All Forum Posts by: Ryan Rogers

I have done this a couple times. But I wouldn't do it if I didn't already have adequate capital.

I've got 2 properties where I paid cash for them at auction, did reno, and raised the value enough that when I refinanced them, even at 75% LTV, I was basically left owning the house with no cash outlay. Rents on those properties were basically break-even or very small cash flow, but that's figuring in all real expenses, including a repair reserve.

I don't mind a non-cash-flow property if a tenant is paying my mortgage and building my equity in the place, and if I have it for free. But I have plenty of cash reserve that if the AC, roof & water heater all took  a **** the same month, I could cover it.

I really wouldn't recommend doing this on a first property or with low cash on hand.

Ryan Rogers
I would require a property without a cash flow unless I have enough money to support it and wait only for the appreciation which is again speculation only.

I wouldn't do it. Too much risk and not enough "probable" upside. I have a simple rule: I invest for cash flow and speculate for appreciation. Both are OK, but you need to be clear with yourself whether you are investing or speculating.

I look for cash flow first. This fictional deal has none. Combined with it being a SFR, which can sit vacant between tenants, or even worse having a deadbeat tenang in there. What if it takes you 3 months to get rid of a bad tenant? Then it takes another month and $15k to repair the damage after the tenant. Do you have the reserves to carry the property through that? It would be better if it was a fourplex, so you would have some income left from the other units.

Appreciation usually comes in two "flavors:". Hope and pray or forced. This hypothetical seems to rely entirely on the hope and pray appreciation. Even if an area has traditionally appreciated at a certain rate, there have been ups and downs over that time and your timing becomes crucial. Right now, values have appreciated a lot in your market for a period of several years. I interpret this to mean that you're definitely not buying it at the bottom. It's a much greater chance that you are buying at or near the top. Too many negatives here.

If there's a forced appreciation play here, it would be different, but it would turn it into a flip as it is a SFR. With MFR, forced appreciation would come through increased NOI, or in other words increased cash flow. Then, you would have options whether to sell or refinance and take cash out.

As some of the other people on this thread have already mentioned, there might be a time, place and investor for a deal like this, but it's definitely not a newbie without significant capital resources.

Just my $.02

Erik

@Ryan Rogers

One thing you did not mention in your scenario was if you got any cash with the refi.

You implied you are starting with no money.  Without some cash reserves, I would not do this deal.

Owning a rental property is owning a business.  Cash is king.   Sure, you said rent covers expenses, but that is a little income spread out over time.  What happens if a big ticket item occurs during the first year?  What happens if you do not have rent coming in for a couple of months?  This is a house of cards if you do not have some cash reserves.

Are you looking for eventual cash flow , hoping for appreciation,or retirement planning?

I'd say nay to the first two scenarios , yay if it's the third . 1st rental market is rising and I believe will continue to, but hoping for possible higher rents is a gamble most places are already rented to what the market will bear . 2nd I'm of the thought that the market may dip again and appreciation is risky . I don't care what my current properties are worth as long as they make me money- cashflow if they were suddenly worth half ,I still make money on rents, so I'm not gambling on appreciation. 3rd If you're buying for a long term future cash out -retirement etc. and you have the time and patience to be a landlord then it's a good option in my opinion.

Good luck with whatever you decide

I compare REI to poker all the time, but my comparison is that the number one rule is the same for both, "you must stay in the game". You don't throw more chips in with a negative hand, and you don't keep paying your tenant's bills (i.e. negative cf).  Both will quickly get you out of their respective games. You can always get your money back, in both games, as long as you're still in them. In poker, your money is temporarily in another pile on the table. In REI, it's in the NEXT property. 

"If the Cash Flow doesn't fit, you must (a)quit"

Douglas Snook hi Douglas you make good point about the listing agent being all in for himself, but you make a good point about that rents . A lot of p are being forced into places like Brockton and NB due to the over building in the city of Boston. Rents for some studios are as high as $2682.