All Forum Posts by: Steven Loveless

I'd also love to hear what kind of rents & expenses you are seeing in Garland area @Ryan Johnston. I've been actively looking through & evaluating MLS deals, and the numbers just seem really tight now, with even homes that need work selling around $100/ft2.

Feel free to PM me if you'd like - would love to hear your experiences so I can maybe tweak my estimates a bit.

@Robert Hesselmann Didn't mean to rain on your parade or insinuate that your employer is trying to take advantage of you - just trying to give you my viewpoint of the risk of the deal.

I agree that if you can manage to get out (of at least the non-cash flowing properties) before that interest rate change hits you could do pretty well. You could also do very well as long as the properties continue to appreciate.

My point was more that you really don't have an exit strategy if the market heads south on you. I think a deep dive into which properties would stay above water even in a bad market is necessary here. You as a professional have a better understanding of these homes and the market than anyone.If you can divest of some non-performing within five years, and keep good assets, then the situation looks a lot better for you.

Just plan a couple of evacuation routes! Good luck - it definitely has potential to make you a pretty penny. It really just depends on your tolerance for risk. 

This sounds scary... the basics (I am rounding some here)

Value: 2.1M

Price: 1.75M - Instant equity of ~$350k, but it is effectively locked up for ~5 years

Okay, so for the first interest only 5 years, with the anticipated higher rents, cash flow is ~$32k/yr. Considering you only have ~$10k cash into it, that's incredible - but from a liability perspective it is pretty horrid. You have a $1.75M debt only providing $32k of return.

If you can get out exactly at 5 years, for what the homes are currently appraised for, you will have a nice time, a fat $350k paycheck. Even better if the homes appreciate a little bit, if they even go ~2% per year you end up with another ~$220k. If they don't, and prices actually go down in the next 5 years, then you take a pretty big hit. Only a ~15% depreciation will eat all of that equity - it can happen.

The scary thing is what can happen after 5 years. Now you are -$24k per year for year 5. In year 6, the owner gets a rate adjustment - it is highly likely rates will be higher in 6 years than they are now. A 1% higher rate is gonna put you an extra $1k in the whole every month. If these properties aren't appreciating or your cost/rent estimates are wrong, this gets ugly very quickly....

I'm a pretty conservative person, and a newbie, but I see a lot of downside risk in those numbers. Maybe if you are confident you can get creative and do some lease options or something it's okay. But just keep in mind what will happen if markets take a dive.

I'm a newbie, but like you am trying to analyze as many deals as possible. So take with a grain of salt... 

With my expense calcuations (pretty conservative, and Texas tax rates) I see about ~$110/mo cash flow. That includes a 10% PM, @ 4.75% rate 30yr fixed with 20% down. Only thing I would caution is CapEx - I estimate it as a % of value, that may not be a good estimate on a lower cost home. If you want to see specific numbers PM me.

For the interest rate portion - I just got a couple pre-approvals for a little bit bigger loan, excellent credit, significant reserves for the 4.5-4.75% range. So if your credit, income, and everything is good I think 5% is very feasible.

If you are pretty confident in the repairs & possible rent, it looks like a pretty solid deal - my numbers show peaking ROI of ~12%, but that is with PM built in.

I'm currently looking around for my first deal - so take with a grain of salt...

Can you realistically continue to rent for $700 without the additional $20k-30k or work? If so it looks like a decent deal - I make very (maybe too) conservative cost estimates, and it looks like you should cash flow ~$200-300 a month with no financing. Even with 20% down it looks like you should cash flow relatively safely.

If you can put the additional $20k in and get to that $1200 rent it would be an awesome deal - not sure if that is realistic from your $700-900 range estimate.

For a flip - if you are on the low side of your numbers at all it might be tight:

$55k + $30k rehab --> $90k sale leaves you only $5k margin

Your high side has ~$35k of margin, which seems pretty good?

@Justin Kroepfl

I'm a newbie, but I have one (maybe obvious) question: Why go with a private lender right now, just to refinance into a conventional in 6 months? Closing speed? Need to save up a DP?

I would say if you are being conservative, don't count on being able to re-finance. So if the numbers don't work with the financing you currently have access to, I wouldn't feel comfortable doing it. But that's just me.

Wow, sounds like a great way to get into a house for nothing, while keeping some powder dry on the side @Brian Volland.

The only other thing that might be a useful metric would be to do present value calculations on the portion of cash flow that you would effectively hold in reserve for future CapEx, rainy day funds, etc. If you plan on holding $100 back in a bank account/mo from flow as @Jerry W. suggested until you have $xxk dollars in reserve, you can back out the value of that money. 

That might give you some indication of when your return is falling off, ie. when it would be better to re-deploy that reserve on a separate property. Take it with a grain of salt, I'm still a newbie but love crunching the numbers.

Don't know if it is meaningful or not, but even with a $0 down payment you still are "into" the house for some non-zero amount - you probably have paid closing costs, an inspection, etc.

You could always estimate those costs, and use that number as your effective initial investment in the property. I have just started looking at analyzing deals (as I hope to buy my first property this year), but I have started making a habit of rolling any closing costs into my DP when i calculate CoC or ROI metrics. That is actual money leaving your pocket, so you have to account for that opportunity cost.

Howdy all, new member from the DFW area here. I've been reading through the forums for a few months and thought I should join finally!

For a little bit of background, I'm a 31yo engineer with a major company in the Dallas area. I've been interested in acquiring a rental for a while, and have a decent windfall coming this summer that I'd like to use to get started with a SF rental.

My main goal is to diversify my investments with something other than stock/bonds, as well as to start to build a business that I can use to keep me busy when I retire (hopefully in 20-25 years). My job throws off some relatively significant non-schedule income every year, so I hope to use that to continue to invest in real estate in addition to my normal market investments.

Main things I am interested in learning from the BP community:

1. Analysis & experience with costs, income, value of rentals (I'm very data driven, and have already started some modeling, would like to get better inputs for assumptions).

2. Tips & experiences with property managers & realtors. (Like I said, I have a full-time, a 2 year old, and one on the way - so I don't plan on doing leg work/managing myself).

3. Learn a little bit about what makes a good rental. I don't need to live off cash flow, but a better deal is always a better deal.

Looking forward to learning more, sorry for the long intro!