All Forum Posts by: Mark S.

@Andrew Whicker , thanks, man, for the input.  I basically told myself I'd settle for a minimum of $100/door and 10% Cash-on-Cash.  This deal seems quite a bit better than that, depending on the purchase price.  I'll keep everyone posted and I'll also stay tuned to read other feedback.

Curt Davis , thank you. John Van Uytven , I purposely didn't list the city. Might sound crazy, but every time I put a deal analysis up, the property in question goes from no one else offering to a multiple offer situation. Maybe I'm being paranoid and it's completely a coincidence, but I'm trying to grab my first rental property and certainly don't want to encourage others in my area to step on my toes with this deal. With that said, rents are about market rents. I still haven't stepped foot in the property yet, but let's assume I add little to no value and pretty much do some minor cosmetic rehab to get it rent ready.

Duplex.  15 years old.  2BR/1.5BA units.  900 sq ft each.  Area = C class.

Rents: $500/unit for $1,000/month gross.
TOTAL INCOME: $1,000/mo

Expenses:
Taxes = $55/mo
Insurance = $75/mo
Prop Mgmt = $100/mo
Cap-Ex = $100/mo
Ongoing Maint = $100/mo
Vacancy Loss at 8% = $80/mo
TOTAL EXPENSES: $410/mo

(I will likely finance: 20% down, 5.25% max interest rate for 30 yrs, P&I = $250/mo)

Closing Costs: $5,000
Estimated Repairs: $5,000 (going to visit property shortly, but like to start with $5k).

What's your max offer?  What do you think of this deal?  Thanks in advance.

Nate Boda , have you considered a conventional loan for only 5% down? This is what I did for my primary residence (versus FHA at 3.5% down). The down payment is still low, but it gets you into a conventional loan type. Yes, you'll still have mortgage insurance, but unlike the newer FHA loans, the mortgage insurance on a conventional loan will fall off when you build up enough equity (I think you can either pay for appraisal at 20% and make the request or it automatically falls off at 22% equity or 78% LTV). This is what I'm doing. My understanding is on the newer FHA loans, that the mortgage insurance is now attached for the life of the loan or until you re-finance out of it. Where interest rates as low as they are, it's unlikely you'll want to re-fi out later because the money you save in mortgage insurance will likely get eaten up by the higher interest rates at that time. Also, I think there are much higher upfront costs and fees on FHA loans vs conventional, unless that's changed. I pay an extra $88/month on a $164,350 loan, which if my math is correct, is about .64%. This will fall off in roughly 7 years. I could have "bought it out" at closing by bringing a check for about $4,500 to the closing table, but that's money that I'd be guaranteed to never see again and money I would have had to part with at that moment. I wasn't sure if I'd move before the break even of 7 years, and as you said, cash is king. I wanted those extra few grand liquid. I think the mortgage insurance is partly based on your credit score, but I could be wrong. My credit score is in the 760s. Goodluck with whatever you decide. Keep us posted.

Marshall Downs , thanks for the advice. Honestly, I'm with Mark Ferguson on the 30 year versus 15 year. More flexibility. It might cost me a half a point or so, but gives more breathing room. One can always pay it down early, right? Darrell Shepherd , thanks for the heads up about the lower end properties. The duplex I'm considering right now probably falls into that category. I still have to go check it out, but at first glance, it looks like it could approach the 2% rule. On the other hand, I could build a brand new (super nice!) duplex in the same city I live in and that would barely meet the 1% rule. Totally different type of tenant, but when analyzing newer duplexes like this in the past, I was warned that the numbers weren't quite good enough, and that I would just be "buying a job." That really stuck with me, and I've been much more aware of the numbers. Obviously, there's always going to be a trade-off, but as a newbie, I'm trying to figure out where to draw the line. The cheaper property route comes with better Cashflow, more headaches, but is more affordable. The more expensive property route comes with better tenants (typically), worse cash flow, and would really stretch me thin during lean months of vacancy.

@Sam B., thanks for posting that.   Interesting read.

@Mark Ferguson, sounds like you're crushing it; that's awesome.  It may be in one of your other articles, but are you buying in the same state/area of all over?

I guess I need to have an end goal in mind, albeit one that can evolve.  If I simply say, "yeah, I'm gonna buy a rental and have it generate $100-$200/month positive cash flow" and stop there, I'd never start.  I can go to a poker game and make that in one hand.  At that point, it's not worth my time.  Obviously there's so much more to it than that, but without setting goals, it's difficult to see the "why" in what you're doing/building.

@Franklin Romine, thanks.  I like hearing about people's mistakes in order to learn from them.  When you say GFTs, are you alluding to Section 8 tenants?

@Pete T., no real rhyme or reason precisely. Most people choose $10,000/month as a somewhat arbitrary number. I work on commission, and the months where I make over $20,000, I feel pretty good about it. $10,000 is nice, too, but $20,000 would be much more comfortable, obviously. I'd probably be just fine with $10,000; better to shoot for the stars, right? As for starting with a lot of cash, not really. Just to be clear, the $200,000+ is tied up in 401(k), IRA, Roth IRA, etc. Even though there are options there, I'd prefer not to touch those funds for numerous reasons. I'd be pulling money from after-tax savings / after-tax investments, which is significantly less than the $200K+. I'm looking for highest LTV possible (aren't we all?!). HomePath, I've found 85% LTV. All other conventional 1-4 units are at 80% LTV. I might be able to do better, but that's what I've been looking at.

@Brandon Hicks, sounds like you're crushing it.  How old are you, if you don't mind me asking?  $7,500/month debt payments implies that you're bringing in some huge cashflow.  I'd love to focus on 12+ unit deals, however, I feel like I need to crawl before I ball.  That, and the fact that there's no way I have the capital requirements to begin with that.  I have, however, thought of starting with 4-plexes / quads.  I figure that still puts me in the residential space and more favorable financing, but gets my unit counts up.  The problem with the quads I've looked at, is that typically they're all in D neighborhoods.  Obviously, you're not likely to find a quad on the same street as a bunch of nice SFRs (although I did find a quad on a street with all SFRs around it - but it was in the hood).

Frank R. , no problem. You're right, though. Sometimes I need a little tough love. My biggest fear is never locking up deal #1, but I don't want to settle, buy a bad deal, and give up either. Tell us about your first rental. I'm evaluating a duplex now that is listed at about $55K, 2BR/1.5BA, and would probably bring $450-$500/unit. Area is pretty bad, but I might take a shot at it. Have message into my agent to check it out. Gotta see how much work it needs, etc.

@Franklin Romine, yes, thanks for pointing out that disappointing fact that I have over 200 posts and zero rentals. I've been looking on MLS, HUD, HomePath and HomeSteps, etc., and have not been able to lock one up. Most offers have been on the foreclosures. It seems that most wholesalers that I've come in contact with in this area are only interested in cash buyers or those that have hard money lenders. I would be starting off with conventional financing or possibly HomePath financing on one of those properties.