All Forum Posts by: Mark L.

@Jim K.

I posted that 3 years ago, I already do real estate.

Hey @Kyle Seidel,

I don't remember all the math, but I decided real estate is worth it.  However, my focus is on purchasing from distressed sellers/distressed properties, which offers you a discount, which I don't believe is as possible with the stock market.  So the returns are better with the discount.. passive income & tax benefits is nice too, as well as building your net worth from equity through paying down the mortgage and appreciation.  

Also, with compounding in the stock market, you don't get much of the benefit until the very end.  What if I want to retire before I'm 65?

Hope this offers you some insight, this was an old post! Time flies!

-Mark

Sounds like a great deal!  Your rehab numbers sound amazing.. $10,000!  I am getting gouged on my rehabs and need to focus on making that go down.  

1) What was the square footage?  Just to get an idea on the rehab cost/square foot.

2) So are you doing an equity split with your down payment partner?  50/50 or 60/40 or 70/30?  Otherwise what's in it for him?

3) Wow, so they were able to do a cash-out refinance for 80% LTV with no seasoning? What kind of lender are you using and what are their terms? The conventional financing from when I spoke to lenders only lent up to 75% LTV with 6 months seasoning for a 30 year fixed rate loan with ~5% interest. Otherwise a rate-and-term refinance they can go up to 80% LTV with no seasoning, but that would only cover up to what the previous hard money loan amount was.

Nice work!

I read the Introduction to Real Estate Investment Deal Analysis featured on BiggerPockets, which I found to be an insightful read, but left me with some unanswered questions, which I was hoping you gurus here could help answer.  

Link: http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/[1]

In the author's example, the total return on investment (after tax benefits, appreciation, and equity) = 23.71%/year, which sounds amazing. However, it looks like this % is only based off of the initial investment basis:  the down payment.

On the other hand, even though the stock market only returns 8%/year on average  in the long run, that 8% you earn is then re-invested into your investment basis each year.  Therefore, your returns from previous years contribute cumulatively toward your investment basis, which the 8%/year for the subsequent years is based off of.  This illustrates the power of compounding.

It is compounding like this that I didn't see him touch on in his real estate investment deal analysis. Am I missing something here, does compounding exist in real estate? And if not, why is real estate investing superior?

Kevin, the seller said most of the units are in move-in condition. The units they would provide me would be one of those, with no repairs needed. I'm under impression the HOA fee would cover capital expenditures. I'm not sure if it would be considered a class A, B, or C neighborhood. There was a powerpoint that he showed me, and from what I saw, it looks more like a class B or C.

Hi Magesh, I haven't actually looked for a bank yet and that may change things.  The seller is actually sort of a family friend who is a real estate investor, and those were the numbers he presented to me.  They said whenever the down payment is less than 20%, the lender may require the home buyer to purchase mortgage insurance, but he said it is usually inexpensive when the home price is not high.  That's another expense that he did not account for in his projections, though.

The monthly rent is about $600 per unit, with potential to increase to $650 in the next year.

Each unit is $54,900, but I plan on buying 2 units for a total of $109,800.  Thus the monthly rent would be $1,200 with the potential to increase to $1,300 in the next year. 

Real estate loan with an interest of 4.25%, 30 years amortization, with 10% down.  

Down payment would equal $10,980 (2 units).  

Loan payment would be $98,820.  

Monthly P&I would be $486.

Expenses:

Property tax of $56/month (annual $672).

Property insurance of $80/month.

HOA fee of $300/month, which covers water & sewer services, repairs, lawn service, trash removal, and property management.

Total expenses + debt service equals $922/month, so the cash flow from the rent of $1,200 equals $278/month, or $3,336/year.  

CAP rate = 8.35%.

Cash on cash = 30.38%/  

1 Year investment return = 45.56%.   If the rent potentially increases to $1,300/month, the investment return will increase to 55.32%.

Any thoughts on this deal?  This is the data the seller presented to me.  It looks like he is missing the vacancy rate & closing costs though, maybe some other things too.