Is this a good decision?

19 Replies

Good Afternoon,

I am asking for advice from the more experience investors.

I brought 2 rented sfr. on land contract.

 One  is worth 145k the other one is worth 125k. I negotiated the  price down to 180k for both of them with a 30k down payment.  balance is 150k  will pay them off in 8 years with an interest rate of 6.5%, my monthly payment is $1003.97 

I have a 120k available and Im thinking of asking the seller if he will take the 120k, it will save me an extra 30k plus all the interest. 

@Ian Jackson I use the cashflow from other paid for rentals I have to pay for repairs.

Paying off my rentals is my goal, especially now that everything is so expensive. 

But I do get your point in not blowing all my $$ at once. 

Its just that saving 30k plus the interest sounds appealing, but I am new to real state investing so not sure if I am doing the right thing.

Thank you 

@Joe Villeneuve I am sorry Joe, but for some reason I cant see what you see.

If I owe him 150k plus 6.5 % interest and I offer 120k, I save 30k plus the interest and I can cash flor $1250 per month.  please help me see what I'm doing wrong?

I would look into turning that 120k into 4 or 5 more properties that cash flow an additional 2-2.5k a month, thats where you missing the boat.  It Will take you a 100 months to get your 120k back with just one property, more properties a fast return.  Thats just the way I look at it.

If you are cash flowing positive without paying 100% cash, then you are not paying the added $150k + 65% interest...your tenant is.

When you buy a cash flow property, the cost to you, is what cash comes out of your pocket...and your tenant pays the rest...as long as you are CF positive.

When you pay $30 DP, and finance the rest, those two properties cost you $30k

When you pay $150k, and eliminate the loan, you are paying $150k for these 2 properties.

...and, you have eliminated any potential to buy anymore since you are no longer have any money.

Originally posted by @Chris Svendsen :

I would look into turning that 120k into 4 or 5 more properties that cash flow an additional 2-2.5k a month, thats where you missing the boat.  It Will take you a 100 months to get your 120k back with just one property, more properties a fast return.  Thats just the way I look at it.

that makes sense, I have lots to learn.

any book you  can recomend?

thank you Chris

Originally posted by @Joe Villeneuve :

If you are cash flowing positive without paying 100% cash, then you are not paying the added $150k + 65% interest...your tenant is.

When you buy a cash flow property, the cost to you, is what cash comes out of your pocket...and your tenant pays the rest...as long as you are CF positive.

thank you Joe, I have to relearn. I've being paying off my rentals:(

When you pay $30 DP, and finance the rest, those two properties cost you $30k

When you pay $150k, and eliminate the loan, you are paying $150k for these 2 properties.

...and, you have eliminated any potential to buy anymore since you are no longer have any money.

@Enrique H.  Are you saying that instead of financing $150K of the $180K that you will offer him an all cash purchase with you paying $150K total? If that is what you mean by saving $30K, then that would be good. There is nothing stopping you from turning around and financing both properties to pull your cash back out and you can get better than 6.5% doing that. 

Leverage is a tool you can use for acquiring more properties. Even if your end game is paying them off, it is still better to use leverage to acquire them earlier. Time is your best advantage in real estate investing. Your tenants will make the payment. Over time the property appreciates and so do rents. 

@Joe Splitrock   Yes That's what I meant when I said I could possibly safe 30k. 

Thanks for your comment I really need to wrap my head around this leverage concept.  

Originally posted by @Enrique H. :

@Victor S.  rent is $2000 for both houses. 

PITI on a 30 year would be around $1500 per month on 200k, so probably not much.

that would still work, as you won't have any of your cash in them. that's a big IF, since you don't know if he'll trade his $150k note for $120k cash. make sure your ARV value is on-point as well.

@Victor S. Correct

I was planning on talking to my realtor and see if the ARV is what I think it is and talk to the seller see if he takes 120k and also talk to a bank to see if I could de a cash out.

Thanks Victor , I just might do that

If your bank will give you 75-80% LTV, why use your own cash at all? Get money from your bank and pay off the seller. 6.5% seems higher than what a bank would give you, even if you have to pay off the $150k and not get a bargain. I’m getting 5.2% right now for investment properties.

One other question....why are you trying to pay them off in 8 years? My plan is to have 75-80% loans on all properties and use the extra cash to buy more properties.

@Anthony Wick That makes sense, refinance with a bank to lower interest and do a 30 year? and hopefully talk the seller into a discount. 

I have 5 free and clear rentals and I love the cashflow they provide and when I buy one more I usually pay it off fast with all the cashflow from the others, but after reading here it seams like I should be using leverage instead.

Thanks for the Advice Anthony 

Honestly, I think paying off properties is simply a personal choice, whether it be your main residence or a rental property. I have met many people that need that mortgage paid off to sleep soundly at night. Many people do not like that kind of debt, or any debt. I just personally feel that whatever interest rate I pay for a mortgage (3.75% for my duplex, 5.2% for non-owner occupied investment properties) I can get a better return elsewhere. I.e. I'll take as many 4-5% loans as I can get if it means I get to keep cash to invest elsewhere. 

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