All Forum Posts by: Rhondalette W.

Right now I am in contract to purchase my 6th rental SFH. I have been putting aside $100/month/property for a while now and have about $10,000 sitting in a cap ex reserves savings account so that I am prepared for those large random expenses. Smaller expenses just come out of my monthly rent. 2 of the 6 homes are mortgage free, so after all fixed expenses (mortgage, tax, insurance, property management) I cash flow $2,700 a month if there are no random expenses (which there always are).

Should I keep putting $100/month/property into this reserve account or at what point would you say I have enough in reserves and allow that $100/month/property go towards the down payment on rental home #7

Thanks

@Abdul R.

I use Trulia heat maps to determine neighborhood ratings: 

http://www.trulia.com/local/indianapolis-in/type:h...

Put in the address you're interested in.  Dark green is D and light pink is A.  Let me know if that helps.  I live here in Indy and invest here as well.  

In the crazy DFW market, I've found the larger the EMD the better if you want your offer even considered. I closed on an REO on Thursday and put a $20,000 EMD in and included a copy of a cashiers check with the offer. The other agent told my agent the EMD is what got us the deal even though there were other higher offers. She told us there were a number with EMDs under $100. I certainly hope other bidders keep listening to the gurus and offering up ridiculous terms and contingencies with their offers.

Rhondalette W.
As everyone has stated $3500 in earnest money will be applied to the sales price at closing and it shows you are a serious buyer. There is no standard amount for earnest money, I've put $10 up numerous times over the years. The earnest money could be non refundable or refundable based on the property not meeting lender requirements, clear title, etc. it all depends on what your contract says.

The option money however gives you the unrestricted right to cancel the contract for a period. I would want at least a 10 day option with the $3500 earnest money. You will need an adequate amount of time to schedule inspections and not be rushed.

Im not a pro but live in the DFW area and have had a couple of properties I have purchased. Usually the EMD is refundable as long as there is a reason which is in the contract. I would think that they just want to make sure you are serious and can afford the property. I have seen people who are not qualified for a house nor have enough down payment for the house tie up properties and waste people times with the hopes of finding someone that will lend the money with next to nothing down.

If you think its a deal, I wouldnt hesitate putting down the $3500 but the contingency is based upon inspection, lending, etc...

Amount of EMD, amount of option money, option period, etc. Is all negotiable. Sometimes Realtors attempt to develop a "standard" in a particular area for the above and will attempt to communicate (convince) parties to a transaction to offer/accept the "standard".

IMO, the negotiated amounts of these items, as well as if and when the EMD " goes hard" will depend on the relative strength or weakness of the parties involved in the transaction. About five years ago I sold a ten unit apartment building in Arlington Texas. Due to expansion plans of University of Texas - Arlington, the property was in very strong demand. The offer I accepted was $30,000 over asking price, and included $20,000 NON REFUNDABLE earnest money. The deal did close as schedule. I have had a few transactions with significant hard earnest money that the buyer walked away from and did not close.

When Phoenix was a white hot real estate market in the very early years of this century, people were putting up S100,000 non refundable deposits to purchase condominiums that hasn't been built yet.

Conversely, by strange circumstance I found myself owner of a vacant, unattractive, small, poorly conditioned house in a rough area in a smallish Texas town just after the 2007 - 2008 financial meltdown.  I accepted a purchase offer on this property that included all of $100 earnest money.  When the buyer was unable to get financing I financed her with $1000 down; when she was unable to make full payments on the mortgage I accepted partial payments, when she had to skip payments to make needed repairs I added the amount to the back end of the note.  After two years of this the buyer collected back pay on a wrongful termination suit and paid me off in full.

While it's true that home ownership in Lancaster is much lower than in other areas of DFW, Lancaster has the exact same crime profile as Dallas proper.  Addison, which is an affluent suburb, with any number of high-end establishments, has a very high crime rate.  Why?  Probably because people tend to commit crimes where people are that have money...just sayin'.

Don't believe me?  Check out NeighborhoodScout.com.

Lancaster, Pleasant Grove, Duncanville, Balch Springs, Hutchins...those are all 'C' areas.  Very blue collar...some areas are better than others, but there are a ton of long-term tenants there and a ton of uber successful investors who buy & hold property there.

Further, I wouldn't let the fact there is very little development throw you off.  There's not a ton of development in most of the 1st tier suburbs.  They are mostly landlocked with very little available land for development.  Far North Dallas is a great example.  There's no where left to build.  Most of the development is scrape off work...tearing down existing houses to build newer & bigger.  

As for an exit strategy, you have multiple options.  You could always do owner financing, with a significant amount down.  (Grant Kemp does that all over Pleasant Grove, which is a very similar area & demographic.)  Or, you could sell turnkey to another investor.  There are people who will buy anything in Lancaster.

It isn't a war zone there.  It's just lower income, hard working people who can't get ahead enough to actually purchase a property.

@Rhondalette W.   With all due respect to the non-Texan responses, a $3500 earnest money deposit on a $104,000 house is VERY excessive. 1% of the purchase price is the norm.

This tells me that the sellers has been burned by someone backing out of the deal. But why did these people back out? Did the inspection find an issue that scared them off?

The earnest money deposit is credited at closing. And if you back out during the option period it is refunded. So there's not much risk to you.

BUT, if you agree to this egregiously high earnest money deposit, I would not accept an option period of 7 days. If anything I would want a longer option period. Maybe 15 days instead of 10.

The high earnest money and low option period makes me very suspicious of this property,