All Forum Posts by: Michael Pitsos

I also live in Cartersville and I am in the market for a MFH. Good to meet some local folks on here! I also agree traffic is getting worse every day lol. A lot of people are moving into Cartersville. It has grown a lot in the last 3 years or so with no end in sight. I think in 5-10 years it will be as big as Kennesaw GA. Home values have greatly increased as well. My primary residence that I purchased in 2015 for $165k is worth $200k today. 

@Abdul Shishi that is exactly my point. Why would it not be counted as a return? Someone is paying down the note every month $1000 for me while I pay $300 (CapEx, Maintenance, Property Management) to maintain the property each month. Yes, it's illiquid in the sense I have to cash out the property (sell, cash-out refi) to see the actual money, but it is there (as long as the house doesn't depreciate).

@Brian C. the rent-to-own isn't a bad idea especially for your scenario. Sounds like you made the best of a less-than-ideal situation. 

@Joshua Davies @David Campbell @Diane Campochiaro I can't do a thirty year note. I unfornately just refinanced from a 30 year to a 15 year note in Jan (ill timed I know and hindsight is always 20/20). I mean I guess I could I would just have to pay closing cost again and I don't want to spend $3k to do that. I ran the numbers and by estimates it would still cash flow negatively with a 30 year note. Also the house will not appreciate anymore I do not believe. It is the nicest house in the neighborhood unfortunately. That is one thing that does worry me. I can get $205 for it now and make about $20k if I sold it. I am worried that when the market goes down (within the next 2 years I believe) that the value will drop to $160k and I will lose my equity if I am forced to sell then. Of course I could hold but then I'm worried about my ability to rent it for $1400 which would cause me to come even more out-of-pocket even more every month.

I like the “you can’t eat your house!” Haha good point. 

 @Autumn Rankin where in rich dad poor dad book is the situation? I’m currently reading it and haven’t came across it yet. 

After evaluating the options it looks like I won’t be renting it. Overwhelming support for me not to do it. I’ll aim for cash flow somewhere else. 

@Aaron Hollingshead yeah you have a very similar scenario. So you pay $150 for a property management company? The other potential downside I've had someone bring up is that when I go to get a loan to do another rental property it will look bad on me as a property manager and investor because I have a property with negative cash flow leading the bank to believe I am incapable of managing properties and likely to default on my loan. I don't know how much truth there is to that as a simple 3 minute conversation should clear up that confusion. I would simply remind them there are 4 ways to make money in real estate - appreciation, cash flow, taxes, and mortgage principal pay down. By holding this property I am still getting three of the four... If I have the funds to cover the mortgage (3-4 months) and can stand a $5k capex bill every 5 years then I think I should be fine...??? The other thing I see as a plus is the house is almost new (built in 2015) and I have been the only one to live in it and maintain it so I know it has been taken care of. I see these potential CapEx expenses to be a ways out if any in the next 5 years.

Can anyone convince me I am entirely wrong?

@Nathan Gesner that scenario sounds frightening. At the moment yes, I’m not worried about paying the mortgage for 2 months but to be hammered with $3k in damages plus two months would no doubt hurt and leave me with a sour taste in my mouth. 

Part of me says heck yeah have someone pay the note and cash out in a year or so but the risk is high. 

@Cory Smith I'll run the numbers doing this. Unfortunately I don't think I can charge enough rent for it to cash flow. It's a $200k home and can only pull about $1500 max. I'm looking at a PITI of about $1050 per month. I'll run the numbers on the calculator but I think I'll have to end up selling it. It seems like all opinions are adamant that keeping the property is not the way to go.

Thanks everyone for the replies. I love the feedback of those that have more experience than myself. I want to get into the game soon but property values are sky high. I’ll probably just hang back save and wait for the market to go down unless I come across a crazy good deal. It seems like most good deals now you have to have a lot of cash to play with. 

@Michael Lee it is a loss in cash flow yes (-$300) but a return of +$1000 every month in equity. You still see it as a bad deal? 

@Michael Lee thanks for the reply. I haven't pulled the trigger on the second property yet. I still live in the $1550 per month house. It's a great house, fairly new (built in 2015) and the neighborhood isn't bad. My only thought about keeping it was to rent it and have someone else pay 90% of the mortgage. Tenant pays $1400 I pay $300. Essentially I'd be paying about $150 per month out of pocket every month plus accounting for maintenance and HOA ($150) to keep the property while the tenant pays $1000 towards principal so I would net +$700 I just wouldn't see it in terms of cash flow because it would be tied up in equity. I'd be paying $300 every month out of my monthly cash flow to get $700 in equity and loan pay down every month. Does that make sense at all?

Hi I have a unique situation on my hands. I have the opportunity to buy another home in the same communiting area with a VA Loan with 0% down. The current home I live in carries a 15 year mortgage that runs $1550 per month. I think I could rent the property for $1400 per month. The 15-year note is nice because every month about $1000 goes directly to principal with the downside being the high cost. I have about $20k in equity in the house now. I could sell it and take the equity or rent it for the loan pay down and just deal with the negative cash flow. Has anyone ever had this problem?

Would you sell it or rent it even though it will cash flow negatively? 

John although I haven't made a single deal yet, I do have a general idea of what I'm looking for at the moment. I'd like to find a deal that gets a 12% or greater CoC return. I'd also like my deals to already have some equity going in. I don't want to buy a house for what it's worth. Maybe pay 85% of market value on it.

I didn’t think about later on down the road on the PM. You are right. The goal for me is to be financially free. Ensuring PM is accounted for is a good idea. I can tell you like to lean conservatively on the analysis to ensure you aren’t getting a bad deal. Prior to our conversation I was leaning towards what I thought was close to accurate or even aggressive instead of planning for the worst and hoping for the best. 

Thanks for teaching me! I did end up backing out of this deal today. This deal didn't have enough equity built into it and I would have to hold the property for 3 years before I could make a positive total annualized return. I could've settled and I think I still would've made money but I want/need my first deal to be good/great as to help kickstart my REI journey and by my second and third property as well.

Hi John! I greatly appreciate the reply. I love the idea of the 8.34% vacancy rate. I think I'll adopt that. I upped the CapEx to 5%. Yeah I was thinking 1% just due to everything being new. I also added in the 10% management fee. Makes sense to "pay" yourself I guess. You're buying an investment property not a job. I guess I was thinking the cash flow, appreciation, pay down on the loan and tax benefits would be my "pay".

Good news is after all that I'm still looking at about a 4.34% CoC return the first year and $108 in cash flow after adding in these expenses. So not negative at least!