All Forum Posts by: Alexandre Marques dos Santos

@Leon Foree

It seems you ate safe. To be 100% sure read all the terms of the contract, to be sure its states what you believe it does. That you are renting for 2 years at 550/mo, and in the end of 2 years tenant has the option to buy it for 15k. If thats the case, the guy is playing smart.

Just a note: a rent with option to buy should have a higher price as it has embedded an optionality. In the rent you face maintenance and taxes. And 24 x550 does not even 15 k.. notwithstanding interest plus taxes plus maintenance...

I would read it again just to have a piece of mind...

Good luck

@Cory Remekun

My 2 cents: you make money on the purchase, not in the sale. If market is overheated maybe its not the time to invest. Or you haven’t studied the market before and is trying to impose your numbers, when was not realistic.

For example, i live in NJ, its going to be very hard for me to invest in NJ expecting to have yields of 7% in a non leveraged property if dealing classes A or B clients.

Imagining you have done your homework previously, i would step back and do exercise

In other cities. The worst you would do it to enter in the investing war. Its never ends well...

@Michael Lettieri

Its simpler than you could imagine. Its 1% of the property value over the year.

In our case, 1% x 1,500,000 = 15,000 per year, or 1,250 per month.

Again, thats an estimate based on rough number learned from experience ( call it thumb’s rule). You could have more or less, depending on the tenants you have. Being a 6 units complex, I would be more conservative, and use 1,5%. Anything below that, its a gain.

@Aaron Rowzee

Sent you a connect request. Interested to hear numbers from other cities in TX. Have business focused in The woodlands area, Houston, and looking to diversify

@Michael Lettieri

Hello michael. The rule is dependable on what type of property you are dealing with, year was built and so on. As an example, a student house tends to have a higher maintenance than a single family house. A multi family might face higher maintenance than a single family. A new construction has lower maintenance than an old house...

This rule seems to be right ex ante. Ideally you need to have a number that could protect you from an expense without hurting your investment.

On my analysis, as i deal with Houston area, i do the following numbers:

+ Rental

- prop management

- taxes

- insurance

- broker ( we pay broker to have it rented)

- vacancy

- maintenance

= NOI

Try to estimate how long to rent and all variables. This is purely an estimation and ex post you will learn what to adjust.

Hope that helps.

Good luck

thanks Joel Florian.  I really think the leverage works, but as you mention, there are some people that forget that each one is different.  I came to US in 2007.  I met my neighbour that at the time was a RE Investor.  His wife was so proud that with no much money, he created "a large amount of income and net worth".  he was leveraging like hell.  i dont have to say it did not end up well.  2008 crisis got him deeply.  they lost everything and moved to live with her parents.  What most people forget is that numbers NEED to work in long run.  

Leveraging is beautiful, but reserves are crucial to absorb repairs, vacancy etc.  people here discuss leveraging and do the math with all money towards to many properties.  wheres the reserve in equation?  and if some maintenance comes, if vacancy grows, what would they do?  i even saw posts mentioning appreciation... what if theres none?  people thing rental is a waste of money... well in the rent you have to thing that taxes, insurance, are included... so dont factor rental x 12 x yrs to see how much you wasted...  you will have to pay those if you buy your house...

I am old fashion.  the more i read about Dave Ramsey’s model, the more i think its appropriate for me.  Nowadays i have my houses generating 20 k per month in rental (i put aside 7 k for taxes/etc) giving me 13k free cashflow.  i can buy a property every year and generate more and more.  thats what i like in my model.  if vacancy is zero...?  well i have nothing to worry..

Dave's model teach people more than the ROI/ROE model. teaches how to manage money from the basis. I strongly believe that less than 20% of the people have enough discipline to spend/invest properly. if you are not one of them, Dave's model is a must.

@Kai Sato-Franks

I haven’t read his article to fully understand the context. I will put my thoughts for a cent.

I personally have 7 Investment properties paid in cash. The great advantage was the purchase price x timing of the purchase. I always buy them with deep discounts. 10-15% if include the appliances and systems added.

I had savings in bank and was able to do it without leveraging. In fact it did NOT make sense to take credit of 4-4.5% while my money was at the bank with return of 1-1.5%.

I can understand though leveraging. Not many will be able to buy the property paying in cash.

Recently i decided to take a mortgage to start leveraging. I put my properties in LLC and the rates i have been seeing is ridiculous. A 30 yrs in a LLC was offered at 4,25%. My credit is around 800, but in a LLC it makes almost no effect. Not sure if you guys see a better level, but considering this, it makes no sense to invest considering no appreciation. And prospects for real estate markets do not see much room for appreciation in the nee future.

To make it worse, considere the real interest rates, the one impacted for the lower/no discount on the negotiation...

Now take into perspective the scenario where you could be facing increasing in number of tenants not paying... but mortgages are there, charging...

Theres a good feeling in having no /reduced amount of debt. And the power of cash speaks loud. If you can, try to start with the

Least leverage possible and start leveraging after some time. It will give strong start and strong base to face adverse scenarios, while leveraging can have a nasty effect when you face a defaulting situation

@Joe Villeneuve

What if properties do not gain value over time? That happened in hot markets due to grown inventory. Add a bit of recession and have the rental pushed to lower, or vacancy growing...

Thats not just math.

Risk tolerance is key. And peace of mind has some value.

Personally I have 7 properties in The Woodlands, Tx area. All paid off. Now i am starting to put some leverage, starting by getting some mortgage on my own house. I wanna add 20% loan/80% cash. Will increase slowly. My goal is to have equity and in 15 years no debt, being able to have 25k/month of free cash flow and live well

i wish i have that headache.  Property management is a business to build that needs a large scale properties in order to brek even, and after that, start collecting the revenue.

In your case, seems you are almost in break even point:  lets see:

1) you have now a hand man that will cover the repair cost in many of the units

2) you have a group that could collect application fees

3) the same group would potentially reduce brokerage cost (depending on the state of the properties) advertising themselves

4) You can expand this business and make it profitable...  and that business would give you insights of properties to invest...

Not sure if you want to move from business 1 to add a business 2... but you are in the edge of doing so, with low entry cost.

Good luck

This is my 2 cents...

I think the market ahead of us are cloudy.  The reasons are basically 3.

1)  the virus have a hard effect in the economy, that was showing signs of loosing strength.
2) Specifically RE market was also showing signs of loosing momentum, where price of properties were sky rocketing with very low returns

3) RE market has too many leveraged investors

Let me go more deep on each topic:

1) the economy suffered  big Shock.  Both Demand and Supply have suffered this time.  Millions have lost their job => that per si affect housing market and, despite FED have pushed Trillions, reducing rates drastically, credit spread have jumped so much that final rates are not eased in the same way to the whole population.  Also, with no job, how can someone apply for a rental property or for credit to buy one (in the case it loses his property to the bank)?  The reconstruction of the economy will be fast?  not sure... how long will the outbreak last?  how long till we get medicine to fight for it?  In the world scale, how many people will die?  Having no answer to these questions, make me believe banks will be even more cautious on credit, and companies will take longer to get back to reinvest.

2)  We, as investors as a group, have been saying its been hard to find good returns, as prices have skyrocketed in several different markets.  Returns have collapsed.  that tells me rental have stabilized while prices came up in a faster pace.  That happened as we have been living in a low rate environment for a while (last 12 years).  It was expected to have a stabilization in prices and rental could pick up slightly to correct the equation... but with the crisis approaching, it is more reasonable to guess that prices should come down...

3) at least 3 in 5 guys I read here in BP tells me leverage is everything in RE market.  The amount of people who doesnt even care of what a cautious investor has to say tells me they are with the water up on their neck.  I was criticized even for trying to explain a new guy what to consider in terms of leverage.  Statements  like "get 100 year loand if you can, with 0 down" was in a discussion buy 3/4 guys in a 15 guys sample.  That tells me that when situations like what we have now, where tennants might not be able to pay for their rent will escalate, and those guys WILL foreclose.  The worst will happen if market actually collapses and prices going down a mere 20%.  Majority (would guess 95%) prefer a 30 year mortgage, where almost no equity is build quickly.  In fact takes 10 years to get about 20% equity on a house approximation only).  Having said that, we can actually face, if takes more than 3-4 months to restaure trust in the market, a large inventory hitting the market.  Not for foreclosures in the beginning, just with investors will trying to relief their investments, and 7-9 months with actual foreclosures.

I am the "conservative" guy that had aversion to leverage.  I have all properties paid in full and have good reserves i will use towards to new investments.  But i will work careful.  I dont buy 4, 5 or 6% old fashion returns as the numbers do not consider the risk we are getting into, which is to have longer vacancy and bigger rotation.  Why is that?  tell me that you WILL accept ppl with unemployment and or lower credit score?  tel me you will accept a guy 3 months due in rental to keep living... No, right?  so will be hard to find good tenants, and with inventory in street, there will be a war to get them.

Hopefully i am wrong and we will live a V shape recovery...  that will be the case that we quickly find a solution for this epidemic...  even in that case, the strategy will work fine as i will have cash on my hands , so will be ready to pull trigger.

Any thoughts?