All Forum Posts by: Michael Clemson

I'd recommend you post more details. It sounds like you have no rental properties right now, a lower credit score, and no money available to put down. Can you share details about the properties, where you found them, what you plan to buy them for, what work they need, what you think it might cost, and how long you think it might take? This could help you write out your plan, and if the details are shared, we could help provide some feedback.

If blackberry bushes are anything like raspberry bushes, keep in mind that they will likely regrow in this area. You may be able to make it look nice, but if grass is sprouting, I imagine the blackberries will sprout too. They shoot up from rhizomes and can be difficult to defeat.

You're wrong to calculate this as a 7% return, I think. I live in Blaine. Is this in Club West? I see 2BR's listed for $159.9k. No matter the location, all homes sell for less than list. Let's say you sell for 92.5% of list. This is $147.9k, subtracting 6% for realtor fees and closing leaves $139k. You would only be able to walk away with $9k, and walking away also "costs" you $8k in lost equity that you had to pay the Realtors. It sounds like your original loan was for around $160k-$165k if you can remove MIP in November.

Since you would only take $9k with you, we can count $9k as your cash investment if you keep the home instead of selling it. You said the $950/month includes principal, interest, taxes, insurance, and then another $220/mo for HOA for a total of $1170/mo. The HOA takes care of lawn, snow, exterior, I assume, so that's $0. Your tenant should take care of all utilities, so that's $0.

If you rent it for $1550/mo with a month of vacancy per year, you will receive $17,050 in rents per year. Subtracting $14,040 for principal/interest/taxes/insurance/HOA, that leaves only $3,010. Are you responsible for any mechanical that would need replacing -- anything with a service life besides appliances? If not, repairs should be low each year, but budget maybe $1,000 anyway. This leaves only $2,010 of cash flow per year. Not a lot, but that's a $2,000 return on a $9,000 investment, or 22% cash-on-cash returns. You'd also be keeping some equity, maybe $2k/year -- something to consider.

Another benefit of keeping this property is that you know the home and area. If you don't like being a landlord or it doesn't work out, you were going to sell it anyway. If you rent it for 2-3 years and decide it isn't for you, you've earned enough equity (which the tenant paid for you) to cover realtor fees, and you can exit with more cash.

Typically, the approach would be to use a 30-year mortgage. This will increase your cash flow and allow you to purchase more properties.

If the current owner terminates the lease of the current tenant, and the purchase agreement says that any leases will transfer, why can't you use the purchase agreement as stated? There is no lease that will transfer and you will present a new lease to the tenant at close. You could also write a simple addendum yourself: "The current month-to-month tenants, <name> and <name>, will start a new lease with <new owner> on <date>. The existing lease with <previous owner> terminates on <March 31?>. The security deposit will be returned to <tenant> by <March 31?>."

Gross Rents: 38400
50% to expenses: -19200
30-year 4% Mortgage (75% of $350k): -15036
Cash flow: 4164

Your cash to get into the deal is $87,500 (25% down of $350k sale price), plus closing costs, initial repairs and other costs. But if we just assume you make $4,164 on a $87,500 investment, it's a paltry 4.7%. You are better off buying a Vanguard fund. Your hunch is correct, that $500 left over each month really isn't enough to justify such a substantial investment.

I would look for something that is a better return. A few notes: the 50% rule of thumb is based on the experience in the industry, but it will be between 40% (self-managed, tenants pay utilities, newer home) and 60% (PM managed, you have some or all utilities, older home or deferred maintenance). The 50% includes a "cost" for vacancy, as well as costs for property taxes, insurance, utilities, admin/overhead, property management, and maintenance/repairs.

I'm newer here, maybe someone else can chime in on whether location matters as much for tenants. I think you may be looking at the property the way a realtor/buyer would ("cul-de-sac," "desirable location"), but renters may not value those same things.

In contrast, I'm about to close on my first deal and should be able to make the same return you are predicting on an investment of just $27,500.

Ask for the owner's Schedule E for the past two years. This will show you expenses like property taxes, insurance, repairs, utilities, property management, etc. For example, I'm looking at a property right now where utilities are not separate, so the owner pays them -- $4,000-$6,000 a year of them! This makes a big difference in your cash flow.

I would also compare the seller-financed terms to a conventional loan.

Welcome, Matt. I'm new here as well and also live in Blaine.

If you need it in two years for a purchase, put it in the bank. If it is money you can afford to lose and do not need for a home purchase, you have many options. I wouldn't play with anything I needed for my own home's down payment.

Thanks, Chris!