Is this a good rental property?
San Antonio. Tx · Member since 2018 · 75 posts · 47 votes
Is this a good rental property?
Most Popular Reply
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3yYou should have split your money up and bought multiple properties. It increases the speed of building wealth, gives you tax deductions for mortgage interest, and other benefits.
If you buy one house for $160,000 then you only control $160,000.
If you put down $40,000 then you could buy four houses and you would control $640,000.
If the market increases 2% per year, in five years the one house would gain $16,652. If you had four houses, you would gain $66,608 in value.
There are so many more benefits to leveraging. I highly recommend you read some books on real estate investing to grasp this concept and accelerate your growth.
The DIY Landlord Book4.7247 Reviews
44 Replies
- Rental Property Investor · Damascus, MD · Member since 2018 · 50 posts · 31 votes3y
Quote from @Joe Villeneuve:
The answer is no...sorry. This is a math problem.
First, the only cost to the REI for a property is the cash they spend. By paying all cash, you have paid full price. If a property cash flows, then the tenant is paying for the rest...not you...and they do it without question. You just took over their job, and are NOT saving money in the process. You are losing money because of it. Also, like any business, you don't start to make a profit until you recover all of your cost, so, with that in mind,...
Here are your numbers buying all cash:
1 - Your cost (cash) = $160k
2 - Your cash flow per year = $11,200
3 - Number of years to recover your cost and start to make a profit = over 14
Here are your numbers buying with a 20% DP:
1 - Your cost (cash) = $32k
2 - Your cash flow per year = $1080 (assuming 30 years/7% interest)
3 - Number of years to recover your cost and start to make a profit = over 30...so even worse.I won't touch a property unless my cost recovery time is less than 6 years.
For a 20% DP, the loan amount = $128,000
Mortgage payment based on 30 years/7% interest = $852 per month or $10,224 per year.
Cash flow required for a cost recovery time of 6 years = $444 per month or $5,333 per year
Rent = Cash flow + Mortgage payment + Expenses
Therefore, Rent = $444 + $852 + $660 = $1,956 per month
1,956/160,000 = 1.22%
So, are you saying a rental property isn't worth it unless it meets a 1.22% rule?
- Real Estate Broker · Member since 2018 · 34 posts · 16 votes3y
I definitely would not invest that much cash in a property unless its 2-4 units. If the tenant stops paying or moves then you lose your income. I would definitely recommend getting a loan with a smaller down payment so you can diversify your investments. I only pay cash for properties up to $35,000. Anything over that I am putting a down payment.
- Investor · Santa Rosa, CA · Member since 2018 · 59 posts · 18 votes3y
I wish you would have messaged me before this deal. You are not winning.
Message me and I could have gotten you cash flowing $3- $4k a month with that much $.
You would have to invest in Indiana. Have a whole team and resources. Rates we are getting for property mortgages are 5-6% for our multi-family investments. I know everyone is getting terrible rates but we use a broker out of AZ and his fee is only about $2400.
Anyway if you are interested or anyone for that matter. Private message me.
GOOD LUCK!
Rob
- Investor · Santa Rosa, CA · Member since 2018 · 59 posts · 18 votes3y
Quote from @Stephanie Ford:
I definitely would not invest that much cash in a property unless its 2-4 units. If the tenant stops paying or moves then you lose your income. I would definitely recommend getting a loan with a smaller down payment so you can diversify your investments. I only pay cash for properties up to $35,000. Anything over that I am putting a down payment.
Who do you use for a mortgage under $75k? I would like that contact please.
- Member since 2020 · 671 posts · 937 votes3y
Everyone has their own criteria, but I think the idea would be to get the house with any combination of a lower price, a lower interest rate, and higher rents. I'll only speak for myself, but the numbers don't look like they did a couple of years ago, so I'm sitting and waiting for any (or all) of those numbers to change before I buy again.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Quote from @Sam Bhattacharya:
Quote from @Joe Villeneuve:
The answer is no...sorry. This is a math problem.
First, the only cost to the REI for a property is the cash they spend. By paying all cash, you have paid full price. If a property cash flows, then the tenant is paying for the rest...not you...and they do it without question. You just took over their job, and are NOT saving money in the process. You are losing money because of it. Also, like any business, you don't start to make a profit until you recover all of your cost, so, with that in mind,...
Here are your numbers buying all cash:
1 - Your cost (cash) = $160k
2 - Your cash flow per year = $11,200
3 - Number of years to recover your cost and start to make a profit = over 14
Here are your numbers buying with a 20% DP:
1 - Your cost (cash) = $32k
2 - Your cash flow per year = $1080 (assuming 30 years/7% interest)
3 - Number of years to recover your cost and start to make a profit = over 30...so even worse.I won't touch a property unless my cost recovery time is less than 6 years.
For a 20% DP, the loan amount = $128,000
Mortgage payment based on 30 years/7% interest = $852 per month or $10,224 per year.
Cash flow required for a cost recovery time of 6 years = $444 per month or $5,333 per year
Rent = Cash flow + Mortgage payment + Expenses
Therefore, Rent = $444 + $852 + $660 = $1,956 per month
1,956/160,000 = 1.22%
So, are you saying a rental property isn't worth it unless it meets a 1.22% rule?
The 1% rule tells me nothing of value. What I'm saying is, the accumulated CF over the years must recover my cost (cash I put in) within a 6 year period, or it's no deal. - Real Estate Broker · Member since 2018 · 34 posts · 16 votes3y
My min loan amt is $75k. I just bought a house for $50k then got a rehab loan of $25k. Most of the houses in Birmingham will need $50k if $20-$40k so its easy to do. I'll introduce you in an email.
Quote from @Rob Nappi:
Quote from @Stephanie Ford:
I definitely would not invest that much cash in a property unless its 2-4 units. If the tenant stops paying or moves then you lose your income. I would definitely recommend getting a loan with a smaller down payment so you can diversify your investments. I only pay cash for properties up to $35,000. Anything over that I am putting a down payment.
Who do you use for a mortgage under $75k? I would like that contact please.
- 3yCaity B.Pro MemberMember since 2022 · 19 posts · 9 votes
Quote from @Becca F.:
Your numbers (property management, taxes, insurance) are similar to mine but I didn't pay cash for my SFH in Indiana. It was my primary residence then I moved and rented the house out. I used much lesser values for cap-ex and vacancy. My rent is more than the 1% rule. Looking strictly at numbers, I should probably sell mine but I bought an upgraded house for such a low price $140,000 with a low interest so I'm keeping it and tenants are paying my mortgage down. Value is around $247,000 to $250,000 and in a nice neighborhood with good schools, primarily homeowners. Midwest historically has slow appreciation but I've had many recommendations by other investors to buy more in the Midwest, much lower prices compared to California which has appreciation but I'm not buying anymore properties on the West Coast. What has been the appreciation in that area? How much could you raise the rent each year? I don't know anything about San Antonio.
I agree with not paying cash for property. A lender advised me to take out a HELOC against one of my properties (San Francisco Bay Area) and pay cash for a future rental to avoid the high interest rates now and be favorable with sellers. Her reasoning is also if something went wrong, recession, non-paying tenants, etc, I could just sell it and get all money back. $300,000 to $400,000 is a big outlay of cash (for 1 or 2 properties). Are there ever situations where an investor would be better off paying cash?
@Becca F. was it suggested where to look for the HELOC? I've spoken with two credit unions in my area so far, one said they'd only provide a HELOC for debt consolidation and improvements to a principal residence, the other would allow for repairs/improvements to a non-principal residence but still would not allow the money to be used on a down payment for an investment property. I would have to get a personal loan from both
- 3yKerry BairdPro MemberRental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
@Caity B. It takes a lot of searching to find a HELOC for investment properties. Where is your property located?
- 3yCaity B.Pro MemberMember since 2022 · 19 posts · 9 votes
Quote from @Kerry Baird:
@Caity B. It takes a lot of searching to find a HELOC for investment properties. Where is your property located?
I am in southeast Michigan and am searching for properties here, but also considering out of state (likely Texas) for MTR's
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
Try Figure Lending. It's a hybrid of an equity loan and a HELOC. If you apply for a $200,000 line of credit they will deposit the entire $200,000 into your bank account. Mine is a fixed rate for 30 years but if I draw on it again, I pay the current higher interest rate .Let's say you get the equity line at 7% fixed rate. For example, if you make a $20,000 payment on that $200,000 line, the balance is $180,000. You have room to draw more money. If your want to re-draw $10,000 next week, you pay current rates on that amount, which is over 9% now (not the original 7% rate). The process is all online and you get approved quickly, less than 5 days, depending on if your property has a mortgage and how much. They did a desktop appraisal of my property. I didn't have to submit W-2s, tax returns, etc but your situation might differ.
My lender walked me through the process and you can pay points if you want to buy down the rate - I did zero points. You can do shorter than a 30 year term. My lender recommended getting a little more than I need and that I could always "send the money back" (make a large payment) but if I want to draw on it again, I'm paying higher interest rates. If you pay 10% or more of your principal balance in the future, the equity line re-amortizes and your fixed monthly payment becomes lower. No prepayment penalty also.
The only thing is that it will show up on your credit report as revolving credit and that you now have $200,000 credit used so your credit utilization percentage goes way, kind of like you maxed out a $20,000 credit card. Interestingly Equifax reports it as a mortgage loan and Experian reports it as revolving credit like credit cards. I have a fixed monthly payment (unlike traditional HELOCs with variable rates ) unless I draw more money in the future, which I don't plan to do, unless interest rates decrease significantly.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Quote from @Sam McCormack:
Quote from @Joe Villeneuve:
No. The cash you pay is what your total cost is. The less cash you pay, the less the property costs you. It's really that simple. If you think it's OK to pay a higher DP in order to go from negative to positive CF, I assume (know) you failed Geometry when you were in High School. That "positive" cash flow is an illusion. All you'd be doing is paying all that negative CF upfront.Quote from @Becca F.:
Your numbers (property management, taxes, insurance) are similar to mine but I didn't pay cash for my SFH in Indiana. It was my primary residence then I moved and rented the house out. I used much lesser values for cap-ex and vacancy. My rent is more than the 1% rule. Looking strictly at numbers, I should probably sell mine but I bought an upgraded house for such a low price $140,000 with a low interest so I'm keeping it and tenants are paying my mortgage down. Value is around $247,000 to $250,000 and in a nice neighborhood with good schools, primarily homeowners. Midwest historically has slow appreciation but I've had many recommendations by other investors to buy more in the Midwest, much lower prices compared to California which has appreciation but I'm not buying anymore properties on the West Coast. What has been the appreciation in that area? How much could you raise the rent each year? I don't know anything about San Antonio.
I agree with not paying cash for property. A lender advised me to take out a HELOC against one of my properties (San Francisco Bay Area) and pay cash for a future rental to avoid the high interest rates now and be favorable with sellers. Her reasoning is also if something went wrong, recession, non-paying tenants, etc, I could just sell it and get all money back. $300,000 to $400,000 is a big outlay of cash (for 1 or 2 properties). Are there ever situations where an investor would be better off paying cash?
Geometry?
Yes, Geometry. It teaches logic. It teaches how the parts make up the whole. It teaches about systems, and the relationship between all the parts of that system. It teaches how to take all of the above, and develop a plan. It teaches us, how to make decisions. It should teach us how to be REI's.
Algebra, is where we take the geometry and apply it to formulas...using numbers with dollar signs in front of the numbers...then hopefully, learn to operate from the left side of the equal sign in those formulas, and not the right. - 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
Okay now I got it
Sam McCormack Realtor - 3yCaity B.Pro MemberMember since 2022 · 19 posts · 9 votes
Quote from @Becca F.:
Try Figure Lending. It's a hybrid of an equity loan and a HELOC. If you apply for a $200,000 line of credit they will deposit the entire $200,000 into your bank account. Mine is a fixed rate for 30 years but if I draw on it again, I pay the current higher interest rate .Let's say you get the equity line at 7% fixed rate. For example, if you make a $20,000 payment on that $200,000 line, the balance is $180,000. You have room to draw more money. If your want to re-draw $10,000 next week, you pay current rates on that amount, which is over 9% now (not the original 7% rate). The process is all online and you get approved quickly, less than 5 days, depending on if your property has a mortgage and how much. They did a desktop appraisal of my property. I didn't have to submit W-2s, tax returns, etc but your situation might differ.
My lender walked me through the process and you can pay points if you want to buy down the rate - I did zero points. You can do shorter than a 30 year term. My lender recommended getting a little more than I need and that I could always "send the money back" (make a large payment) but if I want to draw on it again, I'm paying higher interest rates. If you pay 10% or more of your principal balance in the future, the equity line re-amortizes and your fixed monthly payment becomes lower. No prepayment penalty also.
The only thing is that it will show up on your credit report as revolving credit and that you now have $200,000 credit used so your credit utilization percentage goes way, kind of like you maxed out a $20,000 credit card. Interestingly Equifax reports it as a mortgage loan and Experian reports it as revolving credit like credit cards. I have a fixed monthly payment (unlike traditional HELOCs with variable rates ) unless I draw more money in the future, which I don't plan to do, unless interest rates decrease significantly.
Wow, this was extremely helpful. The few banks/lenders I’ve spoken to were variable rate so that’s great to know there are still some good fixed rate options out there. I love that they re-amortize when you pay 10% down. Thank you so much for the info! I’ll absolutely look into this
- 3yAnn McleanPro MemberMember since 2022 · 32 posts · 16 votes
Quote from @Joe Villeneuve:
The answer is no...sorry. This is a math problem.
First, the only cost to the REI for a property is the cash they spend. By paying all cash, you have paid full price. If a property cash flows, then the tenant is paying for the rest...not you...and they do it without question. You just took over their job, and are NOT saving money in the process. You are losing money because of it. Also, like any business, you don't start to make a profit until you recover all of your cost, so, with that in mind,...
Here are your numbers buying all cash:
1 - Your cost (cash) = $160k
2 - Your cash flow per year = $11,200
3 - Number of years to recover your cost and start to make a profit = over 14
Here are your numbers buying with a 20% DP:
1 - Your cost (cash) = $32k
2 - Your cash flow per year = $1080 (assuming 30 years/7% interest)
3 - Number of years to recover your cost and start to make a profit = over 30...so even worse.I won't touch a property unless my cost recovery time is less than 6 years.
Your analysis did not include the capital appreciation factor. Yes, cashflow might be low but if the house increases in value over the years, this will be a good deal.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesNo. That factor is applied the same two both scenarios...and just makes the 20% down even better.
Quote from @Ann Mclean:
Quote from @Joe Villeneuve:
The answer is no...sorry. This is a math problem.
First, the only cost to the REI for a property is the cash they spend. By paying all cash, you have paid full price. If a property cash flows, then the tenant is paying for the rest...not you...and they do it without question. You just took over their job, and are NOT saving money in the process. You are losing money because of it. Also, like any business, you don't start to make a profit until you recover all of your cost, so, with that in mind,...
Here are your numbers buying all cash:
1 - Your cost (cash) = $160k
2 - Your cash flow per year = $11,200
3 - Number of years to recover your cost and start to make a profit = over 14
Here are your numbers buying with a 20% DP:
1 - Your cost (cash) = $32k
2 - Your cash flow per year = $1080 (assuming 30 years/7% interest)
3 - Number of years to recover your cost and start to make a profit = over 30...so even worse.I won't touch a property unless my cost recovery time is less than 6 years.
Your analysis did not include the capital appreciation factor. Yes, cashflow might be low but if the house increases in value over the years, this will be a good deal.
- Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes3y
Quote from @Mica Moore:
I have acquired my 1st rental property! I'm wondering if this is a good deal & if the numbers are profitable or if I should invest somewhere else?
It's a single family house. 3/2/2 1000SF. Bought for $160K cash, so no mortgage. In South TX, outside of San Antonio (so high taxes and insurance).
Monthly numbers:
Income: Rents for $1600 per month ( 1% rule check ✔)
Expenses: PM fee $160, Taxes $333, Insurance $167, no other expenses unless I have to repair something or have a vacancy -- which so far I haven't had. How much would I budget for those?
I just put the net proceeds in a savings account and don't touch it -- so that if I do need to make repairs, I have the money. After I have $10K saved I will start taking draws.
Just double checking if I understand correctly, you have already purchased this investment, right? so what is your query - do you want to re-fi it and reinvest? Or are you asking for approval of this asset?
Join the conversationCreate a free account to reply, vote on answers and follow this thread.