All Forum Posts by: Matthew Mucker

I want to be able to retire by the time my kids are in school. (Not that I necessarily will retire, I just want to be able to.) I want to be a part of their school activities, and have a lifestyle that allows me to pursue my own interests without having to worry about earning a paycheck.

Tom, that's pretty impressive! What's the market like out there where you can buy SFR for $20K? I think I'd have to go into the economically depressed urban areas around here to find properties like that... which would violate the safe for wife and daughter rule.

Originally posted by fertilegal:

Is there a formula you do prior to figuring out to rent or to sell. Any help would be great.

Some of the expereinced folks here use a rule of thumb that says expenses (including insurance, taxes, vacancies, maintenance, management fees etc.) will be 40-50% of gross rents. Jon manages his own properties and tends to use the 40% number. Others pay a property management company and use something closer to the 50% number.

So, from the remaining 50-60% of gross rents, you have to pay your mortgage (principal & interest), and the remainder, if any, goes into your pocket.

The 40-50% number supposedly accounts for capital expenditures over a long time period for buy-and-hold investment properties. Though the 40-50% number has been used in many examples in this board, I've yet to see any data that backs it up. (Not that I don't believe it's a good number to use; I've just not seen any data to substantiate the figure.)

So, using that formula, if you know what a property will rent for, and you know how much cash flow you need to make off your investment, you can back into the maximum acquisition price you're willing to pay.

Nathan, don't confuse anything you see here with legal advice. Sounds like you need a lawyer familiar with your local laws. No amount of posting in forums is a replacement for that expertise.

Chris, in the Dallas area, I'd recommend looking at Lifestyles Unlimited (www.luinc.com) as a local REI club.

The other big local REI club is DFWREIN (www.dfwrein.com).

I hope the mention is acceptable here; I don't profit if he joins either club.

A thread I started today in another forum enlightened me to the fact that I haven't established my criteria. I may now be forced to go through with a transaction that is probably not the best thing for me (although it doesn't look like I'll lose my shirt.)

So that got me to thinking: what are your criteria, and where are you in your real estate investing career? I'm curious to know what others out there are doing.

Luke, the first thing I'd ask myself is, why is the billboard for sale? If it were making money, would the owner sell it?

I think your last paragraph pretty much sums up the thread. Thanks!

Thanks for the 'specific performance' tip. Given the ubiquity of this contract in Texas (law *requires* this contract be used unless the buyer or seller has an attorney draw up the contract) that might be hard to pull off but I'll add that to my toolbox.

We were not informed that the contract had been signed until 10/1. (We were told our offer was accepted and that the contract would be signed, but we weren't aware that it had been signed until 10/1.) That's when a copy of the signed contract was delivered to my agent by fax (or email). I don't see how the seller could sign a contract on 9/25, not tell us about it, and expect that date to be enforceable as the start date of the inspection period. Can they do that?

In order to resell, I'd perform about $5K of foundation repairs and some minor cosmetic work. I think the foundation issues (relatively common in this part of Texas) currently prevent many people who'd otherwise buy this house as a primary residence from considering it. I don't want to count on $140K; I can count on $125K retail at least. Having $100K in it and selling at $125K at least I won't lose my shirt, but this would be a marginal deal.

I could owner-finance in a wrap mortgage, which would give me positive cash flow, but I'd have to hope the mortgage holder didn't call the due-on-sale clause. Given the current analysis, this seems to be the best option if I'm forced to proceed on this acquisition. There is a local company that helps find buyers for this situation; they find buyers who won't qualify for a bank mortgage and thus sellers can typically sell a little higher than retail, charge higher interest, and require less money in repairs to the house. An escrow company takes payment from the buyer, pays the seller's underlying mortgage, handles taxes and insurance escrow, and forwards the remainder to the seller. Typically these buyers put up a significant down payment. The escrow company reports payments to a credi bureau and the intent is for them to refi with a conventional loan in 12-36 months. Given the credit crunch, it seems logical that there'd be more buyers out there who can't qualify for a traditional mortgage. I'd have a cash flow and have an asset by owning the note. The due on sale clause of my mortgage would be a threat, but in today's climate I'd think that as long as the bank was getting their monthly payment they wouldn't call the note and risk owning yet another house.

The more we discuss this property the less attractive it sounds. I can either stay in and make the best of a marginal acquisition, or back out and fight the interpretation of the execution date of the contract and hope the seller doesn't attempt to enforce specific performance. I'm between a rock and a hard place, aren't I?

Jon, section 15 of the standard Texas Real Estate Commission contract has 'specific performance' in there. It looks like seller gets to choose specific performance or liquidated damages in the form of the earnest money. All Texas real estate transactions are required to use this contract unless the buyer or seller has an attorney draw up the contract, which is not typical in Texas.

Per the seller's addendum (seller is a bank), I can get out of the contract in the event an inspection finds 'material deficiencies' if I provide seller written notification along with inspection reports. I have a 15-day inspection period. The contract was executed 9/25 but not delivered until 10/1. I think I have a legal foot to stand on if I claim the 15 day period should start on 10/1. (Opinions on that?) The inspection did find issues with the structure's foundation which I believe would be 'material deficiencies'. That should get me my earnest money back but I'm out inspection costs. I might even be able to cancel the appraisal and recover some of that money.

Jon, using your formula, I'd have to acquire this property at $70,000 for it to cash flow, assuming 7% mortgage and $950/mo rent, wouldn't I?

Thank you all for your input.

Now, what happens if I consider reselling (flipping) as an exit strategy instead of renting for the cash flow? I can buy an MLS insertion for $500 which includes showing service. I guess I'd have to get days-on-market data to calculate what my holding costs are likely to be, and find an insurer who'll insure a vacant property... what else do I need to consider? My primary goal right now is to buy equity and tap into it, not to buy cash flow.