All Forum Posts by: Rick Reed

Thank you very much, Shawn.

I just closed and now I'm off to HD for new locks.

I'm considering them after watching videos on the rekeying method. Thanks for the link as well! Very informative. Have you used Texas Rekey? I'm debating on whether I want to DIY or pay someone.

@Jean Bolger I think fire code actually has forced the requirement of a keyless deadbolt for that very reason. At least in TX.

I'm closing on my first rental property tomorrow. The first thing I want to do after closing, is change the locks. I've heard that in Texas, a rental must have a single sided deadbolt (where the deadbolt locks ONLY by means of an inside lever). Is this true when both a deadbolt and locking knob already exist? I ask because neither of the exterior doors currently have such a deadbolt and the property has been rented out for some time.

Thanks in advance!

Why borrow if you don't have to?

I'm paying all cash (only $63k) for my first rental. It really helps with the cash flow and provides me a means to borrow against if need be via a HELOC.

Also, my mortgage broker told me that after 2 years of investment property income on your taxes, you can use that income as additional income to qualify for a mortgage.

As others have said though, I could only assume another bank would look at your liquid assets and realize you have enough to cover small mortgages, and qualify you based on that alone.

I'm no expert on the topic, nor do I have a background in finance, so my explanation may be a bit weak.

Basically, over leveraging is when a company/individual takes on too much debt. At some point, that debt becomes impossible to make payments on in the event of an unplanned circumstance.

Think of all the folks who finnanced too much for their over valued houses before 2008, using interest only mortgages because they couldn't afford a conventional mortgage. Then borrowed against the false equity for improvements. Most of those folks were probably close to living paycheck to paycheck just to pay debts with the assumptions of never losing income and equity always rising so they could refi later. They overleveraged.

In a rental situation with every property being 100% financed, if a few properties are vacant at the same time, and rent prices drop a bit, one would have no liquidity to help pay the mortgages. What does one do in such a scenario? One has nothing to borrow against because one owns nothing. One may not even be able to get any loans at all because of all the debt already in place. So in a situation like this, one would not be able to borrow to pay back the already borrowed money because one is already overleveraged.

Don't take my examples as gospel. It may be of benefit to research the topic for a deeper understanding.

You're not alone. I'm very much the same way, but with enough reading and asking of questions we were able to comfortably make our first rental purchase. A lot of the folks on BP also have websites of their own. Check those out as well (usually listed in their signatures).

One thing I've learned though is that everyone on here (and elsewhere) has a different view on everything, which is great. Take all sides into account and find what works best for you and your situation.

Another thing that helped me was to jot down everything in my head into notepad. Then walk away for a day or so to get back to "the real world". When your head is somewhat clear, read your notes and objectively research what did not sink in, or raised more questions. After a while you will have a good amount of notes that may eventually look a bit basic in hindsight, but it's a good way of seeing how far you've come in your learning process. Not only is it good for moral, but helps prevent that overwhelmed feeling.

Welcome, and best of luck!

I appreciate everyone's feedback. It was a bit nerve racking to take the plunge, but with the help of folks here I was able to do so with much more confidence than I would have been able to do without BP.

@Joe Butcher

@Joe Butcher I'll be in touch.

@Ronnie Sparrow Do you have any concerns about being over leveraged?

Thank you!

Pics from the posting:

Back patio and storage room:

Community Pool:

@Thomas Guertin Can you elaborate on the HOA special assessments?

Yes, my return is under 9%, but I can't think of any other investment today that provides that nice of a monthly return, plus tax deduction, plus appreciation, plus potential increases (from rent increases). I plan on keeping this property for at least 20 years, so inflation should be on my side. It's also near impossible to find good cash flowing properties in the area that do not require a lot of rehab; something I'm not ready to tackle.

This property is really just a dipping of toes into the water so I can get that first one under my belt and do some (fairly safe) learning.

Yes, my next property should be mortgaged, if for no other reason than I simply don't have that kind of cash. My long term goal is to have a mix of cash and leveraged properties. I want a somewhat balanced portfolio.

Perhaps a bit of skewed perception, but here it is...

- I see interest on a mortgage as money lost. That means if I pay cash, all cash flow is ROI. With a mortgage, only the principle portion of the monthly mortgage payment is ROI. You never really get the principle payment back.

- If the goal is to pay off a mortgage as quickly as possible, why even borrow if you don't have to?

- I wanted as much buffer in my monthly expenses as possible since I'm just starting out.

- I can build my cash reserves for repairs and vacancies much quicker.

- Is it even possible to get a mortgage for $47,250 (purchase price - 25% down)?

- I saved a few $k in closing costs.

- Leverage for a better deal. The seller was motivated and wanted out. I could close faster and without any concerns of funding the transaction.

- Immediate equity that I can borrow against if need be.

One could very well argue that I tied up a lot of cash that could have otherwise been used for a down payment on another property. But I have plenty of time and a lot of learning before I jump into another property.