All Forum Posts by: Michael Rossi

The fastest way to find vacant properties is to pick a target investment area and then drive through the area and write down the addresses of the vacant properties. That can be done in one afternoon - even THIS afternoon.

Mike

As I said, you've got to KNOW your market. If you don't have the time or motivation to go look at a BUNCH of houses in your area and really know your market, then it would be better just to stick to your day job. Business is about survival of the fittest. Ryan said he KNOWS his market. I KNOW my market. Your successful competition KNOWS your market. If you don't have what it takes to learn your market, you WILL fail. It's just that simple.

Mike

Do you have a bicycle?

Mike

SoBeRei,

I don't know if you understand the lingo yet, but the operating expenses do NOT include the mortgage payment (P & I). So, to calculate your cash flow, you basically subtract the mortgage payment from 1/2 of the gross rent. Anything that's left over is your cash flow.

$25,000 per unit is not necessarily a great deal. I have many buildings that I have paid FAR less than $25K per unit.

With rental properties, EVERYTHING DEPENDS ON THE NUMBERS!

As far as the "Rich" people go, NO there is no secret (except hard work). Many of the apartment complexes that you are talking about do not have much cash flow. The owners may not need the cash and are just buying them for the equity pickup and tax advantages.

Good Luck,

Mike

The "subprime market" basically consists of those people who have bad credit. Historically, these people were unable to get loans due to their poor credit and really shouldn't have been able to these past few years. Over the past few years, lending standards have loosened and just about anyone who could fog a mirror could buy a house. Since these people really couldn't afford the houses they bought, the lenders offered gimmick loans to get them started. These included interest only, option arms, introductory rates, etc. Some of these loans didn't even cover the interest on the principal.

The bad thing for the borrower is that the gimmick portion of these loans only lasts for a short period of time and then the loan reverts to a regular loan, which means the payment jumps dramatically. That is just beginning to happen and people in huge numbers are already beginning to lose their houses to foreclosure. We are only in the beginning stages of this developing crisis.

In the end, millions of people will lose their houses to foreclosure; many lenders will go out of business; people will go to jail; and the government will pass new laws to ensure that it doesn't happen again.

That's about it.

Mike

If taxes and insurance were the only operating expenses, that would be true. This is EXACTLY what causes the vast majority of new landlords to fail in such a short period of time. Operating expenses also include management (whether you do it or not), maintenance, advertising, vacancy allowance, office supplies, legal fees, evictions, court costs, utilities paid by the owner, lawsuits, fuel for your vehicle (going to and from you rental), damage caused by tenants in excess of the security deposit, etc, etc, etc. (I could go on and on). In addition, you better have an allowance for capital expenses even though these technically are not part of capital expenses.

It is easy to cross your fingers and hope you won't have any evictions, lawsuits, capital expenses, etc. However, the reality is different and failure to allow of these real world expenses (and the resulting lack of cash flow) is the number one reason that new landlords fail.

Hope that helps.

Mike

It is CRAZY in the current market to speculate on appreciation. Even if your area has had 20% appreciation over the past 5 years, I would be EXTREMELY cautious. Anyone who has studied history knows that we are at the beginning of an economic downturn. This will likely last many years. There is a brewing crisis in the "subprime" market, which is really just a way of saying that all those people with gimmick loans are about to pay the price. There are also problems brewing overseas in China and Japan. We have had an unprecedented runup in housing prices over the past few years. We have an unprecedented number of deadbeats in this country who are receiving government benefits. At the same time, the baby boomers are retiring. The Democrats are back in power and want to raise taxes (which kills business). Who will pay for all this? It is going to lead to a significant downturn in the short term and big problems in the longer term. Betting on speculation at this point is financial SUICIDE and shows a complete lack of understanding of where the market is heading.!

Buying at a BIG discount is the best plan. If you don't want to do that, putting down a big deposit is second best and still a safe option. Even putting your money under your mattress is a better plan than betting on appreciation.

If you want to survive in this business, always go with a sure deal. If you buy at a BIG discount, you are MUCH safer than a crazy scheme like betting on appreciation.

Mike

Sure, send me a check and I'll buy you all you want. The only little insignificant problem is that you will lose a bunch of money and eventually have to sell them at a loss.

What the others are saying is true. You can buy properties that will cash flow in the vast majority of the United States (flyover country). However, it sounds a LOT easier than it is. The vast majority of new landlords fail even right here in Ohio, even though properties CAN be bought that will cash flow. The number one reason they fail is that they aren't willing to do the hard work to find a property at a big enough discount. Therefore, their property won't cash flow.

Investing from out of state is even harder. Even if I found you a property that would cash flow, by the time you throw in all the expenses of being an absentee landlord, you would lose money. If you seriously want to make money in the rental or REI business here in flyover country - I'd suggest moving!

Or you could send me a big check. I'll sell you some properties and then when you're ready to cry uncle, I'll buy them back at 50 cents on the dollar.

Good Luck,

Mike

rbader,

This is a good deal as a rehab and resale project but is poor as a rental.

Here are the numbers for this as a rental.

Gross income $550
Operating Expenses $275
NOI $275
Mortgage ($39,000, 6.5%, 30 yr) $290
Monthly LOSS $15

Generally, as a rule of thunb, you should get about 2% of your investment in the property (purchase price + rehab, etc) per month in rent. For example, if you will have $40,000 in this property, gross rents would need to be about $800 per month to give you an acceptable cash flow.

This is still a good deal if you rehab and sell it. You need a bigger discount on your next deal if you're looking for a successful rental.

Good Luck,

Mike

Shannon,

You have missed a bunch of expenses. Operating expenses include taxes, insurance, management (even if you do it), maintenance, vacancies, utilities paid by the owner, advertising, legal fees, damage done by the tenants, evictions, lawsuits, office expenses, court costs, setout fees, etc, etc, etc. (I could go on and on). In addition, you have capital expenses.

It is pointless to try to list all the individual expenses because you don't know a lot of this information. How many evictions will you have this year? Will an angry tenant do $10,000 worth of damage to one of your units this year? Will one of the tenants sue you this year?

Throughout the United States, operating expenses (including capital expenses) run 45% to 50% of gross rents. Therefore, in your case, operating expenses would be about $1,040 per month, leaving $1,045 to pay the mortgage and for cash flow. In your case, with mortgage payments of $1,217, you will be losing about $172 per month.

I would say that this is a loser as a rental, but if the real market value is $250K, they might be good for resale. I NEVER buy rentals that won't cash flow. Also, I NEVER buy rentals using gimmick loans (such as interest only).

In my opinion, the only reason to buy a rental property is to make money. This one loses money and I would not buy it (as a rental).

Good Luck,

Mike