All Forum Posts by: Michinori Kaneko

Thanks Aaron,

This is in Indiana.  There are minor repairs that are needed (about $3000) + I need to install appliances ($2000).  These are also in the pipeline.  

Hi,

i just went into contract for my first investment property.  There are things that I am working on now:

1. mortgage being worked on. 
2. have an insurance quote on my property.  
3. have a potential PM to manage my property for me.  
4. an upcoming inspection on the property

what else do I need to be thinking about from now until I close on the property? Thanks for your help!

@Sean Madden I've been looking at Fort Wayne property for few months now, but I haven't found anything that makes sense number-wise yet.  If you have lower return targets than I do, then perhaps there are lots of properties that generates ok returns.  It all comes down to opportunity cost (why invest in illiquid real estate market when you can invest in other liquid assets like mutual funds/reits if the returns aren't better).

Hi is the "rent" you mentioned just renting out the part of duplex that you aren't living? If that's the case, I don't think it's a bad value (if it's total rent, and you are only going to get half as rent income by living yourself, then i don't think it's a good deal at all). 

You can essentially "Save" rent you would pay anywhere else, and instead get money (in form of principal repayment) from the tenant. few other thing you need to consider though is vacancy rate, property tax, capital expenditures, and if you would need to use property management firms (unless you have the time to find new tenants, deal with their complaints, etc.).  Also if you are coliving with your tenant, make sure you clearly write out what the responsibility of the tenants are (who takes care of the yard, common areas, utilities, etc.)

Hi John,

So then it all comes down to few variables i think:

1. how much your monthly principal repayments are (this is essentially your non-cashflow gain).

2. How much deductions are you getting on your tax returns on this property (interest/depreciation).

3. How much are adhoc out of pockets you need (shouldn't be much since house is in good condition).

4. How much are you paying extra on PMI ($225)

If the sum of #1 and #2 are greater than sum of #3 and #4, you are actually still making money (+ any appreciation on the property if any). then it becomes question of opportunity cost (if you sold the house today and invest that money on something else can you get a better return - and the answer is probably yes). This is the most important thing, and based on what you wrote, for the same $50K equity you have, you can probably find something that generates better returns.

Hope this helps.

Hi John,

I am a CPA and a CFA charter holder. I've done audits of 401K plans in the past too. Under no circumstance would I advise anyone to take a loan from their 401K to pay for their loans/mortgage, especially with the current low interest rate environment.  With where the stock market is going, you may get lucky and not have to pay back much on appreciation of your asset in your 401K, but you never know if the stock market somehow sky rockets 20%, you'd be paying back a lot more to your 401k than what you would have saved from the interest decrease on your mortgage. 

Like what others said, I would recommend that you sell the property.  Perhaps if you can do a nice rehab, you can turn it into a flip property instead.  hope that helps.

Hi! I'm a potential new investor in Fort Wayne area. just wanted to say thanks to this helpful thread! I need to check out that FB group.

@Alshan San which area in texas? I was first looking at Austin Texas, but realized the rent to price was way too low (or price to rent was too high).   If I remember correctly, areas around San Antonio had some nice price to rent ratio.

@Matt K. I'm new to real estate investing, so i could be wrong, but average person can't afford $2000 a month rent.  people who can pay $2000 rent are people who are making well over $100K a year.  It's easier for someone making $100K to save $40K than "average" people making $50K a year to save anything (cost of necessity is same for everyone).  Also, a home that costs $85K with 6.5% interest and 3.5% down would still be about $500+ per month on mortgage (depends on your credit score), and on top of that you'd have to pay insurance for having equity less than 20%.  Also note that most of homes that are that cheap are not newest homes, so they can require capital expenditures. considering all of that, cost of rent relative to purchase is not that different for those people. For someone with good credit score that can put 20% down, monthly mortgage would be less than $400 a month.  Credit score and insurance makes a big difference in cashflow.  Let me know if i'm not thinking about this correctly.

There are pros and cons in my opinion:

Pros of many cheaper house:

1. easier to buy

2. higher rent to price

Cons of many cheaper houses:

1. less reliable tenant (damaging houses/less reliable income stream). Also some damage may not be able to covered by security deposit. 

2. more roofs = more capital expenditure. replacing fixtures like roofs/windows etc. costs the same size house, regardless of price of the house

3. less able to utilize leverage

4. higher turn around with these tenants. if you are using a property manager, this also means more replacement fee for the tenants.

One other thing to note is if you can find a home that can be rented for $2000 a month for $200K, why would anyone want to rent that from you? with 20% down and 5% interest, your only looking at monthly mortgage about $1000 (and if someone can pay $2000 in rent a month, they can come up with $40K of down payment easily). so your target for tenant is very limited to someone who has good income, but going to stay in the area for only few years and move out.

In the end, it comes down to what level of risk are you willing to take? Btw, if you are looking to buy multiple cheap house, have you looked into multi family home? this ways, at least con #2 will be somewhat (not completely) out of the equation, and possibly even #3.