All Forum Posts by: Mike Lynch

@Mike Lynch why don't you actually run the numbers and post what you're seeing? What are the numbers if you turn your property into a rental? What are the numbers on a BRRRR property in your market? Run the numbers through a calculator don't just make this theoretical. Compare the monthly cashflow, COC return and/or IRR between turning this into a rental and purchasing new rentals.

As @Greg Scott said, both options 1 and 2 are great. Option 2 is your easiest path forward.

Thanks for your reply! :)

In order to make the home rent worthy, we would need to repair these items soon.

New windows - $12,000
New Septic Lines - $ 5,000
New HVAC and Ducts Soon - $8,000
Trim some overhanging trees - $4,000
Replace Floor In Sun Room - $6,500

Total = $35,000

I am sure that we can get no more than $1,500 per month in rent as the home is pretty dated looking. It has the same layout as it did in 1978, but new paint, new roof, plumbing fixtures, and appliances. Pay Off Mortgage is $39,000.

After doing the 4 square method I come up with Cash on Cash return on investment at 4.5%..... We will have to pay off the $35,000 rehab costs and $39,000 mortgage = $74,000. ....... Unless I am missing something, it does not look good at all. So, Cash Flow each month would be around $300.00, but we need to pay off $74,000. ....... What would you do?

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Southeast NC, North Carolina

Hi,

I have been sitting here running the numbers again for the 4th time and I'm still confused.

Years ago, we took out a mortgage to buy a home for $107,000. We owe $39,000 on it now. Our interest rate is 3.6%. The sale price estimate today is around $250,000 maybe. Since we lived in it 2 of the last 5 years, we would not have to pay around $25,000 of Capital Gains Tax.

I have been making repairs to it, new shingles were $8,500. New appliances were $5000.00, but it will need new windows and HVAC unit pretty soon as they are timed out. ( $ 20,000 )

Monthly Rents in this area for a 1,385 sq. ft. home is around $1000.00 to maybe $1500.00 per month.

Yes, I could sell it and put 20% down and maybe get DSCR loans to buy more properties, but there is no inventory. Junk homes are listed for $90,000. Decent double wide mobile homes with land are selling for $180,000, which means I would have to try and get $1,500 to $1,800 rent each month for a mobile home and I think that would be very hard to do here. Decent 3 / 2 homes here are selling for $350,000 plus, and it would be very hard to get $3,000.00 plus rent here unless it is a beach rental or VRBO. Homes near the beach are now over $500,000. Homes on the beach are $800,000 plus.

So, my home has been sitting and waiting empty for months as I can't figure out what to do. If I don't sell soon, I will have to pay capital gains. So, if I sell and put down 20% buy more properties, I am worried that the homes cost so much that people are not going to be able to pay the high rents. They might only be able to pay half of what I need them to pay.

What do I do? ..... I feel like I am between a rock and a hard place. What am I missing?

1 Vote

Southeast NC, North Carolina

Quote from @Joe Villeneuve:

Sell, sell and ...sell. You have over 200k in equity wasting away. You should be able to take that 200 and use it as a 20% DP getting you 1M in PV...not just 260k...and, you should be able to at least triple that 440/m CF...easily.

I am actually a plumber.... I don't know some of your lingo. What is 1M in PV? ... Lots of people comment on my posts but sometimes I do not know what they are saying. ... Sorry, but I have not been in this game and need to be talked to like a kindergartener. :)

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Hi,

I did the four square method last night on my property. Please let me know if this is correct? I might be able to get $1500.00 per month for this property, so lets say $1500.00.

Rental Income = $1500

Vacancy = $100.00

General Repairs = $100.00

CapEx = $100.00

Mortgage = $760.00 ( Includes Taxes and Insurance in monthly mortgage )

This is all of the overhead that I have now.

Income - Expenses

$1500.00 - $1060.00

Cash Flow = $440.00

We owe $39,000 on the property. 3 bed / 2 bath / 1385 sq foot home. Property worth about $240,000 - $260,000 today. ..... Mortgage started out at $107,000. Interest rate is 3.62

The home has a new roof, new appliances, new plumbing. Since it was built in 1978 the layout style is dated looking, but nice and clean Ranch Style.

Still trying to figure out whether to Rent or Sell? What do you think? ...... What would you do?

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Quote from @Nathan Grabau:

So there are two main types of ways that banks look for loans to be paid, one is with your personal income, the other is with what is call a DSCR which stands for debt service coverage ratio. An example of a personal income based loan is an FHA loan, you can have up to 55% of your income going to debt payments. Banks will also let you count 75% of the revenue from a rental towards your income. Loans with lower down payments(3.5% to 10%) tend to be ones based off of your personal income plus 75% of rental income.

DSCR loans allow you to borrow money based off the net operating income (income minus expenses before mortgage) of the property. To put numbers to this, lets say I have a property that rents for $2000, my management is $200 a month, vacancy loss is $100, mainantence is $100, insurance is $200 a month, and property taxes are $150 per month, my net operating income is $1250 (2000-200-100-100-200-150). If my bank requires a DSCR of 1.25(all 3 of the DSCR loans I have require this ratio), then the maximum mortgage payment I can have is $1000 per month. On top of this, most DSCR lenders require that you put 20% down, so I could have a max LTV of 80% and mortgage of $1000. This is nice because private bank will essentially allow me to keep doing this over and over again, as long as I continue to meet their criteria.

This is where it gets fun, essentially I need to find deals that can generate a DSCR of 1.25. While that seems simple, it means that the property must cash flow 25% more money than the cost of the mortgage. This used to be easy to find, but now as interest rates are going up, but property values are not, this is becoming more difficult and we have to start getting creative with our deals. This is why people have become recently interested in subdividing properties or creating short term rentals, it increases the work we put in, but it also increase the return on our capital when we do not consider the cost of our time.

Thanks, I really appreciate your in depth comment. :)

0 Votes

Quote from @Jocelyn Kaufman:

You would have to have an income that can support the loans, rents that will help eat up some of the debt, or a great relationship with a lender.

If you have experience and you show to the lender you can rent out each home for an amount they can cancel out a portion of the loan.

I am not an expert but this is a watered-down answer. Hopefully, a lender hops on here and gives you the detailed answer.

Thanks for your comment.

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Some of the Real Estate YouTube channels are telling everyone that if you have $300,000 and you owe $300,000 on your home, do not pay it off...... Use that money and put down $50,000 each and buy 6 more homes........ That sounds really great, but how in the world do you get all of these loans...... I can probably get one home equity line and get one home, but how do you get the 5 other loans? ........ Am I totally missing something? ....... What is the strategy? .... Please educate me! ...... Thanks! :)

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Quote from @Theresa Harris:

What have you been doing with the ranch style home since you moved out 'a while back'?

how much are all of your costs for the ranch style home? You mention mortgage is $760/month, but what are taxes? If taxes are $200 per month, even renting it at $1200/month isn't bad.

It isn't about the number of rentals you have, but what you are making on them (both paying down the mortgage through rent and cash flow).

If you sold it, what could you buy with the profit? What are the tax implications? If you just moved out, would you have to pay capital gains or not?

I don't think refinancing would be worth it between the costs to do that and the amount of rent you'd get.

Thanks!

We have been getting the house fixed up with new roof, appliances, some flooring, etc. Taxes are $1300.00 per year. Mortgage is $760.00. So, I guess our holding cost each month is about $868.00. We would get about $332.00 each month in profit. We might be able to get higher rent, but I am not sure. ....... Lets say we made $300.00 per month. Is it worth it?

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Quote from @Mary Jay:

Lets say you sold it. Got 200K in profit.

What are you going to do with that money?

Are you going to buy 5 other properties that cashflow?

Or are you going to put it in the bank?

Where I live (Phoenix) you cant touch anything below 375K. The rents are going to be 1.8K if not less...

I think before you sell, figure out where you want to buy and if there is anything decent that will cash flow

I would say that 4 years ago, $1000.00 per month rent on that home would have been fine. Now that all properties around here have doubled in value, it will be impossible to get $2000.00 rent for that house. ...... Junk Singlewide mobile homes are going for around $100,000 dollars on a half acre of land. ..... So, if we sell now and get $200,000 about all we can buy is junk........ I am pretty confused as to what to do or how to purchase more rental properties.

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Hi,

A while back, we moved from a small Ranch Style home 7 miles from Holden Beach NC, ( 3 bed 2 bath ) which is worth around $240,000 today. We took out a loan for the price of $107,000 in 2001. It needs to have some big oak trees cut down, probably around $7000.00 due to the size of them. They are just too close to the home. We owe $40,000 on the home right now and are making monthly payments of $760.00.

We own the home that we live in now and do not have to make payments. We also own 2 small condo business rental units which bring in $2000.00 per month total. They are 1000 sq. ft. each....... We are trying to figure out what to do with the Ranch Style Home....... I am not sure that it can rent out for enough money per month to make it a good rental. People are used to paying around $1000.00 to $1200.00 for rent here, and I wouldn't want to pay $2000.00 plus per month for that house since it is only 1,350 sq. ft. ...... How much should the rent be right now, national median?

It is in a great location but I am not sure what to do with it..... I would like to have as many properties as possible before I retire, just like a lot of others. I don't want to have sellers remorse if I get rid of it....... What would you do in this situation?

Thanks

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All Forum Posts by: Mike Lynch

Mike Lynch has started 44 posts and replied 127 times.

Post: Running the numbers again on my vacant property... Still Confused

Post: Running the numbers again on my vacant property... Still Confused

Post: Cash Flow for my property ...... Good or Bad

Post: Cash Flow for my property ...... Good or Bad

Post: Help with understanding purchasing homes

Post: Help with understanding purchasing homes

Post: Help with understanding purchasing homes

Post: Should I sell it or rent it?

Post: Should I sell it or rent it?

Post: Should I sell it or rent it?