends on your scenario. I need more information.

Disclosure: I am not a mortgage broker just dealt with a lot of them and have pulled cash out several times.

The rules have changed a lot over the years but from my understanding:

Assume you inherited 250K and a wholesaler came to you and said I found this great deal for 150K.  It is worth 200K but seller wants out and doesn't want to deal with realtors.  You do your due diligence and knowing the market agree with the numbers.  The seller is more apt to deal with you if you have all cash so you draw up in offer and have a title company handle the paperwork and title.  2 weeks later the property is yours and recorded in your name.  

You immediately find someone to move in and start renting but decide it would be nice to have some of your money back to find another deal. You decide to get a cash out loan. You can wait more than 6 months and get it reappraised and hopefully tap into some of the 50K equity. As a cash out investment property you are looking at a 75% LTV which means a maximum of $187,500 minus your closing costs, fees appraisals etc...

If you decide you don't want to wait the 6 months and you want to refinance immediately you can use the "Delayed Financing Option".  In 2011 Fannie Mae introduced the delayed financing option that allowed investors to pay all cash for a property which encouraged the purchase of foreclosed houses and court house sales to get the houses back into the general market.  The delayed financing allowed investors to refinance days after closing with the ability to pull out their initial investment within Fannie Mae guidelines.   Single Family Cash out guidelines is currently 75%.  Days after you close you can get a new loan at 75% of 150K or $112,500K.  

Some rules apply:

No current loan on the home

You couldn't have purchased the home with another loan.

If you did use another loan (I.E. HELOC) It has to be paid off with funds

Look up delayed financing cash out Fannie Mae guidelines for more info.

Hope this helps.

Short answer is no.  Your first year they are going to go off the purchase price.  You can buy the duplex for 130K cash become the top offer with no financing contingencies and probably get the property.  You can refinance at a 130K valuation and pull 70-97% of your finances out based on what type of financing you get Owner occupy or investment. After a year you can pay for an appraisal, refinance and pull out appreciation.  There are different rules if you own multiple properties about getting cash out refi.     

@Phil Sharp To the original post.  I would think you always want to be in an appreciating market.  That is what is going to drive your rent prices up over the long run.  If I buy a cash flow property that is worth 100K and 10 years later it is still worth 100K I have been eroded away by capex.   I may have a $400 a month cash flow but I'm still putting roofs and water heaters flooring and updates just to maintain the $400 but at the end it is still only worth 100K.   It is very difficult to raise rents because the house down the street is worth 100K and will rent for the same.

If you are in an appreciating market your property doesn't have to necessarily cashflow from the beginning.  As house values continue to rise so will the rent prices.  This will also hedge against inflation.  In a long term buy and hold strategy appreciating markets are better to own in.  Their are tons of tax benefits with stepped up basis,1031 exchange and passing appreciating assets on.

10 cash flow properties (flat market) worth 100K in 30 years are still worth $100K or $1 million worth of wealth.

10 appreciating houses (doubling every 15 years) worth 100K  in 30 years is worth $400K or $4 million worth of wealth . 

Strictly cash flow is great for the financial freedom and independence but the wealth will be built on appreciation.  The only way to build wealth with flat markets is to use your cash flow to purchase the wealth(buy more properties).  

@Bill F. I agree if you are making annual payments but clearly in property you are coming up monthly for  the difference.  If you want to give me 3K a month and I give you 36K at the end of the year I am game.  There is a value to that "monthly cash flow" and it is the difference of 9.29 and 8.67.  Getting in the Weeds

Here is rough spreadsheet to check math .  I started to put spacing but you get the idea.  Based on an initial investment of $150,000 with monthly payments of $3000 and a return of 8.67% what is the future value of that investment.  This makes more confusing but I posted so you can see the math.  I rounded my interest to 8.67% that is why the difference.  Depending on the calculators you might get an ending balance of $1,658,073.  That is the difference if interest is computed at the beginning of the month (car loans) or the end of the month (house loans).  

No. year future value

1 154,083.75

2 158,197.01

3 162,339.98

4 166,512.88

5 170,715.94

6 174,949.36

7179,213.37

8183,508.19

9187,834.04

10192,191.14

11196,579.72

121201,000.01

13205,452.23

14209,936.62

15214,453.42

16219,002.84

17223,585.14

18228,200.54

19232,849.29

20237,531.62

21242,247.79

22246,998.03

23251,782.59

242256,601.72

25261,455.67

26266,344.69

27271,269.03

28276,228.94

29281,224.7

30286,256.55

31291,324.75

32296,429.57

33301,571.28

34306,750.13

35311,966.4

363317,220.35

37322,512.27

38327,842.42

39333,211.08

40338,618.53

41344,065.05

42349,550.92

43355,076.43

44360,641.86

45366,247.49

46371,893.63

47377,580.56

484383,308.58

49389,077.99

50394,889.08

51400,742.15

52406,637.51

53412,575.47

54418,556.33

55424,580.39

56430,647.99

57436,759.42

58442,915.01

59449,115.07

605455,359.92

61461,649.9

62467,985.32

63474,366.51

64480,793.81

65487,267.55

66493,788.06

67500,355.67

68506,970.74

69513,633.61

70520,344.61

71527,104.1

726533,912.43

73540,769.94

74547,677.01

75554,633.97

76561,641.2

77568,699.06

78575,807.91

79582,968.12

80590,180.07

81597,444.12

82604,760.65

83612,130.05

847619,552.69

85627,028.96

86634,559.24

87642,143.93

88649,783.42

89657,478.11

90665,228.39

91673,034.66

92680,897.34

93688,816.82

94696,793.52

95704,827.86

968712,920.24

97721,071.09

98729,280.82

99737,549.88

100745,878.68

101754,267.65

102762,717.23

103771,227.86

104779,799.99

105788,434.04

106797,130.48

107805,889.74

1089814,712.3

109823,598.59

110832,549.09

111841,564.26

112850,644.56

113859,790.47

114869,002.46

115878,281

116887,626.58

117897,039.68

118906,520.79

119916,070.41

12010925,689.01

121935,377.12

122 945,135.22

123 954,963.82

124 964,863.43

125 974,834.57

126 984,877.75

127 994,993.49

128 1,005,182.32

129 1,015,444.76

130 1,025,781.35

131 1,036,192.62

132 111,046,679.11

133 1,057,241.37

134 1,067,879.94

135 1,078,595.37

136 1,089,388.22

137 1,100,259.05

138 1,111,208.42

139 1,122,236.91

140 1,133,345.07

141 1,144,533.48

142 1,155,802.74

143 1,167,153.41

144 121,178,586.1

1451,190,101.38

1461,201,699.86

1471,213,382.15

1481,225,148.83

1491,237,000.53

1501,248,937.86

1511,260,961.44

1521,273,071.88

1531,285,269.83

1541,297,555.9

1551,309,930.74

156131,322,394.99

1571,334,949.3

1581,347,594.31

1591,360,330.67

1601,373,159.06

1611,386,080.14

1621,399,094.57

1631,412,203.03

1641,425,406.19

1651,438,704.75

1661,452,099.39

1671,465,590.81

168141,479,179.71

1691,492,866.78

1701,506,652.74

1711,520,538.31

1721,534,524.2

1731,548,611.13

1741,562,799.85

1751,577,091.08

1761,591,485.56

1771,605,984.04

178 1,620,587.28

179 1,635,296.02

Payment#          Years       Future Value

180               15          $1,650,111.04

@Mary M. That is why I bought the calculator.  It would be similar to @Llewelyn A. but monthly payments of $3000, would look like an amortization schedule with 180 payments.

@Llewelyn A. I disagree with your numbers. If you rerun the calculation with the actual scenario you described the IRR changes from 9.29% to my 8.67%. You are making the mistake of applying annual payments of $36000 when in reality you are making 12 monthly $3000 payments. That little difference makes all the difference. Takes 15 seconds to solve if you understand the numbers and have the right calculator Hewlett Packard 10B. Let me know your thoughts. This is flashback from extensive Note Class I took 18 years ago.

You have 5 numbers you are putting in.

number of payments  (N) You use 15 I used 180 (coupled with this is payments per year You used I and I used actual 12, compounding monthly or annually)

Interest (I) is unknown (usually used for loans but in this scenario calculates Return)

Present Value (PV) this is your initial -$150000 payment

Payment (PMT) This is your -$3000 monthly payment not your annual -$36,000 payment

Future Value (FV) This is your payout of $1,650,000

 I understand most people are never going to understand this but powerful information.

@Llewelyn A.

8.67% return

$150000 initial payment $3K a month payment for 15 years but a reward of $1,650,000 at the end of 15 years