Want To Add To Rental Holdings

Hello All,

I own (well… Wells Fargo and I own) 2 single family rental properties and have had a good amount of success with rental of these homes. I’d like to add to my holdings and the big hurdle is financing. I know many folks here that have considerable rental holdings and wondered how they added to their holdings and repaired existing units using the equity in current properties. This has no doubt been asked before, but I’d just like a story or two to be shared to help a small time investor get a little bigger :biggrin.

I know this might be moved, but this seemed like a good place to start!

Regards,
Frank

Frankster,

I just keep borrowing money from the bank. If they will only allow you to borrow a percentage of the purchase price, you can always refinance after a few months to pull money out. However, you MUST buy at a big discount and not take out so much that you fail to meet your cash flow targets. Pulling out too much in a refi is not much different than paying too much for the property. Either way, your cash flow will be affected.

Good Luck,

Mike

Mike,

    After reading many of your posts it seems that you buy MUCH lower then the "average" 70% of ARV that most newbies use as a target goal. I focus on homes using an offering price of  70% of ARV minus 5k max for repairs (whether or not needed).  

I know this will leave enough equity to finance the property conventionally (no HML’s yet), but I was wondering if you have a “magic number” yourself that you shoot for? I know your thoughts on cashflow (trust me I recite it to others like I’m a cult member) and the forumula you use, but whats your cut off # and how do you determine this? I (like Frankster) would like to use my equity to increase my holdings. I can’t use it NOW, but I do have enough cash for a Down Payment on a house with an ARV of 65-70k max. What would you suggest to create a “domino effect” and be able to continue on & on to increase your holdings?

Thanks for any opinions.

T.J.

being experienced with property managing you may want to try a “lease option” deal. An option gives you control over a property without actually owning it. From there you can rent it out and exercise your option to purchase down the road with a conventional mortgage which will be easier assuming that the property value increases. Banks treat it as a refi. Looking at the process one step at a time it really isn’t that tough.

If you want to try to get another property with a mortgage, make sure you find a good mortgage broker. And talk to them about including your gross income from your other rentals with your total income.

send me a message if you have any questions about lease options.

if your properties are cash flowing, getting loans is easy. Usually lenders with count 75% of gross rental income towards your Income which of course the mortage is on the liabilties page. Keep your DTI right and your fine up to 10 loans. Past 10 then you some loan programs will not be available to you. As for down payment, I hit up sellers for carryback and use equity in existing properties as many lenders like to see 5% out of pocket. My last building I bought was a 4 unit for $185k; got into it for $3.5k out of pocket including closing cost.

aak,

How do you use equity in other properties for part of downpayment? I have two properties with quite a bit of equity and would like to purchase more rentals if I knew how to get into them with not much down.

Thanks,

Mark

but I was wondering if you have a "magic number" yourself that you shoot for? I know your thoughts on cashflow (trust me I recite it to others like I'm a cult member) and the forumula you use, but whats your cut off # and how do you determine this?

Thoward,

I do not have a cut off # that is different from the formulas I always quote. (I like $100/unit/month positive cash flow using real world numbers. I must have 2% of the purchase price in gross rents. I also will not pay more than 70% of the market value - repairs.) I do buy most of my properties well below the 70% number, especially now that the market is on such fragile ground. In my opinion, we are close to a recession and the real estate market is teatering on the edge of the abyss. There are a lot of deals available because houses aren’t selling and I’m really looking for properties now at a max of 50 cents on the dollar. 70% is still a good number, but less is more!

The worse the market gets, the cheaper I’m gonna buy!

Mike

Thanks to all for responding…good ideas to be sure.

Acquiring properties here in the Charlotte area of the Carolinas should improve some after a recent run up in values which seems to be leveling off. Not good for my short term equity gains but great for potential new acquisitions. I’m not sure I can match the discounts that Mike has enjoyed, but that is a great target to shoot for.

I’m ready for the foreclosure/short sale feeding frenzy to subside a little since so many folks are going to the rags to riches seminars and bidding up properties needing rehab to near market value. Don’t get me wrong, I don’t begrudge anyone trying to make a tidy living for themselves in real estate or anything else for that matter, but the prices HUD is getting are beyond my criteria in many cases. I’ve also had an offer on a short sale for 2 months now and still no answer. My guess is the lenders have a difficult time negotiating loss among themselves on first and second place loans, etc.

I’ve bought property in the past with an 80/10/10 loan and refinanced after the rehab. If the lenders don’t tighten up on that format due to the sub prime fiasco, I might continue down that road for future purchases.

Thanks again for all the responses. I’m all ears for any additional thoughts :beer

Regards,
Frank

go get a HELOC from BofA, Wells or perhaps other majors. They will go up to 80% LTV or $100k pretty easily (if you have good credit, etc); that was as of 6 months ago

being experienced with property managing you may want to try a “lease option” deal. An option gives you control over a property without actually owning it. From there you can rent it out and exercise your option to purchase down the road with a conventional mortgage which will be easier assuming that the property value increases. Banks treat it as a refi. Looking at the process one step at a time it really isn’t that tough.

Could you give a example of how deal like this works. How can you get good cash flow on a deal like this. Do you let the owner know up front that you will be renting the house out.

I also like that 100 per unit cash flow rule of thumband and definately no more than 70% arv. Like Mike said use real world numbers and provide that all repairs are done at the beginning of your ownership.
We have bought quite a few buildings that the previous owner lost because they did not fix things ahead of time and then did not have the cash flow or cash to pay for them. Last thing you want to do is replace a roof or hvac or something else and there is no money to cover it.
Dont let the need to acquire blind you so that you dont get a great deal.
Matt