All Forum Posts by: Michael D.

@Joshua Meyers,

"I'm not calling you out or anything..." - This statement calls me out, but that's okay. We're not here to pat each other on the back all day.

"It seems like everything I've learned..." - Then you're reading and learning only within a narrow scope, maybe involving a guru or something.

"The property I'm looking at is going to cash flow +$300 a month..." - That sounds great! If you can really buy into a property for close to nothing down that will give you a place to stay and $300/mo in cash flow to boot, then it's all upside. I don't see many of those though, even in the Pittsburgh area. My experience is much more conservative than this.

So back to your original question: FHA is a government program with strict guidelines. You either meet them or you don't, and you don't right now. Conventional is slightly more flexible, but not a lot, and has more serious down-payment requirements. If you really want a loan, you might try talking to a local credit union. Please understand that no matter how you see yourself, every lender is going to see you as very high-risk and you will have a lot of selling to do.

My advise stands.

Michael

@Joshua Meyers, I envy your position, but I won't say much about your specific question except: Don't. Lenders just won't look upon you favorably right now.

Better is to just save a little and buy something with cash. You make a lot of money and probably have very low expenses. Put your first $120 every day you work aside and in a couple of months you'll have enough to pay cash for a not-very-nice house in a not-very-nice area. Don't worry. You won't be there long. Fix it up just a little and trade-up in 12 months or less after you save a few more bucks. In a couple of years you'll be living in a paid-for house worth $100k or so, at which point you could always borrow if you want to for the next one. At that point you will have learned some valuable lessons and built up a solid foundation from which to grow an empire. You might want to borrow to increase velocity (and risk), or you might just continue building wealth organically with cash. Either way, by the time you're 30 you won't have to work any more if you don't want to.

And definitely DON'T get an FHA loan. If you need one, then you're doing it wrong!

Michael

@Amy Nguyen , welcome to BP. You will find tons of information here. Glad that you haven't given up on Real Estate entirely. Are you already working in a nail shop? Do you already own a nail business? Do you own the building that the nail shop is in? If not, that's probably a great natural place to start your empire.

Where in the Pittsburgh area are you looking right now?

Michael

@Collin Cook , sounds like you are considering wholesaling this property. As a wholesaler, it's your job to find sweet deals that provide the investor with a solid return that accounts for time, money and risk. Put yourself in their shoes. Would you want to spend $50k on that place? I hope the answer is a resounding "NO!" If not, you need to spend more time educating yourself about what a good deal looks like. Also, the fact that you say "comps in the area are between $46k and $80k" scares me. That's the main thing that deals are predicated on, and the main reason why this is a loser. If you could tighten up your numbers a bit to honestly say "$17,500 to $19,000" in repairs based on bids I've seen for similar work, and ARV of $79k to $83k" then this would all look a lot better. Still not great though...

Michael

@Ian Hoover can probably help you out on the agent side. When you're looking to sell, let me know and I'll be interested for a buy-and-hold. Good luck!

@Roy N. ,

What kind of meter are you using? I've got a few units in PA that I've sub-metered myself, but I have to have the meters read manually every so often. Remote reading would be much better.

Thanks!

@Roy N. , I think you may be over-estimating the liklihood that the tenant would leave. After all, market rates are market rates. If they wanted to move, they'd have to downgrade or have that same rent somewhere else. They might only leave if they simply don't want to pay the increase and would rather downgrade.

So suppose they leave and it costs $3200 in vacancy loss, which you recover in 11 months of rent. That's a 100% ROI on that particular investment.

You plan costs about the same amount (I think, I didn't do the math on that) as having the house vacant for a couple of months would.

I have to admit that I've done it both ways. When I had only a single house, or even a couple, I felt the same way. Now that I have a few more units I feel like I want to just get it to market and keep it there. I feel the same about repairs. I used to fix things as they break, even if the house started with a fair bit of deferred maintenance. Now I just want to get everything fixed properly in one shot and get the most value out of the unit right away. It means more investment up-front in vacancy and repairs, but I think it'll return much better cash-flow down the road.

@Account Closed , if you assume a conservative cap rate of 10%, that $270/mo discount is reducing your property's value by $30,000 (270*12/10%). Even more at a lower cap rate. I think you should raise it to market at your next opportunity. It would be unfortunate if he left, but it's a small price to pay to get your property up to market.

For what it's worth, I think you're worrying too much about the LLC. Just get yourself a good personal umbrella policy and that should be just fine. I have an LLC for some of my properties myself, and to be honest I don't think it does anything for me that my umbrella doesn't.

As far as financing goes, whether or not to take out a HELOC probably depends on your other sources of income. If things go south with the property, can you still pay both your mortgages?

You could also consider taking on an equity partner.

Good luck!

@Brandon Hopkins ,

After closing costs, expenses and debt service, it could well be:

$9k nets you $100/mo = 13% CoC return, on average, with a lot of risk and headaches.

$33k nets you $500/mo = $18% CoC return, with relatively low volatility.