All Forum Posts by: P M

Josh, I guessed 7%. Thanks for challenging my numbers. I went through my spreadsheet with a fine-tooth comb, and found out this may be closer to $27/month than $60 before tax.

Here are the numbers:

Purchase Price: $54,500 (though I think I can do better than this)

Depreciable Basis: 46,870

Down Payment: $20,000

Monthly P+I: $230

Monthly Insurance: $21

HOA: $130

Monthly Tax: $67

Monthly Mgmt Fee: $55

Monthly Capital Improvements: $21

Total Expenses: $523

Market Rent: $550

Annual Pre-Tax Positive Cash Flow: $317

Annual After-Tax Positive Cash Flow: $1013

I have read someone else on this board aim for $100 cash flow per door. I kept lowering the purchase price until I hit $43,000, which yielded $102.95 cash flow before tax. Incidentally the 2009 tax value for the county is listed as $42,321.

Let me re-phrase my question. At what price would you buy this unit, assuming the income potential is calculated correctly? (I have asked the property manager for the market rate)

Any more deal advice is welcome, and also if going down to $43k with a nearly 50% down payment would yield a better rate than 7%.

PS my credit is about 810. If you could guestimate what I might be offered as a rate based on this, that would be helpful, too. Any insights are greatly appreciated.

I am looking at some inexpensive condos in a lower-income area offered for $54,500. With lending being what it is these days, I am thinking of going in with a $20k down payment for a $34,500 mortgage. My spreadsheet indicates $60/month positive cashflow.

What are people getting for 30-yr fixed rates from major or local banks on properties with this kind of LTV? (about 65%)

Just checking back in- thanks to all who provided their advice on this thread, particularly Jon. We have decided to sell the condo and put an offer on the house.

I still think the case is strong for appreciation in our area, but when Jon described my idea to get money at Lending Club as desperate, I found myself agreeing.

Part of my frustration is that I want to get started in REI without leaving town (we really like living here) but cashflow is mostly non-existent.

What I will most likely do is (assuming we successfully buy the house) look at our cash situation 6 months after the sale/move, and if our balance sheet is strong enough, pursue a lower cost property ($80k or less) in the less desirable part of town which is more likely to have positive cash flow, though little chance of appreciating.

That way, if I start small with a modest positive cash flow basis, I can build up cash reserves to cover future vacancy periods and repairs, and eventually move on to the more appreciation-oriented type of moves I was previously contemplating when we have a bigger cash cushion and a rental property throwing off cash.

Again, thanks for telling me what I wasn't ready to hear at first.

Jon, I appreciate your warning on the 50% rule. I have a better handle on the expenses than that and I estimate the monthly loss at $93, not $210. Why is this monthly loss worth taking here?

I know my market well, and the townhouse in question is in one of the best locations in town. I have spoken with realtors with MLS access, as well as done my own sales price research at town hall in transaction data, and the appreciation rate for the townhouse development is the best in about a 20-mile area. The town political class is enraptured by NIMBYs and extreme environmentalists who believe in building NOTHING, anywhere, at anytime, so the ability for new housing to be built to compete with this location is all but cut off.

In short, I am confident I can bank about $8000 in net worth gain annually through appreciation/loan payments for the price of about $93/month in cash losses.

I know that cash flow is a key mantra here, and with good reason. But even if you're skeptical, humor me for a moment.

If I:

1. Refi the townhouse down to a 635 payment.
2. Get a HELOC for $15k
3. Apply for a $10k, 3-year loan from lendingclub.com

then am I going to hit a wall when I apply for the loan on the second house?

Greetings- here's my situation.

I live in a townhouse with a tremendous location in a college town. I am about to refinance it from 6.875% down to 4.875% and cut my monthly payment by over $200.

Then I would like to buy another house down the street, move into it as our primary residence, and rent out the townhouse.

Here's our dilemma: we need to figure out how to get through the transaction. On the other side of the purchase of the second house, we save enough income each month to cover the two mortgages even if we don't rent the townhouse.

Some details:

Townhouse- when refi'ed, will be $120k loan, 30-yr fixed, at 4.875%, monthly payment P+I = $635.05
Townhouse monthly taxes = $155
Townhouse monthly insurance = $21
HOA Dues = $120
Prop Mgmt Fee = $85

Monthly rent = $850

Desired New Home

Likely purchase price = $260,000
Mortgage rate 5.1% (???) for 30-yr fixed
P+I = $1,222
Taxes = $374/month
No HOA

I have $16,000 in liquid assets right now. I will likely liquidate $2700 on the townhouse refi, bringing me down to $13,300. I don't want to be completely devoid of cash- maybe I'd use $10,000 of this money?

I could also theoretically get a HELOC from my credit union up to 90% LTV of the townhouse. This would get me about another $10-12,000. However, the second house will probably require close to $30k in closing costs and down payment even if I get a 90% LTV on the house.

How would you find an extra $10-15k to get through the transaction period?

Here are my assumptions:

1. Cost inflation is 3.5% per year

2. Rent increases 3% per year

3. Property appreciates 7.5% per year. (I address appreciation further below)

Current condo situation: 30-yr fixed at 6.875%, monthly P+I of $830.03; monthly taxes at $154.39. About 2.7 years into the 30-year mortgage.

Local mortgage broker has quoted me a refi of 30-yr fixed, 4.88% with a P+I of $613.88, will have enough equity for no PMI.

I believe I can rent the unit for $825/month starting in June.

As to the appreciation issue, our tax re-assessments just came out countywide, with the average county reassessment being 22% increase in value since 2005. Our complex's units are all valued the same, with the value representing a 46% percent increase over 2005. Incidentally, the 2009 valuation is almost exactly what we paid for the unit in 2006. As recently as December, a nearby condo with nearly the exact same floorplan and sq footage sold for $14,000 OVER our 2009 valuation. Zillow pegs our unit at $10,000 over the 2009 valuation. These pieces of data encourage me on the appreciation issue, as does the nearby comparatively recession-proof job base (UNC-Chapel Hill).

So that's the upside. The risks are vacancy, of course, and potential difficulty in raising rents each year by 3%, not to mention a potential tax increase. (though I think a revenue-neutral rate is likely, several county commissioners have already mentioned this as a goal in the newspaper)

MikeOH- I hear what you are saying on rents nationally, but I believe that the local market fundamentals are different here. That said, I readily concede that I do not know HOW different. Any recommendations on how I can learn about local rents beyond rentometer.com?

Greetings-

My wife and I live in a condo whose value has appreciated considerably in the last few years. Instead of selling it as we move to a bigger place, we would like to refinance to get a lower monthly payment, then rent it out.

As I do the math, the property has a negative $251 after tax cash flow at the end of year one and a positive $27 cash flow at year five with a 30-year mortgage.

If I switch to a 40-year mortgage at the same rate (not sure I can get this, but just an assumption for now), after tax cash flow is positive $498 at the end of year one and $862 at the end of year five.

This property is located in a college town with a strong political presence from overzealous environmentalists that makes building new housing very difficult, and our location is a short walk from everything. Even with the current economic conditions, I believe the fundamentals for long term appreciation are outstanding.

Obviously, the 40-year means I'm paying more interest, but it seems like from reading this board that I should be willing to do that if I can make the property cash flow positively. The money the property builds up could be used for a capital improvements fund first, and then eventually to pay down the mortgage faster.

I'm looking for anybody to second-guess me on this. If I have a 40-year mortgage on this house, is it going to be harder for me to get a new mortgage for a primary residence? A second rental? Is there something magic about a 30-year in the eyes of lenders that makes a 40-year seem more risky?

I'd appreciate any insights from the more experienced hands on this board. Thanks!

Hi everyone- I am looking into getting a first property purchased in about 6-8 months. I have started looking at local real estate targeted at graduation students, mostly townhomes in the 85000 - 110,000 range.

However, when planning a ski trip to Snowshoe Mtn, WV, I noticed they had several units available for similar to lower prices in a resort location.

I have requested information from their sales team regarding cash flow and rental management (they do it for you) but am interested to hear if anyone else here either owns property at Snowshoe, owns property with Intrawest (the company who does the real estate), or owns property near/at a ski resort- any tips on how to evaluate an opportunity in these niche markets?

Greetings- I am beginning to develop a plan to acquire my first rental property. I plan to buy, hold, and rent.

I am in a college town and most of the properties I am looking at will likely have a relationship to people working or studying at the college.

To others investing in such areas, what are the peak periods for people seeking rentals? Do people sign leases in May that start in August, etc? Or do they show up mid summer and hang around for two months prior to the start of classes?

I am trying to time purchase/rehab/open for rental with minimum time having the unit unrented. My target is to have the unit (unfound as of yet) for the fall semester 2009. Any thoughts/advice are greatly appreciated!

Thanks.