All Forum Posts by: Chris L.

@Kenneth LaVoie

I was thinking the same thing as @Flavio Zanetti

I say that because I have met with many investors who sold their portfolios who were then disappointed that they could not match the returns they were making on their properties.

They sold because they were ready to be free from the day to day property management issues and finding a property manager would have been a better scenario for them.

I just went through this drill a few months back as I had an offer for 2/3 of my portfolio. While I was in the search to find a suitable replacement investment(s), I came to the realization that I was going to have difficulty in replacing those assets at the return rates I was making.  I was relieved when the buyer could not close the deal.

You may want to consider having your replacement investment lined up prior to agreeing to list your portfolio.

Good luck.

Chris

I was tracking down new portfolio lenders and Old National is doing portfolio loans.  They will do loans in the following areas according to my banker: Muncie, South Bend, Indy, Bloomington, Evansville, Louisville, Ann Arbor, Grand Rapids.

The huge caveat is that they want the borrower to also live in their footprint area so if you are an out of state investor, you are out of luck.  Don't shoot the messenger, I don't make the rules just passing them on.

The following is from an email that I received last night:

• We will lend up to 75-80% of the appraised value or cost, whichever is less.

• The minimum loan amount for a 1-4 family income producing property is $20,000 and the maximum loan size is $250,000. A single borrower may be able to obtain loans totaling $750,000 total.

• Old National will limit the amount financed with 1 borrower to the lessor of:

• 10 1-4 family income producing real estate properties; or

• $750,000 in loan exposure with the bank in 1-4 family income producing real estate properties

• Maximum term is 7 years.

• The maximum amortization is either 20 years or the remaining “as is” useful economic life of the property- whichever is shorter.

• A debt service coverage of 1.25 is required *defined as: (after tax net income + depreciation expense + amortization expense + interest expense) / (Total project debt service)

• A borrower must show on its’ balance sheet

a) 2 months payments (principal + interest + taxes + insurance) for each SINGLE family investment property owned; plus

b) 6 months payments (principal + interest + taxes + insurance) for each 2-4 FAMILY investment property owned

• Interest rates very day to day based on market conditions and are always subject to change. We are seeing investment property loans fund anywhere from under 4.% to 5.5-6% depending on term options, strength of guarantor, etc.

If you would like a connection to the banker that I am working with send me a PM with your email and I will give you an email introduction.

(I do not receive any sort of compensation for this introduction)

Chris

@Debashis Sadhukhan

I have found that the B class neighborhoods have faster turnover than my C class homes because they are leaving to buy homes.

My C class tenants actually have longer stays.

Have you considered offering any of your homes on a lease with option to purchase?

@Bryan Hancock

Although those factors are completely accurate, I would say the knowledge that you learn along the way to earning your first million is the most important component for earning subsequent amounts.

@Steven G. has covered this very well.

The buzzword in many places is to work smarter not harder.  I had to make sacrifices and work hard to become financially independent.

Because of those sacrifices and choices, I have not needed a job since 1998.  Once you are financially independent (defined as your passive income meeting or exceeding your required expenses), you are truly free to pursue those things in life that are really most important to you.

If you are reading this and wondering if the sacrifice will be worth it, my advice is to "Go for it!."

Good luck on your journey.

When I first saw this post, I thought "oh no, not again."

For the record, I have taught the Ramsey courses at my church and my passion is to help others improve their lives financially.

With that said, I happen to live in a linear cash flow market.  Pretty boring really.

I own 93 SFR's and I am about 30% leveraged.

When I work with someone considering investing in rental properties, I always emphasize that the first step is to identify a competent property management company.  If you do not find a good property management company, my input is to not purchase.

With that said, I have created a cash vs leverage scenario so investors can choose what works best for them.

I have created this scenario based upon a 1.8% rent ratio.  Although an investor might do better, I always like to plan on a worst case scenario and not a best case one.

So here is the analysis: 

I am going to make my assumptions that your monthly rent will 1.8% of the purchase price. You might be able to do better but I know that you can do this so all numbers will be based upon this scenario and a 50% expense ratio for: Vacancies, Property management fees, maintenance, taxes, and insurance.

Scenario #1:

Purchase 100K worth of homes with cash: Nets $1800 in monthly rent.

Gross monthly rent: $1800

Minus 50% expenses

Expected Net Operating Income: $900

Annual expected NOI: $10,800

Cap Rate and Cash on Cash return: 10.8%

Total return for cash investment: 10.8%

Scenario #2:

Purchase 400K worth of homes with $7200 in monthly rent utilizing 100K cash down payment and a 300K loan at 4.875% amortized over 15 yrs.  (Actual numbers from bank loans)

Gross Monthly rent: $7200

Minus 50% expenses

Expected Net Operating Income: $3600

Monthly Debt Payment: $2353

Expected Monthly cash flow: $1247

Cap Rate is still 10.8%

Cash on cash return is 14.964%

First year principle pay down on the loan: $13,918

Total return on 100K investment for the first year: 28.882%

My input is always to choose the scenario that works for the investor.  

@Cory Adams

  That is a fine looking ride.  Sure beats traveling in something with 4 wheels.

@Bill Gulley

 It is amazing where the time goes.  I can't believe that I have already been retired for almost 4 yrs.  I certainly miss flying.

@Nick Stango

Even if you sell you still need a place to live so you will have to run the costs associated with moving as well as the costs of your new place.

Have you run the numbers to include the cost for moving and what it would take you to get into a new place?

Once you have those figures, you can decide whether or not it makes sense to move.

Chris

Have you checked with your bank about getting a home equity line of credit?

Evan,

I did a very similar project in the Herron Morton Neighborhood and was fortunate to get my money back and I was using all of my own cash so there were no interest charges.

Based upon my experience and the details of your situation that you have described, I would bail on this project.

It may turn out to be a great project; however, you are stretching to get there which adds a great deal of stress to your life.

I can share more details if you want to have a phone conversation.

Chris