All Forum Posts by: Malcolm Lawson

I found a small condo right outside a Navy base for $50K in good shape that I am confident I could rent for $900 a month.  All It needs is new appliances.  That's 1.7% of the purchase price which is very rare in my area.

I could buy this property for all cash but would prefer to finance part of the deal.

I have talked to 4 lenders so far and no one is interested in financing a deal this small. 

If you are interested let me know and I can send you details about the property, rental comps and we can discuss terms.

He @Tyler Mullen I have not.  Is there a way to tell how many of the units are owner-occupied vs rentals?  What are "special assessments"? 

@Steve K. You rock, so pretty much the more I can finance, the better my CoC return and better the deal. That is what my hunch was but I was unsure how to crunch the numbers like you did to justify it. I have reached out to 3 real estate lenders so far and none will finance anything below $100K and most of there interest rates are between 7-8%, not the 4.5% you calculated with. Do you know any lenders who lend that small of an amount?

I am exploring purchasing with cash then taking out a mortgage on the property for as much as I can.

The 1.5% rent of purchase price is why I am so fixed on this property.  As a real estate agent, I have worked with many investors who are looking for 1% but usually settle for something less.  The "2% rule" that many talk about on BP is almost unheard of here in Maryland.  So 1.5% is really good here.

The 8.68% return on my initial investment also really interest me.  I own stocks and index funds and it is rare to consistently see a return like that on my money. 

@Ralph R. I'm not really tracking your logic there.  How would that not be real cashflow? And having a property that completely pays for its self in just 10 years sounds pretty good to me.

Thanks, @Diego Ortega that actually is not a bad idea, I will explore that.

Thanks for the input @Nathaniel Cherubini .  I guess ultimately Its a short term gains vs long term gains decision.  I can buy this place with all cash and immediately start cash-flowing $434 a month which would be great or like you said I could purchase two 175K homes that probably won't cash flow nearly as much but in 15 years with debt pay down and appreciation, they will be worth a LOT more.

The third options is I could finance part of this purchase.  Then I would still be cashflow positive and still have some of my tmoney left over to invest in another property.  Challange with that is most the lenders I am finding don't want to lend that little amount of money to me, many have a $100K minimum.

Regardless of what I do, it has to be better than just letting my money sit in my bank account depreciating in value! 

I currently own one rental that is cash flow positive and am looking to purchase my second.  I have about $70,000 in savings to play with and was originally looking to only invest part of that along with a loan to purchase in the $200K range.  Then I came across something that caught my eye.

I found a condo for sale in a small town right next to a military base asking $55,000.  It is in decent shape and I would only need to put in maybe $5,000 on new appliances.  I am confident I could get $900 a month for it.

Here are the numbers I estimated:

$900 rent

-$90 (10% vacancy rate)

-$45 (5% Cap X)

-$50 (Insurance, I have not got an actual quote on this number yet)

-$45 (5% repairs 

-$125 (Condo fee's)

-$79 (taxs)

Cashflow = $434

This type of deal was not what I originally imaged but $434 cash flow looks pretty good to me.  Currently, my money is just sitting there depreciating in value due to inflation.

Here are the con's that I see.  1. Almost ALL my savings will be gone into this one investment so I probably wont be able to buy my third property for a long time  2. I won't be taking advantage of debt pay down with a traditional investment property 3. I won't be taking advantage of these ridiculously low interest rates.  

What are your thoughts on this deal?  Should I put all my money into this one small deal?

@Rob Roy Ohh I see the date now.  Thanks.  Unfortunately, I won't be able to make this one.  I will be in Mexico for a wedding from the 13th to the 17th.  Maybe the next one.

One piece of advice I can give you is to pay attention to counties anti-discrimination laws.  There are national-level protected classes, state-level protected classes and also county-level protected classes.  

This is relevant because in PG county, for example, you can not discriminate against a potential tenant base od there "source of income".  So if someone is on the section 8 house program you can not deny them for being section 8.  You will need to come up with another reason to deny them but if they do happen to have good credit and no criminal history, ect and you still deny them, then you may be opening yourself up to potential lawsuits.

Just something to think about.  

Hey Rob,

Great idea.  I have never really found a good real estate investment group in Annapolis to go to.  I do often go to the Southern Maryland Real Estate Investment Group and also see many in Baltimore but never near Annapolis.

Did you have a date in mind?

@David Rodriguez  are you interested in joining?

All the books and guru's will tell you to save any cashflow you get and then re-invest it into more rental properties and on paper, this can make sense.  I think it really depends on your ambitions and where you ultimately want to end.  

If your goal is to obtain as many rental properties as you can in your lifetime, then yes, save the money and reinvest in more rentals.  However, there are other worthy goals such as wanting to build equity in a home or setting you up for maximum cashflow with minimum work.  Not everyone wants a headache involved in owning 20+ units.

Personally, I was more interested in increasing my cashflow in the short term so for the first 4 years of my rental, I used all the cashflow to pay down my mortgage.  Not only does this save me 10's of thousands of dollars over the life of the loan but I was also able to re-finance for a new 30 year loan at a lower amount, also lower interest rate, and now my investment property went from cashflowing about $250 a month to cash flowing $550 a month, not including vacancy rate/ cap x/ property management/ ect.

I really think everyone should strive to pay a little extra every month towards the there mortgage.  When you start playing with the numbers a small investment like an $50 a month towards the mortgage will save you THOUSANDS over the life of the loan and pay it of possibly a few years early as well.  You cant get that sort of return on your $50 investment in a savings account or with a lot of other investments.  There is a point of diminishing returns to this method though, wear paying an addition $10 a month towards paying down your mortgage won't give you as much of a return as the previous $10 would.  You have to play with the numbers on this to find that sweet spot where you get the most bang for your buck.