All Forum Posts by: Sharon Tzib

The 50% rule is the formula most used to initially assess a property to see if it is cash flow positive or not. It is:

Gross rents x 50% = Cash Flow before debt service (the 50% includes taxes, insurance, property management, utilities paid for by owner, maintenance, vacancies, etc).

Once you have that number, subtract your debt service payment (principal and interest), and you will have the cash flow.

Without the actual rents or your loan details, it's hard to provide an accurate example.

Now in your case, you'll be living in one of the units, so you need to subtract back out the rent that you could have received for the one unit you are living in. With a duplex, the net of this is you will have a monthly negative cash flow equal to your mortgage payment every month. For example, assume rents for each unit are $500/month – then:

$1000 month rents x 50% rule = $500 – $500 owner occupied unit = 0

The upside is on a $65K FHA financed property with the typical 3.5% down with today's interest rates, your mortgage payment will be far less than you probably would pay to "rent" a comparable place. Also, you will get the added benefit of mortgage interest write off, tax deductions for 50% of the property expenses, depreciation, and your other tenant will help pay down your mortgage, thus building your equity.

All in all, these reasons combined are why a lot of investors get their real estate investing career started by investing in 2-4 unit multi-families. If you can find a 3 or 4 unit multi where you can qualify for and afford the 3.5% down, you could actually be putting a some money in your pocket every month.

Hopefully this is enough to give you an idea of what you need to properly assess this deal.

NOTE: This is a formula only. You will need to do your due diligence and plug in actual numbers for the expenses to make sure this is indeed a good deal.

Hi Jennifer! I'm going to be moving to Houston at the end of the year. At that time, I will definitely be looking to connect w/ some birddogs/wholesalers to help me find deals, so let's stay in touch. Take care and good luck!

Don't forget tax benefits. Most savvy investors, Amanda, will have their rental homes deeded into an LLC that will allow them to capitalize on the amount of deductions they can write off for the home at tax time. In addition to all your normal expenses associated with the property, you can write off the mortgage interest on a leveraged rental (one with a mortgage).

There are many tax strategies you can use with a real estate investment that make them much more lucrative on the backend than just calculating pure cash flow on the front. You would definitely want to consult with a CPA about your options, but for years I deferred tons of taxes on a high-revenue generating business through just two rental homes I had in an LLC.

Hey David Beard if who does it habitually? A seller or a buyer, or both? Thanks!

Yes, Jason Grote, that helps a lot. Now the question is, do most Texas title companies know this :)

Just use your state's standard purchase agreement, and in the financing area, insert the terms you have agreed to. Basically, the seller is the lender in an owner finance deal - no need for a special contract.

I would not bring up a mortgage servicing company as the buyer - that's the seller's job to request, since it benefits them (making sure you pay on time and being notified if you don't).

Good luck!

It's disappointing this thread went dead without a resolution. Did anyone ever find out if double closings are illegal in Texas?

The whole reason wholesalers do double closings in the first place is to avoid having their assignment fee show up on the seller's HUD-1, so suggesting that as an alternative defeats the purpose.

Hoping we can get this question answered. Anyone?

Most wholesalers I know swear by Zoho as a complete CRM (and it does a lot of other cool things too):

http://www.zoho.com/crm/

It's a whole new ball of wax than conventional lending. Would love to hear from any of you who use hard money to finance rehabs, what are some of the pitfalls to using them? What are the incentives? What should an investor always be on the lookout for - terms, gotchas, scams, etc.

Any and all opinions, advice and or stories about hard money lending would be helpful.

Are you sure you have all your costs in there, my friend? Seems like you left out initial purchase costs. How long will this project take you? I don't see any holding costs either.

Factoring those in, you'll definitely want to see an ARV of $175K. Good luck with the project.