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Author Topic: investing in single family rentals  (Read 6480 times)

Offline KeithMcCormack

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investing in single family rentals
« on: February 17, 2004, 11:33:46 am »
I would like to ask someone who knows, the feasibility of paying a reasonable down payment for a nice $70-80000 home in a nice neighborhood, leasing it and receiving a positive capitalization rate. The reason I ask is I'm so tired of the "no down, house for pennies, fix up and profit, get rich with foreclosures" talk I've listened to since I decided to invest in RE instead of the stock market. I don't have very much money to play with so I might be out of the game anyway but I've chased down over 200 properties in the last 3 months and most, if not all, would have been worth more as a vacant lot than a residence. Maybe I'm short on imagination but when they talk $60 and 70 for something I wouldn't want my pet to live in, I can't see how you can possibly make money reselling and if you rented the capitalization rate would be down around 2% and you would have constant trouble with renters and finally, is it easier or harder to get a loan on a property you are going to rent than it is  on a personal residence? I would appreciate a simple, honest answer. Thanks

Offline David Alexander

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Re:investing in single family rentals
« Reply #1 on: February 17, 2004, 01:07:09 pm »
You doing it wrong....

Stop chasing houses and deals....

Get motivated Sellers calling you....

When they call you with a problem to solve... Solve their problems...

Structure deals where thier problems make you a dime or two... and then everyone wins....

You'll be surprised.... No maoney down deals happen all the time... It's just structure...


David Alexander



Offline Ernie

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Re:investing in single family rentals
« Reply #2 on: February 21, 2004, 04:07:16 pm »
Hmmm,

Good question.  I agree with the previous poster in that you don't necessarily need to chase deals however, getting setup to have the deals "chase" you takes a little forthought.  Anyway, the route of foreclosures, fixer uppers and the likes actually does work.  I've bought first 3 houses that way.  What you need to do is look at the difference between repaired market value, the actual amount that you are going to pay (offer amount), and the final monthly financed amount.  Depending upon exactly how far below market value the house is your downpayment really can fade to zero.  

Think about it, if someone wanted you to finance a house that was going into foreclosure for $0.50 on the dollar. Would you be interested?  Most banks and lending institutions are because once the smoke clears, the bank is still ownes the note on an asset worth 50% more than what they have in it.  Looking even further down the line if the loan is maintained until maturity, that particular investment by the lender is truly a jewel!

In either case, treat your money as though it has real value and almost approach your investments as a cheapskate! ;D  That way, you are more likely to make a money wise decision instead of an emotional decision via frustration or "This is perfect!".  You can do it, just take your time and believe that you really can do the impossible.  Last year I bought 3 properties with no money down so you can do it.

Good Luck,

Ern
www.mynexthouse.us
www.jpcinvestments.com
« Last Edit: February 21, 2004, 09:24:15 pm by TRandle »

Offline David Alexander

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Re:investing in single family rentals
« Reply #3 on: February 21, 2004, 07:11:38 pm »
What forthought.... does it take to buy some signs or other marketing materials...

Designed with a message to get folks in dire situations to call you....

About maybe..... 2 secs of forethought since it has already been done for you...

No Need to reinvent any wheels here....

Chasing the deals...  especially the foreclosures is alot of work that few folks can stomach.....  especially, since that is where "most" newbies wanting to get into this business start....  With some sort of foreclosure list.... The competition is endless... and the rejection rate you have to face chasing the deals... is crushing to most...  And at best "Hard Work"  

Get past this stage and you can buy 3 houses a month at will.... with no effort....

The money in all businesses is in learning to treat your marketing as your number one investment....

Most people focus on finding a house.... looking for a No Money Down Deal....

"And that Ain't It"......

Focus on... (I'm going to say it again) motivated sellers.... Yeah, you can go the making offers route... but that's the slow boat to china unless you have a really good system in place...  and know a particular market like the back of your hand...

Once you have sellers calling you... then you focus on what the numbers are.. and are they motivated to sell...  (lots of folks in foreclosure should be motivated to sell, but, no matter how ridiculous it seems.... They aren't)  
 
You don't want to deal with all the others that aren't.... Why... because you should be always working with the thought that time is your most valuable asset... don't waste it on useless and unfruitful pursuits...

After that...  to get the "No Money Down" Deals.... it's all about structure...  How to structure deals... becomes invaluable...  to learn to structure deals...  You have to put tools in your toolbox...  LO's, Subject to existing financing, owner financing, private money, negotiating and on and on...

Notice I never mentioned getting a loan... I have never gotten an institutional loan even once for a property I have purchased...

Save your credit for things like personal use, short term opportunities, and possibly to help build your corporations credit....

Most people "that I have seen" structure deals with loans...  using seconds etc... end up doing some sort of lender fraud...

The second is forgiven in the back alley after the deal....
Cash ends up back in the sellers hands when it shouldnt...
People claim it as a residence....

David Alexander





Offline Ernie

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Re:investing in single family rentals
« Reply #4 on: February 21, 2004, 08:54:18 pm »
Interesting perspective David.  Very interesting.  ;D

Offline Hal Roark

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Re:investing in single family rentals
« Reply #5 on: April 03, 2004, 09:13:17 am »
Keith,

Cap rate is a term used for larger, multifamily investments.  One never uses the term "cap rate" with a single family residence, and, it's just not used as a means of measuring value on anything less than 5 units usually.

Your concept is right, though.  You want to guage if you are getting a decent return on your investment.  That's roi: return on investment.

Can sfrs give a good roi?

Yea, a great roi.  Can you get a loan on a sfr thru a bank, mortgage broker, etc?  Assuming you qualify, sure you can.  This is the old, tried and true method of acquiring properties.

You need to figure in how much it's worth your time and effort babysitting the investment, to determine if the cashflow is good enuf.  I know folks who own properties and are happy with $50/month positive cashflow (after deducting monthly for vacancy and repair set asides).  I know others who won't touch a deal for less than $150/mo +flow.  It's an indivdual choice based on each individual's unique situation, goals, and perspective.

I suggest you read this excellent book by McLean and Eldred: Investing in Real Estate, 4th edition.  Lots of great, salient wisdom on the tried and true methods of real estate investing.

Hope this helps,

Hal
www.landlordingsecrets.com
How to Make The Biggest Profits Landlording to Niche Tenants
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