All Forum Posts by: Nuhan Demirkan

Hello, I manage my own properties and they all have various cash on cash return rates and equity. I am thinking about developing a formula that considers the annual cash flow, cash invested, equity and management hours to come up with a factor or a coefficient that could be universally applied to the existing and future rentals. Has anybody seen or developed something similar?

Aaron, I only see half of the equation here. Your principle and interest payments on a 20yr amortization is around $650 on a $100K loan. Plus you have to pay taxes and insurance, possibly pushing the monthly payments to $1,000. What type of rent can you get in Frederick MD on this house? You're looking to spend around $120K, what would be the after repair value? How much could you force the appreciation and how much can you cash flow on this deal? If you can cash flow $500/mo you would be getting 30% cash on cash return. If the after repair value of the house was around $200K you could get a cash out refi on a 30 yr fixed for $120K, taking all the money back out, your payments would still be around $1000/mo but you would not have any money in it.

Jerry, sounds like you are getting a fixed rate 30yr conventional mortgage. Yes, they will want to escrow your taxes and insurance. Escrowed or not you still have to account for the expenditure. There is no getting around it. Rework your numbers and make sure all of the following are included:

Principle, interest, taxes (city/county), insurance, maintenance, management, vacancy, HOA and any other expenses and assessments that are associated with the property.

Alex you don't need to worry about unpaid taxes, title issues, etc. Your offer to purchase will be contingent upon the seller bringing an insurable title to the settlement table. Don't waste time on that. That portion belongs to the title company (make sure you have a good one). If there are issues with the title you would renegotiate the buy price or walk away. Rather, you want to learn how to estimate the after repair value (ARV), cost of rehab, identifying the items that need to be repaired/updated and any other costs related to flipping or renting the property. That will get you to the buy price at a healthy profit or cash flow.

Eric, some banks have their own overlays on top of the federal requirements. Your credit union looks like applying theirs thus limiting your options. I would suggest go to a mortgage broker and look into getting a regular conventional 30 yr fixed rate mortgage. You can have up to 4 mortgages like these before the rules change and 10 is the maximum. You can then go to portfolio lenders for commercial loans.

See below...

Down payment requirement 30% (no gift of fund allowed)

Usually this is 20%, money should be in your account for the past 2 months

Max term is 15 yr fixed – current rate today is 4.125%

30 yr fixed is the norm

Must escrow for both property taxes and insurance

This will be in your monthly payments to the bank

Credit score over 700 + (this is not an issue)

Property must be located in Indiana

Shouldn't be an issue with a national bank like Wells Fargo or Bank of America

Debt Ratio needs to be at 40% or under

Probably true

3 months reserves for principal, interest, taxes and insurance .

3 to 6 months reserve is standard

Not sure about Vermont but here in Maryland the bank files a Notice of Default (NOD) with the courthouse. It is a public record which you can access it either online or in person. Or you can buy the list from a list broker. A word of caution, just because the seller might be motivated to sell quickly does not mean the bank is going to be as motivated to accept the offer. I'm still waiting to get a short sale approved that I got under contract in February 2015.

I'm surprised that your portfolio lender is going to lend you 100% of the appraised value. My have two portfolio lenders and they are around 75% to 80% of appraised value. You have two properties collectively appraised at $245,000 x 80% = $196,000 - $81,000 (loan balance) = $115,000 is what you'll keep. I would not recommend to take it all out unless you can cash flow minus all expenses.  

@John Wulf if your goal is to accumulate enough cash flowing rentals for early retirement, paying off houses is going to slow your progress. Personally I would not touch the equity in the house either for two reasons: 1- if you do you may not cash flow, 2- In a downturn high equity will protect you. Figure out how many rentals you need to reach your goal, acquire the rentals, then start paying them off. At the same time find a local bank (a portfolio lender) that lends on rentals so you can keep converting your cash purchases.

Hope, I wouldn't worry too much about a business entity at this point, especially if you're going to start out wholesaling. No need to add the expense. At some point in the future you may want to establish an LLC to operate under. I did not even have business cards until 8 years into landlording business. Build your adviser team, atty, title co, insurance agnt, realtor, lender, mentor. Focus on finding, negotiating, closing and assigning deals.

Good luck,

To me, quality tenant means a tenant who pays on time, keeps the place neat and clean and rents from me long term. Not necessarily associated with granite tops or stainless steel appliances. Figure out your rental rate and your tenant profile, provide the best rental to that segment. Once they are in, be responsive to their legitimate requests. Rest of the bling is just going to drive your cost up and does not guarantee my definition of a quality tenant.