All Forum Posts by: Ed L.

Wow- that was one heck of a transformation and one exceedingly well used budget.  

Well done and congrats! 

That is one hellacious list of renovations for $10,000!  

But how do you figure price appreciation on a multi that is cash flow negative in a low income, low volume, repressed market?

There can't be many comps for 4 unit properties in a town that small.  I fear that you are going to run into trouble when it comes time to appraise the property for the refi.  I would be sure to go ahead and do the appraiser's job for him and hunt down every supporting comp possible and hand deliver a list of comps you've found the day of the appraisal.  

The last thing you want is a lazy appraiser to come in and bomb your value and now you either have to come up with cash to get the LTV down or hope the previous owner is willing to carry the note full term.

Keep us posted on how things progress.   

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@Jay Hinrichs undefined

Yikes we covered a bunch of ground.

The reason many investors went bankrupt was a combination of 1% properties,  leverage, a recession, sinking property values, and capital expenditures that came up early in their ownership.  Over time they would have been cash flow positive, but at that particular point in time they were cash flow negative, and underwater.  That's my best guess on that issue. 

When I'm purchasing properties at 2% they have to be significantly below market value even in MS.   I go in and rehab for long term, and in the process I'm building instant equity. My last house was purchased for $27,500.  After rehab I'm at $40,000, and it rents for $850.   Realistically it would bring close to $85,000 after rehab in the retail market.    In a way it's kind of a 1% deal when you think about it in those terms.  For me though, I'd rather sit on it and cash-flow vs. taking the short term profit and giving uncle sam half in the process.   

 You really can't find (A) neighborhood properties that yield 1% in or around Hattiesburg.  The rental market really can't bare much more than $1,500 rents and there isn't any new construction for $150,000 or less.  There isn't a way to buy and add value to the (A) neighborhood properties because they are new and in move in condition.   If a tenant has a good job, good credit, and can afford $1,500 rents they will likely be buying a home in the near future.  We have a huge volume of inquires for up to $1,500 per month for 6 months.  

Regarding price appreciation we are basically right back where we were pre recession with regard to home values.  Looking back that was widely considered a unsustainable bubble, yet somehow this time is different?   We lost right at 6 years, and wage growth is barely keeping up with inflation.  I really don't see another bull run on home values from this point forward.  I think best case they will continue to keep pace with inflation, and worst case the fundamentals that brought down the US economy last time will rear their ugly head again..  This time I fear the FED isn't going to be able to put a floor under it by dropping interest rates.

I hope for everyone I'm just being a pessimist.  

 Chart was pretty spot on to me sharad.  I was addressing another poster that referenced your chart.  

I think there's a great deal of discrepancy between what people classify as a, b, and c.  

I can take anyone for a ride around town and demonstrate how I classify neighborhoods locally.  

Not surprising my classifications revolve a lot around the age of the neighborhood.  Hence my point that  what is A today will likely be B or C tomorrow.   

A hoods are mostly built after 2000.  Exceptions are historical neighborhoods that are in high demand.  Ranges from $150,000+.   Rents for $1,500-2,000 max.   Doesn't matter if you spend $400,000 on the purchase it will not rent for much more than $2000 per month.  Major case of diminishing returns. 

B hoods are typically birick ranch homes built in the 70-late 80's early 90's.  They sell for $75,000-$150,000.   Good middle class neighborhoods.  Rents go from 900-1400

C hoods are cottage style homes that are deemed functionally obsolete due to small sq footage, 1 bath, 2bed, etc.   they were constructed from 1940-late 1960's.  Purchase price $30,000- 75,000.   Rents range from $750-$1000.   

For my area  and most of the country we will likely see home prices move in unison to inflation.   

I would classify it as a pretty safe but boring market.  

There's a pretty big hole in your calculations, and that's assuming a Class A property will still be a Class A property after 20-30 years...  In reality there's a pretty solid chance that it will be a Class B or C property.

The Class C property may see a neighborhood revitalization/gentrification and come back to a B.

2% is just a figure that works for me.  It keeps me at a low price point and keeps me from leveraging to invest.  It may take a year to find 1 or 2 properties that meet my criteria, but I'm happy taking it slow and steady...

The thought of leveraging up huge sums of money for 30 years just to make 5-6% in this economy is pretty terrifying. (Assuming you purchase $1,000,000 in 1% properties with 20% down, 4.5% interest & 30yr amm. )  Monthly mortgage would be about $4,000.  With 1% properties that would only yield ($10,000 gross rents x %50)- $4,000 mortgage= $1,000 per month positive cash-flow.  That's only a 6% annual return on your $200,000 investment using $800,000 IN LEVERAGE....  

Not trying to be a dissenter, but I've just seen too many foreclosures that were previously owned by well known local investors that purchased as 1% deals..  On the bright side that's a great way to make 2% deals for cheap-o's like me..

I can't think of any reason not to go with your personal name.  Others on here are much better versed in tax law, but I believe you may not be able to receive the mortgage interest tax deduction or qualify for homestead exemption if the property is deeded under a llc.  

I believe most myself included use our LLC's as a barrier between our business assets and our personal assets.

Some really nice looking solutions.  

I had the same thing going on in my most recent rental remodel.  The cheapest/simplest solution I found was just removing the old wood window.  Exterior was the wavy pattern fiber cement siding and was easy to match.  

We just went back with simple fiberglass wall panels and problem solved.  The old window was painted shut and never opened so I'm guessing there won't be any moisture issues. 

For me the right time to buy is when the right deal presents itself. All my SFR properties are occupied by either students, or staff. They have been a exceedingly pleasant lot to work with.

School being in session definitely limits the applicants, but there's still people out there shopping.  I try to time my renewals to coincide with the school schedules.  Maybe do a 1yr 3month lease vs a 1yr.  

Unless your rates are considerably less than their current landlord I'd keep shopping for tenants.