All Forum Posts by: Phil M.

I apologize if I seem confused I'm going day by day to understand many concepts that will help me succeed. I surely don't want to get into anything without knowing all that I need to know, and having a well layed out plan for my goals.

I looked up on the 50% rule. I suppose it means:
If I have a 1 bedroom apartment where the monthly mortgage (principal and interest) will be $500 a month, the rent of the unit should be $1000 a month (or $1100, as you said 2x + $100) to be completely self-sustaining. Any extra rental income would be cash flow I assume.

I've been looking at long lists of REO's in my area (within 20 miles in my county) and have even driven to a few to check them out (nothing formal, just looking at the exterior of the properties). I have too, been looking at craig's list getting an idea of rent costs in the area. I have a few places in mind that I've been looking at, and maybe you could give me some incite on the specifics.

I found a foreclosed 1 bedroom condo in a good suburban area (mostly middle class working people) walking distance to a bus transit center, shopping, main streets and good schools. Its 2 stories, and needs some work (bathrooms are quite filthy and may need some light plumbing work, needs floors (just has plywood), window shades, kitchen in mediocre shape, etc) It was built in 1988 and the exterior is in good shape. has 459 sq ft. Zillow listed the property tax for 2009 at around $1250.
it's listed by a brooklyn foreclosure real estate agent. the price is 169,900.

A place like this (fixed up) would probably rent around $850-$1000 in this neighborhood without utilities. I couldn't see renting it for more than $1000.

At 4.65% with 20% down the monthly P&I comes to $700. So this wouldn't fall into the 50% rule category.

Also, zillow's 'zestimate' value for this condo is $261,500. Is that even accurate at all? I cant see this place being sold for that in this market. 3/2s in this area been selling for about 400-500k max. Do you think a 1 bedroom condo could sell for 260k when 3/2s are selling for 400?
I also saw a 2/1.5 for with 1,480 sq ft 270k sell recently in this area.

An important question of mine would be:
How much could I offer on a place like this? I mean, If I can get them down significantly, than perhaps it would be worth it, but obviously not at its current asking price. Is it realistic to try to get them down 40k? If I can get the loan down to 130k, with 20% down, at 4.65%, the P&I come down to about $530, which is much closer to the 50% rule. Its been on the market for almost 2 months.

I have bunch of other places in mind but this one is small and personally manageable. I would be able to do most or all of the cosmetic work myself and I have a friend thats a good plumber and I know a good contractor. But the important thing would be to try to get the price down significantly. Do you think thats possible?

One more quick question (if you can answer): My friend is reading a book by Robert G. Allen entitled Nothing Down for the 2000's. Does this guy have a good reputation, or is he just another guru? My friend gave me a copy of the book but before I read it I'd like to know if the techniques in it are proven to be good, especially for the current market, and I'd like to know if Mr. Allen has any actual experience in real estate investing or if he is just another salesmen.

You bring up some good points. And any house that I would look at would probably need work, whether it be cosmetic (fix holes in walls, new flooring, paint etc.) or plumbing, electric, heating system. Most of the simple stuff I could do myself to cut down cost.

HML seems like its more realistic, however I fear the high interest rates. I would think the PITI would be higher than any rent income that we would get on the property.

I unfortunetley haven't found any foreclosed properties where the rental would be 2x the PITI, atleast not ones that I think are in my price range (so i guess maybe I haven't found any ''great deals'' =/). Because we wanted to start small, with maybe a condominium or semidetached home, with 1-2 bedrooms. Most of which in the area we are looking at rent between $800-$1400, and the mortgage on such a home would probably be anywhere between $600-$1000, and thats with a 20% down payment on a conventional loan. So there wouldnt be too much net rental income after the PITIa (especially split between 2-3 people).

Are main objective is for the property to be fully self sustaining from the rent, paying for PITI fully with net rental income left over. Then, put the property up for sale at market value during that time, or wait till the market values go up a bit and sell. I don't foresee we'll be making much money (or at all) on net rental income.

This being said I have a few quick questions:

Question 1: Would it be easier or more likely to start with a smaller home? I know that with fixing it up a smaller place would obviously be easier, and as for renting I think its definitley easier to find tenants for a 1-2 bedroom condo/semi-detached than it is for a 3-4 bedroom detached home, and I think theres less chance of failure and less dangerous with a smaller place because we would be able to deal without a tenant paying rent easier (with a big expensive house we probably wouldn't be able to deal with a high mortgage at all without rent income). BUT, i've probably seen better deals in somewhat more expensive foreclosed homes in my area (4 bedroom detached going for 50% less than market value).

Question 2: Is it better to look for multifamily homes? I'd think so to get multiple rent incomes, but are there any underlying cons?

Question 3: How accurate is zillow? I get a lot of numbers and things from zillow, as to the value or 'zestimate' of a house, and the other houses in the area. Are these realistic, or are they just round-about numbers?

I've been talking to a friend that is a broker on wall street who is also interested in investing in foreclosed real estate owned properties, and we may want to become partners in a deal.

Although both of us have limited funds, and apprently we have slightly better than average credit (I haven't checked mine yet but ive never been late on a credit payment). Assuming we can get together the six months PITI (around $5500 for the price of places I'm looking at)

A few of the reos I've been looking at are around 30-40% less than the appraised value. So the loan I would need would be less than the value of the home because its being sold under market value.

The problem is, I can't see us getting a loan from anywhere. We are two men in our twenties looking to invest, with moderate to little income. We would rely mostly on renting the homes to pay the expenses (Although we would have a few thousand cash saved up just in case). Not to mention we don't have nearly enough money for a down payment, and really don't have any strong relationships with private lenders or banks.

So, in a nutshell, is there anyway I could get the money needed to purchase an reo without a down payment? I mean, it seems like its plausable to make money as the reos I'm looking at are in a good neighborhood, and are selling for below market value. If we were to rent and hold one of the units for 1-2 years and wait till the market rises a bit we could see a sizeable return. We could probably see a return immediatley if we were to re-sell soon at around market value.

What are my feasible options?

my father rents year round to a family of mexican americans in south jersey. in the summer, we got a call from one of the neighbors that at 11pm there was 66 people in the backyard that consists of just a deck and a small grass patch. yes, she counted 66.

I would really like to start out investing in foreclosures or pre-forclosures, and would like some advice. I think this is a really good topic.

Have you found more success on finding REO for a great price or pre-foreclosures for a straight sale?

How often do your tenants actually work out in a lease/purchase?

Have you ever experienced an un-expected negative cash flow? If so how did you prevent that in the future?

When buying either REO or Pre-Foreclosure do you typically put money down? Are you able to work off the appraised value to get a lower LTV when purchasing either type of property?

I have recently found an reo in my area that seems to be a good deal, I just don't have any money and I have average credit. Is there anything I can do?

helpful stuff

ltv is really irrelevant unless you dont have a down payment at all..

looks like a lot of useful information..ill be sure to check it all out!

+1 for larry

interesting...