All Forum Posts by: Rick Reed

I may just need a new realtor. She admits to not being investor savvy and is really busy listing other houses. I'm also starting to think I need to go off market anyway to find what I need. Houses listed in MLS don't leave any room for upgrading or repairs. Even if I could get a house at 90% of list price, that would not line up with what I'm seeing in rent. Seems a seller's market has kicked in.

So I'm off to finding more creative methods of finding my first rental...

My inexperience may have reared it's ugly head again. Since I don't have access to MLS, I've been going solely on postings seen on realtor.com, zillow.com, etc... I've just assumed that when a listing shows HOA dues of $200 with a monthly billing cycle, it means $200 a month. My gut was telling me that was very high considering that my HOA dues are $500 a year and we live in a much larger house, in a more expensive area than those I'm looking in. Since this is the only house in Texas that I've lived in, I really didn't have anything to gauge my assumptions against. What you both are saying makes much more sense and drastically improves my numbers! Now if only the taxes were off that much... ;)

@Kevin C. and @Sharon Tzib Thanks for setting me straight!

@Justin Cooper I have not looked that far out yet. Since this will be my first investment property, I'm looking to stay in areas I'm familiar with and are close enough to home to potentially be my own maintenance man. By skipping a mgmt company, I might free up enough cash to allow for some cash flow.

@Sharon Tzib Not every HOA I've seen posted was that high, but it's not uncommon to see them above $100/month. Generally speaking, the property taxes in the areas I've mentioned are around 2.5% of appraised value (the joys of no state income tax?). Appraisals are typically below market, but I'm assuming 2.5% of market just error on the high side. It may be possible to get closer to $1500/month for rent, but I don't want to bank on it. As you can see, the numbers are so tight, one wrong assumption and I either break even or have negative cash flow.

Now, I'm still learning, so my "market analysis" may be way off. But even if my numbers are close to being right, it's not very promising.

I'm beginning to think I may need to focus on houses that need some rehab work, or as @Robert Steele mentioned, focus further Northwest where houses are a bit newer, and less expensive.

Good to know. I didn't realize that. Might explain some of the disconnects between me and my Realtor. Thanks!

I can raise my price point, but from my limited understanding, I didn't see rent prices scaling in line with purchase prices beyond the upper limits of my budget. At least not in a linear fashion.

Robert, how high of a price are you thinking? I don't mind spending a bit more as long as the numbers make sense.

@Robert Steele , @Waylon Themer , from what you're both saying, it sounds like I should either be looking in other cities or change my price point. Or is this something I just have to deal with in the area due to the current market? I'm not married to Plano, Allen, or Wylie. They are the closest cities to where I live and do have some houses that meet my price point and age of house, but don't provide much, if any, cash flow.

I'm open to any and all suggestions, so please be candid.

Not having a background in finance, I have to admit that most of this is over my head, but very interesting nevertheless.

Is it safe to assume that the moral of the story is that being over leveraged is a bad thing even if on paper cash flow looks good? Also, that being "debt-free" for lack of better words, is equally as bad if you don't have enough "ohh crap" money stashed away?

Trying to overly simplify a complicated subject even further, could I safely say that not having enough reserves, because of a lack of planning for the worst and just assuming something will cover you later, will always burn you in the end (barring you just plain get lucky)?

Just trying to get my mind wrapped around the topic using layman's terms.

Perhaps I was a bit too blunt? The point I was trying to make is that you asked about getting started in RE "Investing". As you know, investing involves taking money and putting it somewhere with hopes of gaining some sort of return. Having the debt that you mentioned and no additional income to invest, one can only assume that money must then come from another person or entity, such as a bank. Since people typically do not give other people money without expecting it to be returned, by definition that's borrowed money. Therefore, it's not unreasonable to assume that you would have to borrow money to invest.

In hindsight I could have clarified better by simply saying, if you wanted to get into RE investing or the business as a whole, you could probably start out by becoming a Realtor, or working in a Realtor's office, or any other RE related job. That would provide good experience and help grow contacts at the same time, while still making money to pay down that debt. A win-win-win?

As others have already said, imagine what you could do with the money after you've paid off the debt. That is until kids come along, or the car dies, or the roof needs to be replaced, etc... ;)

Slow and steady wins the race, so don't give up!

@Travis Christl My fictitious rental number is VERY conservative and I am looking to put down at least 25% in order to give the cash flow a jump start. Even considering all cash. I assume at some point of increasing the down payment there will be a point of diminishing returns. Although I don't know if that's really true or where that limit sits. I'm somewhat on the side of the fence that says, just make a move while being as cautious as possible and figure out the rest on the fly for the sake of getting something started. Not great business sense, but I have to start somewhere. So I figure a "decent" deal is better than paying the 90%+ of the asking prices in MLS that my realtor mentioned.

Just trying to figure out where to start. But you're right, the numbers are very tight and prop taxes in my neck of the woods are around 2.5%.

@Patricia Velez I know this may not be what you want to hear, but "Look at that no extra income statement." kind of hits the nail on the head... How does one invest when one has no additional money and high debt? This would imply that you must then get deeper into debt by borrowing more money to invest. Key word here is "invest", not "earn". That borrowed money will come with strings in the form of payback with some form of interest. Once that happens, what will be left for you? It sounds like you are really asking how to invest other people's money. Is that really what you want to be doing? More importantly, is that really what other people want you to be doing with their money considering you have no experience doing that?

Borrowing against retirement money is also a bit of a gamble for at least two reason:

1. You admit to having no experience (same hear so not a judgment against you). So you could potentially lose any retirement money you may already have.

2. If not executed correctly, you could pay early withdraw penalties and taxes on that money even though it came from a 401k or IRA. Definitely speak to a pro about this one before acting on it.

Not trying to be a negative Nancy, just being open since you did ask for opinions.

Regardless, report back with whatever you decide to do.

Best of luck!