All Forum Posts by: Joshua Morris

You can't just do that unfortunately. What you have to do is use a derivation of the annuity formula to calculate the payment you'll make for a loan. It has to do with time value of money and the annual interest rate. Try this: go to excel and in one of the cells, type: "=PMT(0.05,30,120000)". You'll notice that .05 is 5% interest (annual interest), 30 year period, and 120000 loan amount. That'll give you about $7800, which is how much you'll pay per year. You can find the monthly amount by using this formula "=PMT(0.05/12,30*12, 120000)" which just takes your yearly figures and normalizes them to monthly figures.

@Leigh Ann Smith 

haha thanks for that... I'm getting all sorts of great advice on this site!!!

@Hattie Dizmond

I checked out the Appraisal District's info on the taxes for this property. You were right, the tax bill actually came in at $4193. That adjusts my NOI to $8200, 5.5% cap rate, and $479 annual cash flow... still not good considering that's an annual ROI of 1.6% if I don't have to put any more cash down.

Interesting you should mention the Bryan/CS area. I'm an Aggie and have long considered trying to get into rentals there. I'm curious as to why you said you would consider that particular market. Is it a good rental market or is it just the best market available for rentals (not necessarily meaning good, just the best)? 

@Curtis Bidwell

The taxes do seem high but I got that number from Zillow... not sure how accurate it is but it's a starting point. And I'm not sure what you mean by depreciating a little over $4k per year. Can you explain? Sorry for my ignorance but I'm trying to learn. 

Thank you all for your responses so far! 

@Hattie,

You're right, I didn't include insurance or rehab costs; it's in pretty decent condition so I would say the $150k is ARV. The house is in Cypress, which is a nice suburb just north-west of Houston proper. Really, the house I brought up was just a random example to demonstrate a larger point. It's a typical rental in this particular area from what I can gather but the bigger picture is that, once you include some of the typical costs involved in owning rental property, I'm finding it hard to say this is a good investment as compared to others (such as an equity REIT). Not having included the insurance does nothing to ease my worries about this strategy. I understand this situation is different depending on what area of the country and I would say that you're right, rent prices haven't caught up to property prices. I'll check that website out; hopefully I can find some better deals there.

Do you own rentals in Texas? I imagine Dallas' situation isn't much different so how have you overcome the challenges I've pointed out? 

Hello! I'm learning about real estate investing and am very interested in the buy/hold strategy. I've been running some numbers and, I'll be honest, I'm having doubts as to whether or not this strategy is worth the risk. I'm posting my assumptions and calculations here. What do you think? Keep in mind, my numbers are very generic. As such, I may be WAY off on my assumptions, in which case I encourage you to correct me. 

Take this house in northern Houston for example: $150,000 with 20% down ($30k cash invested). 3bed/2ba in a great neighborhood. Rental estimate is about $1500/month. Here are my numbers: 

Yearly Rents: $18000

Yearly Taxes: $5100

Yearly Management (10%): $1800

Yearly Maintenance Allotment: $2000

Yearly Vacancy Allowance: $1800

NOI: $7300

CAP Rate: 4.8%

Yearly Mortgage Payment: $7728 (assuming 5% interest)

Annual Cash Flow: -$428

That doesn't look good. I understand that I'm also building equity in the place, which after 10 years is worth about $52k without considering house appreciation (just initial equity and principal paid... I'm trying to be conservative). Considering I can invest in a REIT with a sound 7% dividend, that same $30k paid as a down payment after 10 years could be worth $59k (again, without considering asset appreciation). Even if I bumped the rents up to $20k per year, I'd still only be cash flowing about $1090 per month. The present value of that (new cap rate is about 5.9%) after 10 years is only $8000... even if I consider the same amount of equity built, that's only slightly beating the REIT I could invest in with no work at all. In my opinion, this is not a smart move. I'm very interested in hearing your opinions.

Wow, thank you so much everybody for the responses! Honestly, I wasn't sure if anybody would bother to answer such basic questions!

@Joe Fairless, thanks for the input on the loan site. I'll check them out.

@Jason P, let's continue to talk w/ each other. I'd love to work w/ someone else, even if it's just as a sounding board. Let me know what you're looking at. I was in town about a week ago looking at some town homes and was very pleased w/ the realtor I found. Let me know if you want her contact info.

@Mike Marko, your plan is kind of what I'm thinking of pursuing. I plan to live in a place for a year or two, keep it, rent it, buy another, and repeat. Thanks for the input on the HELOC.

@Paul Timmons, I'm curious specifically about what you said at the end of your reply. Can you be more detailed about how to control properties without owning? Thanks!

Josh

Elizabeth,

Thank you so much for the info you posted to my question in the forum! You are correct; I'm active duty Navy stationed in San Diego. My original plan has been to purchase a town home in Texas and then live in it off of the saved up cash flow while in school so that I can essentially live there free.

You said in your post that a conventional loan down payment was 3.5-5%. Then later, you said something about 20%. How much would you say I need for a down payment (in percentage terms) for a property if were not using a VA or FHA loan?

Everything else you said makes a lot of sense. I would appreciate any other advice you have towards owning rental properties. Thanks!

Josh

Hello!

I'll start out by saying that I'm brand new to real estate investment, so please feel free to dumb down any of your replies to my post... I'm still learning!

A little background: I'm very interested in a buy-and-hold investment strategy. I would like to ultimately build up a portfolio of rental properties that provide enough passive income to live on. The first property I plan to purchase is in the College Station, TX area within the next year (I plan on going back to Texas A&M for my Masters within the next 2-3 years). I currently live in San Diego, CA but will be moving to Texas within the next couple of years and plan to run my real estate investments out of Texas. I have a basic understanding of the principles and know the math pretty well (I'm good with asset valuation).

Here's where I'm stuck. Like most newbies, I'm having a hard time wrapping my head around the financing piece. Right now, I don't have the cash to use for a conventional 20% down payment. In all honesty, I don't even really have enough for 10%. I'd like to use as little of my own money as possible to get started. Would anybody be willing to teach me a thing or two about financing my real estate deals? What options are out there? How do you arrange financing other than from a bank?

Thanks in advance for any help!

Josh