All Forum Posts by: Mike H.

I'm not from Texas either so I couldn't answer for that area.
But I guess I would question the risk/reward to those types of deals you're getting in Dayton. Here is how I view my product choices.....

I'm guessing you're paying cash as I don't think it would be easy to find a lender willing to do a loan for 20k. That said, its allowing you to get about $400 a month (guessing that taxes and insurance are running you about 200/mo) on your 20k investment.

But, if that is the case, then the two things you'd be missing out in that equation are:
1) Appreciation - I'm not saying to invest for appreciation but what are you really going to get if a 20k house goes up 3% versus a 100k house going up 3%?
2) Mortgage Paydown. Since you're paying cash, you're not taking advantage of leverage. Even if you are getting loans, you're still not paying much off each month given how little a loan it would be.

Meanwhile you're taking the same amount of risk that the tenant may do some significant damage. And in 20 years, when the house is paid off, what do you have? A house making $400 a month worth about 40k.

I'd much rather be in a better product - one that will still cash flow $400 a month but will include a better paydown and, more importantly, can have some meaningful value when you get 3% appreciation. Give me a house that I can get all in between 60-85k but is worth between 100k to 150k and is making me $300 to $400 a month.

With 20 houses, texas investing will be sitting pretty in 20 years once they're all paid off and they've doubled in value. Not sure you'll be seeing the upside on the houses in Dayton.

Not only that but houses in that price range seem to have a limited renter pool - i.e. Section 8 or people with extremely challenging credit history. The city may come up but it might also just stagnate there.

Seems to me that the hardest hit areas tend to take the longest to recover and some never do.

I'm sure people in Michigan thought it would be a great idea to buy rental properties 10 or 15 years ago because "the city would have to recover". I don't think that turned out so well for them.....

You might want to check with the title company and/or the asset management company to see what exactly the issue is. Are they waiting on a payoff of a grass cutting lien? Water bill from the village.

I've seen it happen quite a few times. To be honest, sometimes I count on it as I'm waiting on yet another lengthy refi to go through to free up my purchase money. :-)

But when I have my purchase money ready to go, I typically have my realtor go track down the liens. Its amazing that HUD title company takes weeks and months to get a water or lawn cutting bill from a village when my realtor can get one in less than an hour.

But you need to track down what the issue is first and then, hopefully, its something as easy as an outstanding bill that needs to be retrieved and paid by the asset manager.

Unfortunately, they won't just let you pay it yourself or you could really speed things up.

I'd be careful buying used. If you do, you have to factor
in some of the issues with how the refrigerant change
might affect ongoing maintenance costs.

The trick is that the old refrigerant is no longer made
in the same quantities (or maybe at all) and to charge
the old units is going to cost you a ton should someone snip it and the freon leak out.

Also, I'm not sure how two unit systems work. But
the other issue you're going to run into is that the
two key components - ACoil and Condenser (I'm no A/C expert so my terminology may be off) - are going to be tough to find replacements for if one of them goes bad. Again, given that they are only making components for the new refrigerant these days.

So if your ACoil goes bad, you might not be able to just buy a replacement. You may have to buy a whole new (or used) Acoil and Condenser.

Has anyone else had any issues with A/C's and the
crazy refrigerant change?

Your lease is 20 pages? Wow. Mine is 3.
I would think 20 pages would be a bit onerous.
Would there ever be an issue that the lease is so
complex that a reasonable person could not be expected
to understand everything thats in it?

I'm just wondering if that lengthy of a lease would ever
create a legal issue in terms of complexity as a basis
for a tenant claiming they didn't know so-and-so clause was
even the lease (i.e. like no pets).

One of my favorites is a closing - either for a purchase when I know I'm adding a new house to my portfolio or refinancing when someone is giving me money.

I like seeing a house after an extensive rehab is completed. Something about knowing I was able to make such a big difference.

I like signing leases and collecting that first month and security payment. Gotta love that first check.

But I think my favorite is getting an offer accepted at a great price. There's something about getting a great deal under contract. Especially on the ones that I feel as if I'm almost stealing the house.

I still believe that the best deals right now are on residential (SFH)- at least while you can continue getting conventional financing at 5% for investment properties (i.e. up to 10 properties).

I think the management is a lot easier for sfh's since you have less turnover on house rentals than apartments.

Now, if you had enough money for a large complex that the numbers would include onsite management than I guess that would make it easier to manage the multifamily properties. Aside from that though, houses have to be easier to manage.

Better returns and easier to manage, to me, equal SFH's being better right now. And, when you go to sell at some point, you can sell on a house by house basis to an end buyer. The multifamily building is only going to be sold to another investor. I think that gives sfh another advantage as well. More flexible exit strategy (wanna sell one or two houses to get some cash? You can do that with houses. A lot tougher to sell a percentage of an apt building.

"Appreciation WILL NOT AND CAN NOT return to pre-bust levels for a VERY long time."

I would question this statement. First off, if you mean pre-bust during the boom, then, no, appreciation will probably not return to that level in a long time.

However, if you look at the last 100+ years, I believe there is one constant number that will be returning - houses double in value every 20 years.

I'm 41 now and have 15 properties - all bought in the last 4 years. I'm counting on them doubling over the next 20 years. So when I hit 60, I'll have 20 or 30 houses all paid off and all worth twice what they're worth today. (Well, at least the ones I own today).

To me, if you're looking to hit the historical numbers for appreciation, I don't think you'll be too far off - provided you give it the 20 years.If you're looking for appreciation is the 7 or 8% range, then you better be incredibly good at picking an individual market as the numbers, historically speaking, don't support that kind of logic.

Wait. You're saying that the seller can bid on their own property during the auction and they are not required to complete the sale to themselves if they win the bid?

i.e. Pay the commissions and site fees due?

Are you actually looking for a "second home" or are you wanting to buy an investment property?

If you're looking to buy an investment property, you just need to make sure that 75% of the rent will cover your PITI (principal, interest, taxes) and your DTI won't change from what it is today.

Example:
If your current DTI is 35%.
You buy a rental property that rents for $1,000 and your PITI is $750 per month, your DTI will remain at 35%.

You may not be able to buy with conventional financing because they may not allow for the rent before the purchase. So you may need to buy with hard money, fix it up and get it rented. Then use the lease as proof of rent.

To be honest, I'm curious as to how you bought the first house given that your self employment income was only 40k (they average the two years) and your mortgage was $1800. That gives you a DTI of over 50% which they typically won't allow.

You gotta enjoy the run while you can. This is a unique opportunity we're in and the people who take action and grab it are going to be the ones that set themselves up for the rest of their lives.

If the numbers make sense and the deals are coming in, why stop?

Managing properties is easy. But don't you need to do any rehabs for these houses? How are you funding that?

As far as reserves, your cash flow should start being enough based on the numbers you're putting out there to start contributing pretty significantly to your reserves.

But don't worry about the management of the units. Once you get them rented, you should be able to go to autopilot. The hardest part is managing the rehabs for that many units at once. But since you don't seem to be doing any rehab, you should be golden.

Nice job. I only wish I could find a lender that was willing to finance 70% with seller financing of the remaining 30%. I thought all the local banks had to see some skin in the game these days.

Don't question it though. Thank your lucky stars and keep growing your "employment insurance". :-)