Houston texas LU article on owning 22 properties at $12k down payment for one
Katy, TX · Member since 2014 · 2 posts · 0 votes
this is the link to the artlice
http://www.lifestylesunlimited.com/how-22-rent-pro...
my question is
With $12,000 down payment. say you need $2000 for upgrades to increase home value nd for miscellaneous fees, you are left with $10,000. For a 20% down payment you are looking at purchasing a house for $50,000. can you find a single family home for $70,000 in my situation in Houston Tx in a good neighborhood This is assuming you have captured 20k as the article describes?
secondly, I have done the calculation, with a 5% interest rate for a 30 year loan and 3% property tax including 1k a year insurance and an HOA of $30 a month your monthly mortgage payment including tax, insurance and HOA is $453 a month.Iin your article, you mention $100 maintenance and vacancy reserve so that is a total of $553 in order to be cash flow positive of $420 you will want to charge $973 for rent.
So my question is can you charge $973 a month for rent for a single family home worth $70,000 in Houston??
David has it correct, we use hard money loans to accomplish this.
Let's take a home that is worth 100K.
We would ideally like to get it under contract for around 65K.
A hard money lender will lend us up to 75K to purchase and rehab the property.
If you can rehab the property for 8 K you are all in at 73K, if you are using fannie mae financing you can get a refinance for 80% LTV on the property.
So after your rehab and refi you are all in for 80K and this would be a deal where you had no money out of pocket to purchase the home. (assuming closing costs ran around 8K).
If your rehab costs more than 8K, then whatever additional money it costs over 8K is what you would have put in the project.
This was easier to do 2-3 years ago, but you can still find properties to do this with for less than 20K out of pocket.
As for homes at 70K renting for 1K a month, yes, that happens all the time in Houston. If you look on MLS for 3/2/2's that are at least 1200 sq. ft for rent, you are going to find very few below 1K in rent.
welcome!
Simple answer..... No.
The trick is that you should be buying properties at steep discounts in non traditional ways.
Welcome aboard. I don't know much about lifestyles unlimited but stick around here for a while and you might learn a little about real estate investing.... For free too!
Sorry I missed your numbers... I think a 70,000 all in investment could rent for 1000 in Houston. It just won't be easy to find.
Let me see if I can help you out and explain how they do this. The Lifestyles approach is to us a Hard Money loan (also called a bridge loan or a short term construction loan or a temp to perm loan) to aquire property. Look into this strategy some more, plenty of information on BP about it. Hard Money basically explains why investors want to buy a home at 70% of ARV less repair cost.
David has it correct, we use hard money loans to accomplish this.
Let's take a home that is worth 100K.
We would ideally like to get it under contract for around 65K.
A hard money lender will lend us up to 75K to purchase and rehab the property.
If you can rehab the property for 8 K you are all in at 73K, if you are using fannie mae financing you can get a refinance for 80% LTV on the property.
So after your rehab and refi you are all in for 80K and this would be a deal where you had no money out of pocket to purchase the home. (assuming closing costs ran around 8K).
If your rehab costs more than 8K, then whatever additional money it costs over 8K is what you would have put in the project.
This was easier to do 2-3 years ago, but you can still find properties to do this with for less than 20K out of pocket.
As for homes at 70K renting for 1K a month, yes, that happens all the time in Houston. If you look on MLS for 3/2/2's that are at least 1200 sq. ft for rent, you are going to find very few below 1K in rent.
Thanks for your reply guys. The hard money first then refinance after renovation is pretty smart. Dont know why I did not think of that. however if the property cannot rent or sell quick you are stuck with a high interest payment. I guess that is the same for all real estate deals. however refinancing can reduce your payments
Do hard money lenders loan money to new investors with 0% down and for the value of a property after renovation. This is the only way your example (Eric) will work.
The conventional route seems reasonable in my first purchase to get the experience under my belt before going the hard money route. But in this case I am burning time because I would have to save for a few years to carry out another deal. If hard money works the way your example suggests with no money down then I would not have to use my capital. then it is only a matter of renovating as quick as possible to only pay a month or 2 of hard money interest before refinancing.
I Think I will go the hard money route. But have some money for contingencies.
for this to work I would have to be able to refinance as a soon as the renovation is done. this brings me to my next question?
How soon can one refinance after purchasing a house?
And what type of interest am I looking at for hard money lending with no money down. If this is possible. Anorther somewhat unrelated question about HMLs. what is the process like? do I have to talk to HMLs to see the amount I can be approved for before going out to look or do I find the property before going to HMLs the first seems quicker if this is the way it is and less likely to miss a deal.
I have read a few forums on hard money lending, If hard money lenders require 20% down or more as some say why not just go conventional.
Thanks a lot for your response it has really gave me something to think about
" If hard money lenders require 20% down or more as some say why not just go conventional."
When you use a HML you can get the 20% back when you refinance, which means you can use that some money to purchase another property. In conventional you cannot immediately refinance after a purchase unless 1. you rehab or upgrade the property (which means more money from your pocket) or 2. you wait 6 months (or more, depending on the lender) for an increase in value, however, this may or may not happen, depending on the market. Plus, HML finance faster (generally speaking) and have softer guidelines than conventional lenders.
"Do hard money lenders loan money to new investors with 0% down and for the value of a property after renovation."
This used to be the case but not anymore, especially for new investors with no track record and no borrowing relationship with the lender. When I was investing back in 2005 and 2006, my business partner and I could get a hard money loan with about $100-200 down for inspection. It was so easy to get a loan. THese days you have to put SOMETHING down, generally 20% and have some additional funds for closing costs and reserves.
Another reason to go HML instead of conventional financing could be because you simply may need to. The reason being, if you are potentially purchasing a property in a distressed physical condition, i.e. "not habitable in its current form", then many (if not, all) conventional lenders will not finance your deal as their business model considers retail, ready-to-live-in homes. HMLs specialize in financing those physically-distressed properties so they may actually be not only your best bet but possible also your only available alternaitve depending on the condition of the property.