All Forum Posts by: Mike M.

I'm figuring an NOI of 19k/annual. I'd be happy to get into this property for purchase of 120k. I feel my walk away price would be 130k. (Life is good for us right now, ain't it?)

I'm figuring 10k (above PP) to get the property leased up. This includes buying fridges and ranges for all units and paying PM to lease them up. Is this reasonable? The thing I'm inexperienced with is leasing up the property and the TIME and COST this involves for four units. The place presents very well and the units are are 2BRs/1BA over 1,000 sq ft. They're nicer than any others I own in the area which rented easily so I don't see a problem getting them rented.

What would y'all do in terms of figuring my concerns into the contract?

Looking for advice on negotiating purchase of 4-plex. Property is currently vacant. I am looking at it for buy and hold or possible flip. It is rent ready, except there are no appliances.

Seller is mortgage holder who took back the property from rehabbers after they a rehab flip failed (apparently due to price decline) and then they failed to manage the tenants.

Seller evicted all the tenants this Fall and has no desire to manage the property. Has RE agent, as do I. Listing says "motivated seller, bring offers".

Total rent est is $35,000/yr with owner paying w/s/t. Seller is asking $170k, which is market value.

I am closing on a 2-unit in same area (not as nice property or neighborhood but same rent) for $65k (25% discount from mkt price).

Where would y'all start on this? I feel like starting at $120k. I'd like to get control of this property but I want to know where the risks are.

Thanks Brian. I think that's sage advice and that settles it for me. :)

Bryan:

1. What happens if the lender decides they don't want to keep the line anymore?

Answer: I assume this is a concern that there is RISK here that outweighs the benefit. But my understanding is that only one or months of income is used and then HELOC is paid down to zero gradually and the process repeats. So someone making 8k per month is extended 8k more on his HELOC than he otherwise would be. I guess we can all judge how risky this position is if the bank were to call the line.

2. How do you acquire new debt if you want to buy more real estate? If you are "using the cash" drawn down on the HELOC to prepay your mortgage you are not liquid and are not an attractive risk to new lenders.

Ans: I think this is addressed in Ans #1 above. Not a big deal. It's only one month pay max added to HELOC balance. Is that really going to make any difference to someone's success in real estate investing?

3. Small timing differences are not going to make a huge impact over the course of the loans.

Ans: That's where this whole thing stands or falls IMO. That's what I'm still wrestling with. What is the value of this approach in terms of mortgage payoff time ALL BY ITSELF, with no $3,500 cost to consider?

4. You can do the same thing on your own fairly easily.

Ans: I think we're in agreement here. Answer to #3 is key to me because there is some time and effort involved in setting this system up and managing it and that seems to me to be a cost that must be weighed against benefits received.

I agree with everyone here that this concept is not worth $3,500. In fact, I read Haj Gill's book and he claims he invented the concept and even he says the expensive software isn't worth it. So let's aside the cost issue and not confuse it with measuring the concept. Let's say it costs nothing to implement it.

Further, let's also deal with the argument that the HELOC concept is just giving people a disciplined approach to making extra payments to the mortgage, which, for real estate investors is claimed to be a horrible use of cash. Again, is this a strawman argument by the opponents? What if it doesn't require MORE capital? In fact, the proponent's claim is that it does not. Then it does not use cash.

All I'm saying is if you're going to deal with this subject, then deal with it fairly and scientifically.

Something is missing in this discussion. The opponents are not speaking to the claim the proponents make. The proponents of the HELOC plan are saying that one can pay off the 1st loan sooner WITHOUT MAKING ADDITIONAL PAYMENTS. They are saying that it is about accelerating the TIMING of the payments from checking account to the mortgage and leaving the money there until the money is needed in checking, instead of vice versa. This then lowers the average daily balance of total debt for that month. Then, when the scheduled mortgage payment is in effect LEFT IN the mortgage, it is applied to a smaller outstanding balance, thereby slashing the payoff period. They are someone can payoff the mortgage faster WITHOUT LOWERING THEIR LIFESTYLE to do it. I don't think I've heard the opponents rebut this as a viable and superior alternative to their claim that the only way to pay off a mortgage faster is to make ADDITIONAL payments to the mortgage.

Gosh, you guys are excellent! And BP is totally awesome resource!! Thanks so much!

Thank you David. I am kind of a newbie. When you say 'wholesale lenders' having 4 loan limit, is that referring to investors who buy non-owner occ properties from other investors and hold them as rentals? That's what applies in my case. I own 2 investments like this now plus I have my primary residence. So I'm wondering if I'm done after my next one.

David B,
When you reference CitiMortgage, are you saying they're willing to do 30yr fixed loans on properties 5 thru 10?

JScott,
Thanks. That gives me some reassurance that I'm modeling appropriately. The % I gave you were off of net rent, so vacancy was already figured in. So I'm saying 50% of collected rent goes to OE.