Newbie from Pennsylvania

14 Replies

Hi everyone!

My name is Robb and I'm from PA. I wouldn't call myself and investor by any means but I've always been interested in real estate. I currently have 1 rental property that I own (previous residence). Unfortunately that's not making me any money due to the factors involved when we had to relocate but I do have some extra funds that I would like to use to start investing in real estate

I'm not looking to quit my job since I actually like what I do but I am very interested in real estate investment.

I've been reading some of Brandon's books and attending the webinars from this site and I'm hoping to start investing in the next 6 months or so.

@Robert Fountain

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@Charles McCabe , thanks for the welcome. I'd be happy to share info on my rental although it's not what you (or anyone else) would call profitable. 

My wife and I bought the townhouse in 2006 right after we got married, right in the middle of the bubble. We were young and didn't have a lot of money. We financed with an 80/15/5 mortgage because that's what we could do. We figured we "had" to buy now because prices were going up daily and we would lose our chance.

We lived in the townhouse for 8 years had a child there. In 2013 we moved out of state and, since we couldn't sell due to the bubble burst we decided to rent it out. We've had steady tenants since and they cover the cost of the 1st mortgage. We front the second mortgage as well as HOA fees (30/month).

We are much more financially stable now. My wife and I make good money and have steady jobs.  We have some saved and since I've wanted to get into real estate investing for a while now I decided no longer to "want" and to actually DO IT!

I would love to make my current rental profitable (or at least break even) as well as purchase another property. I'm looking at multi-family.  If you would like more information please let me know.

@Robert Fountain Thanks for sharing.

I take that that there's little to no equity in the property (in fact, you're probably underwater).  

Just throwing ideas out...might it make more sense to improve your bottom line by using your cash on hand to pay off the second mortgage, thereby keeping more money in your pocket and saving the interest on that loan? It's less risky and easier to calculate than buying a new property.

Could you refinance if you were to use cash on hand to get to the right LTV? Rates are still good and probably lots better than they were in 2006, but that's pure guesswork.

Are you paying PMI due to the high LTV? You might be able to save on that, too, if you got the LTV down enough.

Are property taxes significant?  Might be able to get them reduced.

I'm assuming that either you're already sure that your tenant is paying market rate or that you think they're a flight risk if you increase the rent, but it's something to keep in mind.



@Charles McCabe you are correct. there is no equity in the property and we are underwater.  We are able to front the mortgage whether the property is occupied or not so that's a big plus.  That's why we want to take our capital and try to make some money with that.

Regarding PMI and property taxes. We are not paying PMI which is good. I also had our property taxes reduced 2 years ago which was successful so that's another plus.

The rent definitely at market rate but we have not increased the rent ever.  After reading the books from Brandon and doing my research, we should be increasing the rent since costs rise.

So here's a big question I have. Now that you mentioned possibly paying off the second mortgage to maybe start improving my bottom line should I do that or buy another property? 

I can find some great deals in my area. There are many multi-family units in my area that can offer a 12% CoCROI. I have some connections and I believe I can get a private lender or some owner financing. Would it be smarter to go that route and purchase a property that will generate cash flow or make my current property generate more?

Thank you in advance

"We are able to front the mortgage whether the property is occupied or not so that's a big plus." Right, but a penny saved is a penny earned, and in this case, a penny saved doesn't cost interest ; >

Like you've said, it's all about the opportunity cost.  If you're only losing $100/mo on the old house and with the same amount of capital you can get into another house that'll flow $500/mo (or create great leveragable equity), that's probably the way to go (and then I'd probably apply the flow to paying off the old house, so that it's profitable, too).  But if you're losing $300/mo on one and only stand to make $300/mo on another, I'd definitely pay off the old one.

Maybe if you ended up with a lot of equity in a new property, you could find a lender to blanket refinance the two, so you could lower the interest rate on the old one (possibly while spreading it out over 30 years again)?

Looking at the CoCROI is another way to evaluate it (and I realize that it's not as easy and even as this), but you can simply calculate your (negative) CoC on the current property (based on amount to pay off the second mortgage) and compare that to the potential CoC from another property (based on total cash in).

What about using one of the HARP programs?  You might be the first person in history to get any benefit from it, LOL.



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