Real Estate Investor · Summerville, SC · Member since 2014 · 62 posts · 2 votes
ok mentors & guru's here is my question to EVERYONE i just aquired 5 brand new homes in summerville SC (cane bay plantation) from lennar . 1 will be my home & the 4 others will be for investment. all 5 are sfh 4br 3.5 ba. the prices are a avg of $203,0000.00 i am puting down 25% on all of them my credit is good & income also. my question is once i settle in after lets say 3-6 months how can i aquire more homes? most of my $ are going to these 5 homes. programs, tips & tricks , Leverage, etc i want to continue to aquire as many homes as i can get. please advise :)
Also, you're asking the wrong question. Quality of investments is more important than quantity. Would you rather own 10 non-cash flowing properties or 1 that cash flows $1,000 a month?
I'd take the second. I do not invest for appreciation alone. That's speculative.
Investor · Gaithersburg, MD · Member since 2013 · 659 posts · 441 votes
11y
The short answer is, use the cash flow from the ones you purchased to fund future houses. If you purchased these 4 investment properties and you are breaking even or not cash flowing, I'd question if it was the right move, but even then, you may have to rely on appreciation and re-financing down the road to pull money out. Based on the money you spent, I'd expect a cash flow of around $500/month.
Investor · Gaithersburg, MD · Member since 2013 · 659 posts · 441 votes
11y
FYI, I meant $500/month PER property btw for a total of $2K/month. I own around $600k of SFR properties and they cash flow over $2k/month so I'm being conservative with that number.
Lanham, MD · Member since 2014 · 6 posts · 4 votes
11y
Thomas,
I'm no mentor or guru, but I think most of them in this niche would agree that a good rule of thumb is that your rental rate should be 1% of the purchase price. So if you paid $203,000, your rental rate should be $2,030 a month. The neighborhoods that produce these sorts of properties are scattered throughout the Midwest and the South. However, you can create these margins by finding a junker and rehabbing it in many other places. There are loans that will include the rehab costs in the loan.
Think about it, if you find a junker for $90,000 and put $40,000 in work, your total purchase price is $130,000. With an ARV of $200,000 and a rental rate of $1,600 a month. You now have $70,000 in equity and much more cash flow than you currently have. Also, $1,600 a month is more than 1% of $130,000 purchase price. You have so many other options doing things this way, you can sell some off immediately for the $70,000 or rent them out knowing that with the new rehab work, your maintenance on the home should be minimal for the next few years. You will likely attract a higher class tenant. Also, you are not relying on appreciation to take you to the promised land.
Buying for market value isn't good because you want to have some equity so that you will be able to do what you want to do right now, which is buy more properties. You would of been able to leverage the equity to purchase more properties had you followed the above rule. Also, you would of put much less down on the $130,000 loan than you did the $203,000 loan, thus having more money in your pocket.
If I were you I would slow flip off at least 2 of the properties. Slow flip as in rent to own to a great prospect who has at least $10k to put down upfront and have them purchase for top market value. The terms can be 1-2 Yrs, obviously the shorter the time you give, the smaller your tenant buyer pool is. Have them dedicate at least $1,000 towards credit repair of the down payment if needed, to be sure they qualify for the loan. Connect them with your Mortgage Broker so that they can assess how likely they are to be approved for the home in the allocated amount of time, upfront. Your Mortgage Broker will work with them throughout the term to make sure they are on track to purchasing. My guess is that your new Mortgage Payments on the home will be mostly interest, but give the tenant buyer some value by allowing the purchase price you agree on to be reduced in the same amount your principal mortgage is reduced each month. You should be able to price the rent to own contract at $210,000. Personally, I would sell off all 4 this way and start over the right way. You would still be collecting the same amount of cash flow with rent to own as rent for the next year or 2 years, whichever you decide.
Starting over, I would stay away from areas that have new construction and focus on more developed communities that you find usually closer to the inner city. This doesn't mean go to the ghetto, there are plenty of good communities in the inner city, just don't go too rich and remember the 1% of purchase price rental rate rule. Just do your research and watch the rental rates. I also advise seeking out wholesalers to help you with finding these homes. Realtor's have great deals, but the off market properties are where there is less competition. Show your wholesaler you are a serious buyer and you don't want to be shopped around. So that you have first dibs on the properties.
As I said, I'm no Guru or Mentor so verify all my information before making a decision, but I didn't come up with this knowledge by myself, I learned from Mentors. Also, involve an Attorney in all the above as well. Even on the rent to own arrangement, have your attorney do the contract signing so that everyone knows they are safe and no one can say you are trying to do anything wrong. The fee's on this are really minimal. My Lawyer charges me $700 to close rent to own contracts and I'm in the more expensive DC Metro Area.
Rental Property Investor · Greer, SC · Member since 2012 · 161 posts · 75 votes
11y
Please make sure you factor enough money to cover your property taxes. I do not know how the property tax system is structured in Charleston. In Greenville county you are assessed at a higher rate as an investor. In Greenville County, the property taxes alone would be enough to kill this deal for me...not to mention vacancies, turn over, and maintenance.
Please make sure you factor enough money to cover your property taxes. I do not know how the property tax system is structured in Charleston. In Greenville county you are assessed at a higher rate as an investor. In Greenville County, the property taxes alone would be enough to kill this deal for me...not to mention vacancies, turn over, and maintenance.
X2 on that one. I know property taxes are crazy here (Dorchester County). They tax at a 6% ratio as opposed to a 4% Owner/occupant..which usually figures up to three times the 4% and then a couple hundred on top of that. Taxes on my personal residence run around $1200 at the 4% rate, they skyrocket to approx $3600 at the 6% rate...crazy.
thanks for the view points, the rent will be 1625 pm.
Is that the average rent for the area or this includes some discount for renting fast? From landlord standpoint it is best to offer yours at a small discount ($50) and rent faster, than lose a month (or more) waiting to get renters. Even if the area is in high demand, the problem is that you have a competition and what matters is where the competition stands, not how great you are.
There is an old joke about two hunters been chased by a bear. One of them stops to tighten up his shoe laces. His friends says, "What are you doing? A bear can outrun a horse. You can't outrun a bear!". His friend replies, "I don't have to outrun the bear; I only have to outrun you!".
In a brand new area there is very little you can offer that the competition does not offer. So if you are not ahead of the competition it is a game of chance. You cannot take chances because you have 4 empty houses. To attract all potential tenants you have to offer lower price.
Keep in mind that winter is the slowest time for getting any rentals. This is why, the apartment complexes lower their rents and offer all kind of incentives during this time because they know that one month of empty apartment at $1,625/month is equivalent to renting for 12 months at $1490. So dropping the price by $50 and renting it a month earlier is going to save you a lot in the long run.
I would very much like to know how long it took you to get all of them rented. Please keep us posted.
You can get up to 10 properties financed and fannie mae will use your rental income now. You don't have to wait 2 years or any other period of time so no portfolio lenders are needed until you get over the 10 mortgaged amount.
I would hold off on getting more homes though for now so that you don't over extend yourself. Feel out your assets and then expand after you have a more than a year under your belt.
Also remember that after one year you won't be able to use 75% of the lease agreements. you'll have to go off your schedule E. So even though it's nice to write off a lot just also remember that the potential negative income could hurt you depending on how much you make per year. You're going to need to work with a Loan Officer who understands your income from A to Z.
I wish you the best of luck and have a great night Sir.
Shaun, Fannie Mae doesn't require two years of rental income to count that as income? Could you give us more details on that, possibly link to their rules on it?
Charleston, SC · Member since 2013 · 380 posts · 157 votes
11y
Bobby's point about keeping the rent a little low is spot on. Not only do you rent the property quickly and with a good selection of prospective tenants, but the tenants are likely to stay longer too. You'll tend to lose rent between tenants with painting, etc but if they stay for years there isn't a day of missed rent during that time.
5 homes all at once? Dam man. I just bought one myself and going through the rehab process right now. Good luck and let us how it goes once you settle in and start collecting rent money.
ok mentors & guru's here is my question to EVERYONE i just aquired 5 brand new homes in summerville SC (cane bay plantation) from lennar . 1 will be my home & the 4 others will be for investment. all 5 are sfh 4br 3.5 ba. the prices are a avg of $203,0000.00 i am puting down 25% on all of them my credit is good & income also. my question is once i settle in after lets say 3-6 months how can i aquire more homes? most of my $ are going to these 5 homes. programs, tips & tricks , Leverage, etc i want to continue to aquire as many homes as i can get. please advise :)
Can you break out the expenses on your APOD?
Do you include an expense for property management? If not, how will you manage that?
I concur with what others have said. Taxes are extremely high in SC. What have you budgeted for taxes on each property?
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
11y
Are you trying to do an appreciation move here? Buy 5 homes under market value, rent them out for a year or two, even if they don't cash flow much, that would be irrelevant, then in a year or two sell them for $50,000 - $75,000 more than you paid for them and 1031 exchange to something bigger and better with the additional money?
I have heard about similar moves in markets like San Francisco and New York.
ok mentors & guru's here is my question to EVERYONE i just aquired 5 brand new homes in summerville SC (cane bay plantation) from lennar . 1 will be my home & the 4 others will be for investment. all 5 are sfh 4br 3.5 ba. the prices are a avg of $203,0000.00 i am puting down 25% on all of them my credit is good & income also. my question is once i settle in after lets say 3-6 months how can i aquire more homes? most of my $ are going to these 5 homes. programs, tips & tricks , Leverage, etc i want to continue to aquire as many homes as i can get. please advise :)
It looks like your rent figures are innacurate.
Rentometer shows the median rent you could expect to be $1,323 in Cane Bay Plantation for a 4bd. That said, to be conservative with my estimates and have a positive surprise, I predict your actual rent will be about $1,250 (see my original post).
Real Estate Investor · Summerville, SC · Member since 2014 · 62 posts · 2 votes
11y
anthony that is part of my move, since i got the builder to pay all closing costs for me to unload them there wont be to much $ out of my pocket. jon rentals in cane bay there are only 3 showing @ 1300 to 1600 p/m. there are abour 1500 plus homes in cane bay so its in my favor :)
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
11y
@Thomas Haskell that is what I figured. It is not a bad move, and can make more money than properties that have better cash flow if it is a shorter term thing and you know your market well.
Some investors in California buy properties that don't cash flow at all, but even cost them a little per month, but within a year they make more off the appreciation than even if they had make triple the amount of rent.
@Thomas Haskell that is what I figured. It is not a bad move, and can make more money than properties that have better cash flow if it is a shorter term thing and you know your market well.
Some investors in California buy properties that don't cash flow at all, but even cost them a little per month, but within a year they make more off the appreciation than even if they had make triple the amount of rent.
Yes, hopefully you're not at the peak of the market. My feeling is that you already are or are very close, maybe 12-24 months from a PEAK. Definitely not at the bottom and little expansion left... Lot's to lose if market turns down and little cash flow lease negative return.
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
11y
Yes, @Anthony Gayden , but what you're missing is that there a few markets like San Francisco... and it is my believe that hoping for appreciation is speculation and not investing. I can predict cash flow to a 95% certainty. Do you know anyone who can accurately predict appreciation?
Real Estate Investor · Summerville, SC · Member since 2014 · 62 posts · 2 votes
11y
sure will, just so you know i flipped a few sfh in florida ( palm beach county) from 2005 to 2007 and got out before the crunch of 2008. for example i got a sfh for 475k sold for 599k 1 year later i unloaded all of them about 6 months before the crash. had a home in nj paid 196k & sold for 530k. the moral of the story is i am used to the ups & downs of any market. i am also a stock market junkie also. the homes that were sold in 2005 at the breakout of the market are at or above the high back then.