All Forum Posts by: Chris C.

Well there are many great answers here.  The advantage to a newly built or remodeled property is that it is in good condition.  However, as we all know, things happen during the first years in many new or rehabbed properties and  you should be sure that you have warranties from the seller or contractor that protect you from additional cost.  For most buyers, the prospect of having to rehab a property is daunting.  But the fact is, you can usually buy property in need of upgrades for a great price, get a construction loan to upgrade the property and then convert the loan to wrap the cost for purchase and upgrades and end up paying less for a viable rental property.  However, you have to take into consideration that there is a time element involved as well.  If the rehab lags, you could end up with more problems.  I bought my properties in a great area when they were in rentable condition, but were considered C properties.  Over the next few years I poured all profits back into upgrading the properties until they were B+ grade.  By then I had them almost paid off because of the cash flow from rentals while doing the upgrades.  I used turns to do interior upgrades like bathrooms and kitchens.  All materials and contractors were carefully scheduled and sequenced so the work was completed in the shortest period of time possible to keep the turn time short.  Once upgraded the rent was pressed to cover the cost of the upgrade in the first three years.  (Average cost of upgrade for 2 bedroom was  $6000 which meant I raised the rent $170 per month and got it.)  I was young when I started this process and it allowed me to be able to stay home and raise my kids as well as continue to invest in my real estate investment.  I kept these rentals for over 20 years.  Happily the neighborhood was very stable and the prices increased.  When  I was ready to sell, I had multiple offers for almost 7 times what my investment had been because I had kept my rents current with the market.  So for me not buying turnkey worked well but it is not for everyone.  By the way, it was my first entry into real estate investment for rentals.

Joe Nagle so your saying if I see it as an auction still look for it as a foreclosure sale on other sites. Basically it possibly being sold by the agent and set for auction. Interesting!

Btw where is Philly do you invest? I have invested on the outskirts of the city for about 2 years, recently sold my last property. It’s a whole different world out there compared to NY, but I sure learned a lot, saw a whole lot and had a love hate relationship with it. But over all loved it more and miss it. Thinking about heading back very soon.

How many deals have you done? I think the closings costs sound WAY high with 4k. Insurance should also be more in the $70-$80 per month area for this kind of property. 

I also noticed that you put all kinds of deductions in % numbers on your cash flow. I don't think this is a good practice because you actually don't know these numbers. You can't do real estate small. If this is the only property that you will ever buy to rent it out, you will have to observe it without tapping into the cash flow for the next two years. Then you will get a feel for the asset's expenses. 

It looks like an OK deal to me especially for a novice investor. However, I wouldn't touch the CF until you scaled up enough to have reached 140% of all personal monthly expenses. Then, I also wouldn't be sitting on a mountain of money for capex,repairs, vacancy etc. If work comes up then you have 40% each month extra to pay off a credit line that covers the expenses. 

Don't think too much about the reserves right now. Just don't touch ANY of your asset's CF until you have a good sized portfolio. 

Buy and hold doesn't work with one rental alone.

Actually @Charlie Fitzgerald is quite wrong. Maybe not in USA but in every country I invest in banks can call up any note at any time. New Zealand, Australia they recalled many loans in the GFC to reduce their exposure. 30 year fixed loans without default, can be called at any time. Sounds like USA is different but they would be the exception. I don't have bank loans in the US so I can't check the fine print.