From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.

BiggerPockets

General Info

BiggerPockets Q&A, Site Questions, & Announcements

1522 topics, 14436 posts — Last Post 04/23/14, 11:39AM

BiggerPockets Exclusive PRO Area

118 topics, 844 posts — Last Post 04/23/14, 08:28AM

New Member Introductions

10968 topics, 86438 posts — Last Post 04/23/14, 12:15PM

Real Estate Success Stories

397 topics, 6188 posts — Last Post 04/23/14, 07:49AM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5987 topics, 47183 posts — Last Post 04/23/14, 12:16PM

Renters

649 topics, 5856 posts — Last Post 04/23/14, 10:42AM

Get Foreclosure Help - Help Stop Foreclosure Forum

316 topics, 2557 posts — Last Post 04/21/14, 03:59PM

Home Owner Association (HOA) Issues & Problems Forum

238 topics, 1611 posts — Last Post 04/23/14, 04:02AM

Do it Yourself

658 topics, 6316 posts — Last Post 04/23/14, 09:50AM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3704 topics, 29699 posts — Last Post 04/23/14, 11:00AM

Real Estate Guru, Book & Course Reviews and Discussions

1139 topics, 11596 posts — Last Post 04/23/14, 11:28AM

Ask About A Real Estate Company

743 topics, 7344 posts — Last Post 04/22/14, 11:25PM

Real Estate Investing

Real Estate Strategies

Wholesaling

5630 topics, 43907 posts — Last Post 04/23/14, 11:53AM

Rehabbing and House Flipping

3349 topics, 31094 posts — Last Post 04/23/14, 11:14AM

Real Estate Development & New Home Construction

554 topics, 4694 posts — Last Post 04/22/14, 09:17PM

Innovative Strategies

705 topics, 6044 posts — Last Post 04/22/14, 04:06PM

Tax Liens, Notes, Paper, & Cash Flows Discussion

867 topics, 6692 posts — Last Post 04/22/14, 08:22PM

Rent to Own a.k.a. Lease Purchase, Lease Options

698 topics, 4922 posts — Last Post 04/23/14, 12:17PM

1031 Exchanges

143 topics, 1062 posts — Last Post 04/22/14, 03:21PM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1691 topics, 11313 posts — Last Post 04/22/14, 09:26PM

HUD, VA, and Tax Sales

416 topics, 3102 posts — Last Post 04/22/14, 01:39PM

REOs

1217 topics, 10595 posts — Last Post 04/23/14, 09:23AM

Short Sales

1538 topics, 13139 posts — Last Post 04/22/14, 01:38PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7243 topics, 71096 posts — Last Post 04/23/14, 12:17PM

Mobile Homes & Mobile Home Park Investing

639 topics, 5144 posts — Last Post 04/23/14, 07:57AM

Investor Basics

Starting Out

7725 topics, 60648 posts — Last Post 04/23/14, 11:42AM

Investor Psychology

431 topics, 6107 posts — Last Post 04/20/14, 06:04AM

General Real Estate Investing

4727 topics, 37314 posts — Last Post 04/23/14, 12:12PM

Real Estate Investor Marketing

1737 topics, 14144 posts — Last Post 04/23/14, 12:07PM

Commercial Real Estate

Commercial Real Estate Investing Forum

1412 topics, 9004 posts — Last Post 04/23/14, 08:50AM

Multi-Family and Apartment Investing

1123 topics, 9362 posts — Last Post 04/23/14, 11:59AM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

644 topics, 4910 posts — Last Post 04/23/14, 10:40AM

Business Basics

Goals, Business Plans & Entities

832 topics, 7571 posts — Last Post 04/23/14, 09:48AM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2803 topics, 20130 posts — Last Post 04/23/14, 11:48AM

Property Insurance

310 topics, 2055 posts — Last Post 04/22/14, 07:38AM

Personal Finance Discussion

330 topics, 2754 posts — Last Post 04/22/14, 12:06PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2853 topics, 19842 posts — Last Post 04/23/14, 11:55AM

Creative Real Estate Financing

1217 topics, 8845 posts — Last Post 04/23/14, 09:39AM

Crowdfunding Real Estate

35 topics, 463 posts — Last Post 04/19/14, 06:24PM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1217 topics, 8024 posts — Last Post 04/23/14, 08:23AM

Bankers, Lenders, and Mortgage Brokers

442 topics, 1929 posts — Last Post 04/22/14, 11:03AM

Contractors

269 topics, 1690 posts — Last Post 04/22/14, 07:33AM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

2012 topics, 11723 posts — Last Post 04/23/14, 12:05PM

Americans & International Real Estate

162 topics, 568 posts — Last Post 04/14/14, 11:19AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

65 topics, 439 posts — Last Post 04/22/14, 09:27AM

Marketplace

Real Estate Marketplace

Real Estate Marketplace

15077 topics, 54100 posts — Last Post 04/23/14, 11:42AM

Real Estate Events and Happenings

167 topics, 2590 posts — Last Post 04/23/14, 09:12AM

Off-Topic

Off Topic

Off-Topic

2907 topics, 32441 posts — Last Post 04/23/14, 11:24AM

Housing News & Real Estate Market

920 topics, 8390 posts — Last Post 04/23/14, 11:47AM

BiggerPockets Real Estate Investing Summit

97 topics, 1752 posts — Last Post 04/23/14, 04:51AM

BiggerPockets Resources

Forums » Investor Psychology » Investing in rentals / short & long term

Investing in rentals / short & long term

5 posts by 5 users

Signup


Here is what I am thinking of as my first step in increasing my portfolio:

Purchase at least 2 suited properties (or duplexes) for $800,000 (or less) (cost $600,000 after 25% DP)
Rents in my area will be between $4,000-$6,000 ($48,000-$72,000 per year)
Interest cost $2,000 ($24,000 per year) at current rate (assuming interest only LOC)

So I have potential net of $24,000-$48,000 per year (less taxes and insurance)



Real Estate Investor · Ellicott City, Maryland


Originally posted by Robert Griffin:
So I have potential net of $24,000-$48,000 per year (less taxes and insurance)

Actually, it's less taxes, insurance, maintenance, vacancy, capital costs, utilities, turnover costs, concessions, rent loss, legal costs, accounting costs, etc...

In the end, you'll likely see negative cash-flow on these deals. Check out threads here on "The 50% Rule" for more details as to why...


Small_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Telephone: 770-906-6358
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook


Landlord · Seattle, Washington


Correct me if I'm wrong. I'll try to interpret your numbers to make it easier to evaluate.

Total for 2 duplexs
Purchase price 800,000
Down Payment 200,000
Amount to finance 600,000

Gross Annual Rent 48,000 to 72,000 (1,000 to 1500/mo/unit)

Your vacancy, property taxes, insurance, property management, capital expenditures, repairs, maintenance and other rental costs will like eat about half of this rent on average.

Your intention is to finance with an interest only LOC. Approx 24,000 annual cost

If your rents are 1000 per month you will just be breaking even and paying nothing on your principal. This seems like a very risky investment.

If your rents are 1500/mo you might average 6K annually for cash flow, but again your principal is not getting paid down.

A 6K return on a 200,000 investment is only 3%. That net income comes with a LOC that will not always be interest only.




I am considering a similar deal as Robert...

It's a duplex that I'd offer at most $400k for (really like to buy it for $350k, but I'll use 400k for my example). It would produce between $5k - $5500 per month. The PITI will be $2800-$2900 a month. So basically one side pays the PITI, the other goes into my reserves. I know this is just shy of the 50% rule. But I've found it next to impossible to find property that qualifies in my area (Northern NJ).

In comparison to many properties this deal is the best...

I currently own a duplex where I live in one half and rent the other... This is me trying to build my portfolio :)

I guess my question is, I'm looking at this opportunity like this... Because I have the 20% to put down, I'm investing $80k, then my tenants will be paying the PITI, so either one of 2 things will happen.

1. I hold onto the place, pay off the mortgage, and then the rent each month is income.

2. I end up selling at some point, the difference between the price the property sold for and what I still owe on the mortgage, minus my initial investment is profit.

Is this not a sound strategy for someone who has a good job in their late 20's?

Please all thoughts are welcome.... Criticize away!



Real Estate Investor · Milwaukee, Wisconsin


If you have a good job that early in your career, congratulations! Unfortunately, the property, if you get $5,000 a month gross, probably gets you $2,500 a month net, which is $30,000 a year. From there, that's an 8-cap, rounded up.

It's not the best cap rate you can find, I'd look more towards 11- and 12-cap properties, but there's also appreciation to be figured in. Now, you probably won't hold the place for the rest of your life, so selling it is a definite exit strategy. Using the cash-flow to pay the mortgage while letting it appreciate is definitely a strategy, but you are banking on appreciation.

If the area is good, and it's not already overpriced, it might be a good investment, especially if you can get it for $350k or less. Remember, you have to both beat inflation and cover the seller's costs, like commissions and closing costs. So, even if you bought it for $400,000 today and sold it for $408,000 next year, you'd still be losing money, since inflation is 2% (8k) and you are paying a good amount in closing.

Also, I find it a little more difficult to hedge my bets on appreciation, but that considers the areas I work in. Just my input, I'm sure lots of other people around have completely valid viewpoints different from my own.





Sign up