All Forum Posts by: Nathan Emmert

My loans are all amortized over 30 years... one is a low fixed rate the other is variable and something I'm targeting to pay off over the next 4 years.  I think the fixed one is on a ramp too minimizing the payments now and growing every 2 years.

I also have a solid 6 figure salary.

And I worked with a local credit union versus a bank which makes the rules a bit different. They were more willing to take into account the proposed income from the properties and were actually showing my DTI improving with each property I purchased.

You don't pay property taxes?  You don't have to pay insurance?  Those electric and gas bills look low for my area but maybe California is different.  Are you going to use a management company or do everything yourself?

If you're risk adverse, this might be a tough route for you.  Long term, I think the risk in real estate is defineable... but in the short term... well, knowledge doesn't come cheap.  If you're looking for healthy returns you'll need to do some things on your own and with that and being naive, well, it's definitely more risky.

A lower risk approach would be to go with a reputable turn key company... obviously your returns are substantially lower but so is the risk.  You can still get a nice solid return, but don't be dreaming too big.

Why are you waiting to do the sale of your property until after the cash out?  Why isn't the developer funding the $10k to sub-divide as part of the sales agreement?

I would personally try to get that money now, while employed... while employed you can get mortgages and use leverage to increase the returns on your investment.  Once you become unemployed you'll likely have to buy in all cash which will reduce your returns.  

Lets look at quick numbers... $250k can buy you 10 $100,000 homes with leverage... 2 without.  Lets say each house rents for $1,500 a month and we'll use the 50% rule for expenses to simplify things.

Lets assume your mortgages are 30 years at 4.75%... your P&I payment would be $391.24 on the $75,000 you mortgaged (25% down payment).

With 50% expenses, you're left with $750 a month on each of your 10 properties, paying $391.24 leaving NOI at $358.76 * 10 properties = $3,587.60 * 12 months = $43,051.20 (pretty hefty return on your $250,000 investment of 17.2% annually).

Or you buy 2 properties in cash leaving $50k in reserve. You still get $750 a month but no mortgage... so $750 NOI * 2 properties * 12 months = $18,000 which is a 9% return on your $200,000 investment. In 3 years you'll be able to buy a 3rd property in cash.

Those numbers are pretty stark huh?

Now add in equity.  Those mortgage payments aren't all interest.  Your first year you're paying about $100 a month towards principle... times 10 properties... times 12 months equals about $12,000 of additional equity.

And then there's appreciation.  Lets say the home prices rise 3% a year.  With leverage, you own ten $100,000 properties for $1,000,000 in real estate.  If that goes up 3% that's an additional $30,000 of equity you now own.  With 2 houses, you're at $6,000.

The benefits go on and on and on... :)  Leverage = good... buy with a job!

Just make sure you have clear rental criteria... last thing you need is a discrimination suit.  Have a clear way to evaluate and be able to back up your decision... just in case.

I celebrated the 6th anniversary of my 29th birthday back in May... have a wife and 4 kids... about $200k in student loan debt... and own 4 multifamily properties (well, the bank might have a say in that "own" word).

The stock market versus real estate question doesn't have a right answer, the question is what works for you.  My view on it?  I don't understand the stock market.  Factors I can't see, touch, taste, or control cause wild oscillations in the market that are completely irrational.  As such, it feels a bit like gambling to me.  Real estate?  Hey, everyone needs a place to live.  Location is fixed.  They aren't building any more land.  It has real intrinsic value that I can understand, estimate, and evaluate.  I go with what makes sense to me, in my brain.

Just like stocks, the sooner you get into real estate the better... especially as a buy and hold investor.  Even a property that you rent that just breaks even for the 30 years you've mortgaged it results in a property you own free and clear in 30 years at which point it most certainly cash flows.  There's inflation every year, we all feel it.  Much like the mortgage on your primary home feeling smaller and smaller each year as your salary rises... those rental mortgages feel smaller and smaller as rents increase over the years.  Lastly, interest rates remain at historic lows.  There has never been a better time to leverage into the market.  Who knows when that will end... but once it has passed, it will be unfortunate.

Just my thoughts... there's a lot of 55 year olds here wishing they started at 35... lots of 35 year olds wishing they started at 22.

Well a cash on cash return is sort of silly (though you do have some cash in the closings).  Basically look for cash flow and growth in equity... compare that to the risk on your cost side to make sure you're covered.

Where on earth did you find a bank that would fund that way... and up to 85%??  I had some sweat deals but am now officially jealous!

You didn't budget anything for vacancy? At less than 5%, your repair budget might be a bit small especially if you have a unit or two turnover each year. Your management will likely be above 10% as they'll charge you anywhere for 1/4 to 1 months rent for placing a tenant. Are you planning to cut the grass and mow for the entire property? Are there any common areas that you need to pay gas or electric on (laundry, front light, etc??). As mentioned, you need a CAPEX budget as well.

Have you seen copies of the leases?  Are the units at normal market rent rates?

You're at 1.4% rent which isn't great but isn't necessarily terrible either if the tenants do pay all utilities. I like to be in the 1.5 - 2% range but then I don't have access to an FHA loan to get the interest rates down either so that may balance out.

Could be a solid deal, just a few things to confirm along the way.

I haven't looked at rentals in NJ... but when I lived in South Jersey I bought a house for $330,000 and the taxes were about $11,000 a year.

From what I recall... taxes on investment properties in NJ can be 3 - 4 months of rents.

You can use the 203B, you'll just have to live in the investment house for at least a year... buy a duplex, triplex, or 4plex... live in 1 unit, rent out the remaining units.

Curious why you're looking at this? What do you have the ARV pegged at... 260 - 270k maybe? Seems like the nearby homes are all 4 or 5 bedrooms in the $290k range which puts this at a disadvantage. Given the amount of work that needs to be done you'd need to get in the house for about half what they have it listed at.

Part of being an investor is time management, quickly scrubbing off dead ends to proactively focus on the good things.