Buy & hold

Real Estate Investor · Madera, CA · Member since 2014 · 9 posts · 3 votes

Hello everyone, I have set myself a goal to purchase a single family home or 4 plex by August 2015. I have a good amount of money saved up & was wondering if it's a bad idea to use your own money? Also when purchasing a buy & hold what should I look for other than cashflow & purchasing it under market value? Any helpful info would be great as well. Thanks!

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

11y

Look for the ability to refinance as soon as you can. This gets your cash right back in your hands to re-use. Repeat this in a string of deals. The end result is you are accumulating properties that cash flow, but you never actually spend any money. No matter how hard you try, they keep giving it back.

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
Look for the ability to refinance as soon as you can. This gets your cash right back in your hands to re-use. Repeat this in a string of deals. The end result is you are accumulating properties that cash flow, but you never actually spend any money. No matter how hard you try, they keep giving it back.
6 Reply
Jared Christensen
Investor · Devils Lake, ND · Member since 2014 · 46 posts · 3 votes
11y
I would like to know how this works and at what banks. I just tried to take out a loan to buy a 4 plex for $89000. I just bought a house the month before in cash and tried to use the house as collateral for the 20% down and the bank wouldn't do it. The bank told me that the added cash flow from the 4 plex couldn't be used as income on my loan because it wasn't on my taxes as income from the previous year.
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Barbara Long
Martinsburg, PA · Member since 2014 · 67 posts · 4 votes
11y
Wow! Go to another bank,
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Barbara Long
Martinsburg, PA · Member since 2014 · 67 posts · 4 votes
11y
Jared Christensen
I don't know why they didn't use the income form your apartments to buy the loan. Unless the amount you are paying for it doesn't justify that the rent money wont cover the loan payents
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Jared Christensen
Investor · Devils Lake, ND · Member since 2014 · 46 posts · 3 votes
11y
The rent from the 4 plex more than tripled what the payment would have been. I think the bank I am at must be the toughest in the nation to get a loan at. I even tried to do a cash out option in the house my wife and I live in with our current mortgage is only at 20% of our home value and they wouldn't do that either. Our credit scores are both above 700 too.
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Jeff Kennedy
Investor · Yuba City, CA · Member since 2012 · 59 posts · 25 votes
11y
The rent from the 4 plex more than tripled what the payment would have been. I think the bank I am at must be the toughest in the nation to get a loan at. I even tried to do a cash out option in the house my wife and I live in with our current mortgage is only at 20% of our home value and they wouldn't do that either. Our credit scores are both above 700 too.
Many banks want to see that you have two years of experience before they consider your rental income for DTI. You should try going to a few local, small-town banks. You may have to use a portfolio loan until you can qualify for conventional financing.
I have set myself a goal to purchase a single family home or 4 plex by August 2015. I have a good amount of money saved up & was wondering if it's a bad idea to use your own money? Also when purchasing a buy & hold what should I look for other than cashflow & purchasing it under market value? Any helpful info would be great as well.
Thanks!
This really depends on your strategy. We buy properties with cash flow as our primary focus. But we also consider the condition of the property and what our long-term and short-term expenses will be. We evaluate the area and try to stay out of the worst neighborhoods. We try to buy properties that are less than 20 minutes from our home which makes them easy to manage. We look for properties that will be lendable with conventional financing.
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Jared Christensen
Investor · Devils Lake, ND · Member since 2014 · 46 posts · 3 votes
11y
I have 5 years of rental income from a commercial building that cash flows $1000 positive a month plus another commercial building that sat empty for 3 years but now has a long term lease as of 2 years ago and also have 4 years of apartment income from 2 apartments. That is all on my taxes. They looked at my debt to income ratio and all was good. But my credit score wasn't over a 720 is what they told me for both ways of trying to achieve the loan.
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Jared Christensen
Investor · Devils Lake, ND · Member since 2014 · 46 posts · 3 votes
11y
So I did whatever any investor would do. I found a different 3 plex called the owner offered to purchase it he told me a price I offered him. $5k more and said lets do a contract for deed. I sign the papers next week.
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Phillip Gonzalez
OP
Real Estate Investor · Madera, CA · Member since 2014 · 9 posts · 3 votes
11y
Jeff Kennedy what do you mean by strategy? May you give me an example of long-term & short-term expenses?
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Jeff Kennedy
Investor · Yuba City, CA · Member since 2012 · 59 posts · 25 votes
11y
what do you mean by strategy? May you give me an example of long-term & short-term expenses?
I'm sure there are others on here that can answer this better than me but I'll give it a shot:
By strategy, I mean, what are you trying to achieve? My strategy is to buy SFRs and MFs that cash flow well. We are looking to buy enough of these to eventually provide enough income for a comfortable living. We're buying several units per year. Many people have very different strategies including those that shoot for appreciation while accepting negative cash flow (not for me).
Here are some examples of expenses:
1. taxes
2. insurance
3. utilities
4. vacancies
5. repairs
6. capital expenses (long term expense that you need to save for - roof, appliances, etc)
7. loan interest
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Jeff Kennedy
Investor · Yuba City, CA · Member since 2012 · 59 posts · 25 votes
11y
@Jared Christensen
I have never heard that term "contract for deed". What is that? Owner financing?
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Phillip Gonzalez
OP
Real Estate Investor · Madera, CA · Member since 2014 · 9 posts · 3 votes
11y
Thanks a lot Jeff Kennedy That honestly really helped out a lot & gives me a better understanding!
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Jared Christensen
Investor · Devils Lake, ND · Member since 2014 · 46 posts · 3 votes
11y
@ Jeff Kennedy Yes it is owner financing. I am doing it on 2 of my properties right now and works out great.
0 Reply
Michael Wentzel
Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes
11y
@Phillip Gonzalez Welcome to BP! It's great that you're asking questions now and hoping to purchase next year. You have plenty of time to learn and research. BP's Ultimate Beginner's Guide can be found on the Learn tab above and is extremely helpful and concise. Also take some time to listen to the BP podcasts. They contain a wealth of information and they're free.
Here are few practical steps beyond education...
1) Meet a couple lenders. Maybe one from a big national bank and couple from local or regional banks. Don't let them all run your credit, but talk through your financial situation with them and see if you're be in a position to purchase next year.
2) Pick a market. "Live where you want to live, but invest where the numbers make sense." With property management, you could purchase a property anywhere in the US. Many areas of California have high prices which might keep you on the sidelines and struggle to cash flow. Consider other parts of California or other markets in the US where your money might go further.
3) Strategy. There's a million of them. The Beginners Guide and the podcasts will introduce you to many of them. Refine yours as you are exposed to others.
4) As @Jeff Kennedy mentioned, you need to run the numbers and know expenses. It is not just rent - mortgage payment = cash flow. You need to add in taxes, insurance, vacancy, maintenance, capital expenses and maybe property management.
I hope some of that is helpful. Well done taking the first step in asking the question.
Mike
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Phillip Gonzalez
OP
Real Estate Investor · Madera, CA · Member since 2014 · 9 posts · 3 votes
11y
Michael W. Thanks a lot, I highly appreciate the feedback!
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Elizabeth Colegrove
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
11y
Welcome to Biggerpockets!
We are buy and hold investors in single family homes. We buy all of our houses using "our" money no ones else's. We do not do partnerships at this time. We invest through two methods, pure rentals, and personals turned rentals. Everyone has our own strategy, but I am a control freak and prefer to have full control over the deal. Our goal is for early retirement in 15 years :)
You will love the diverse community and all the resources. So a great place is to look around the blogs, forums and listen to the podcasts for different niches. If you see a post you enjoy check out the persons signature. Many of us including myself talk about our strategies, styles, niches and business model on our website. So definitely check that out as it is an amazing additional resource. For example, my blog is about while working full time, buy and hold investing, 0% Down Rentals, Personal Properties turned rentals, Long distancing investing, self-managing 3,000+ miles away. Definitely list your blog or website in your signature, if you have one. Its a great additional networking source.
Look forward to seeing and connecting with you around!
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
11y
@Jeff Kennedy
What kind of cash flow are you getting in Yuba City?
My mom lives in Chico, so I drive through often. I can't imagine you're getting much appreciation here either. Also, what's the tenant quality like?
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Jeff Kennedy
Investor · Yuba City, CA · Member since 2012 · 59 posts · 25 votes
11y
@Account Closed
What kind of cash flow are you getting in Yuba City?
My mom lives in Chico, so I drive through often. I can't imagine you're getting much appreciation here either. Also, what's the tenant quality like?
The availability of deals in my area that cash flow has shrunk to near zero. Three years ago, there were tons of deals readily available on the MLS. Now you really have to dig deep to find a good deal. We are looking at starting a direct marketing campaign soon. As for quality of tenants, it's like any place... there are good and bad people. You have to do the hard work of screening prospective tenants and you have to buy the right property so that you can attract decent tenants.
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
11y
thanks @Jeff Kennedy
What's keeping you from investing outside of Yuba City?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y
@Jeff Kennedy
Cash for deed is simply a land contract or installment contract from the owner.
the difference is they don't deed the property to you until you paid it off.. this allows a scenario were you don't have to do a full blown foreclosure in the event of a default like you would in CA if you do a normal trust deed note and grant deed to the property at time of closing.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y
@Joe Villeneuve
your strategy does not work on the West coast.. your not buying properties for pennies on the dollar puffing up appraisals and getting some lender to give you a cash out refi.
its a whole different deal were you are were you can buy all in properties for 30 to 40k
on the west coast its 100k plus so with averages closer to 200k or more for plex's so many do not have the cash to buy them.. Plus your not going to buy them for as I stated 50 to 70 cents on the TRUE appraised value.. Unless your buying at foreclosure sale and have a full blown business and LOTS of capital...
I did your model for years when it works it works when it does not it sucks.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
$890k for a 4-plex in ND. The boom there is booming! Musical chairs comes to mind. Who will be owning these when the music stops? In my experience, banks will focus more on the income of property supporting itself when you get above 5 units, into commercial lending. I see the words 'contract for deed' floating around. I would never buy where I don't receive title until it is paid off. You could be 10 years into paying this thing, the seller gets sued or goes into a nursing home or passes away and you could be out. Do what the banks do in your area. Get it in your name with the seller as a lienholder if you go the seller-financed route!
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Jared Christensen
Investor · Devils Lake, ND · Member since 2014 · 46 posts · 3 votes
11y
It was $89k not $890k as for the contract for deed it is filed with the courts and in the courthouse. Even if the guy dies I just pay his heirs. I am only doing it for 5 years with a balloon payment do at 5 years, and we still file a deed with the county that has both of our names on it. Also the contract is filed and the abstract updated.
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Anthony GaydenPro Member
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
11y
Originally posted by @Phillip Gonzalez:

Hello everyone,
I have set myself a goal to purchase a single family home or 4 plex by August 2015. I have a good amount of money saved up & was wondering if it's a bad idea to use your own money? Also when purchasing a buy & hold what should I look for other than cashflow & purchasing it under market value? Any helpful info would be great as well.
Thanks!
I don't consider it a bad thing to use your own money for the down payment, but I personally would not buy the property cash, even if I had the money. Keep in mind I am talking from the perspective of a buy and hold investor, not a house flipper.
One of the greatest benefits of real estate is the ability to use other people's money to help you make the purchase. Yes you will have a mortgage, but your tenants will be the ones paying your mortgage. Meanwhile since you only put down 25% of the purchase price, the rest of your money is free to make other investments.
Podcast Guest on Show #21
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Jeff Kennedy
Investor · Yuba City, CA · Member since 2012 · 59 posts · 25 votes
11y
@Account Closed
What's keeping you from investing outside of Yuba City?
It is hard to find good cash flow deals around my area but they are possible. I really prefer to stay local so that I can use my area knowledge and connections to my advantage. I invest part-time and have other business/work endeavors which limits my opportunity to travel around researching non-local properties. Staying local also means that I can manage my own properties (which is a great learning opportunity for me) and I get to keep an eye on my investments.
Where do you invest? What is your stategy?
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