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Author Topic: Did I make a good deal?  (Read 9526 times)

Offline henryinma

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Re: Did I make a good deal?
« Reply #15 on: June 24, 2007, 01:03:33 am »
First I'd have to say this deal sounds a little off.

If you're going to commit mortgage fraud, you mind as well do it straight up and get it from the start. You need to look around more for a bank that will finance you, for instance, I believe Ing Direct will do a 5/1 arm for owner occupied at about 6% right now. I don't think they do non owner occupied.

The legal way to do it is to get an investment loan and that's at about 6.75-7%. Basically you need to do the math, your refinance costs are going to eat up any savings you get from the lower rate.

For a 30 year with a 47k loan, the payment is $297.07 at 6.5%. At 7% the loan payment is $312.69. You're trying to save $15.62 a month or $187.44 a year and you're willing to commit fraud to do it. At $187.44 a year, it would take you about 16 years just to break even on your $3k closing costs. Also in 6 months the interest rates could be at 7% so it'd be even worse. Just remember that rates were at about 6% just a month or two ago.

Trying to get fancy on this deal is just going to cost you even more money. Sounds like you should just get a regular loan and rent it out as soon as possible.
Realtor/Rental Property Owner
Boston, MA

Offline bizarrefun

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Re: Did I make a good deal?
« Reply #16 on: June 24, 2007, 08:51:06 am »
henryinma ..is the boston area tanking yet?.....how about providence?

i use to live in newport RI when i was younger...miss that neck of the woods....

i heard providence is taking a hit..

looking to get a 2nd vacation home...may have to start to run some ads up there... lol

my 2 cents

Robert A. Doncaster, Jr.
Import/Export Entrepreneur & Investor
*** DO YOUR HOMEWORK ***

Chicago Illinois USA
& sometimes Salzburg, Austria
--------------
It's A Short Time From The Cradle To The Grave!!!

Offline txguy79

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Re: Did I make a good deal?
« Reply #17 on: June 24, 2007, 01:46:08 pm »
I dont understand how this is considered mortg. fraud. I live with my fiance and give her money every month for the mortg.  so im not on the deed. This is my very first home purchase and it will be owner occupied for at least 6 mos. Since I have so much time to put into this house I will be doing the repairs my self on nights and weekends. So, at the time of refinance I will be the owner occupant. Later on I will rent it out. Whats the difference?

Every lender I talked to told me that in my case the difference between owner occ. rate and investment rate is going to be at least 2 percentage points. 6.5 compared to 8.5

If you had read my earlier post I initally wanted to buy this house cash, rehab and sell but I made a mistake on the comps. I only paid $338 in closing costs when I made the purchase. Doesnt it make sense to not have to pay interest for 3 to 6 mos while its being fixed?

Also im not so sure this house would of qualified for conventional at the beginning and a HML would have killed the deal.

Matt

Offline henryinma

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Re: Did I make a good deal?
« Reply #18 on: June 24, 2007, 02:48:42 pm »
It doesn't really make sense that you don't have to pay interest. If you mean that by not having a mortgage you're not paying interest, you're just moving the money around. You could be earning interest on the money now, some banks are offering around 5% interest on deposits, so you're not really getting an interest free loan for 3-6 months.

You're better off fixing this house as soon as possible and getting the $750 a month in rent, that's $4500 for 6 months or $3000 for 4 months. The money you save doing it yourself may be lost in taking too much time to do it.

If you're actually living in it, then just get a regular loan. The amount is rather small which is why those lenders are quoting you a higher rate. For this small amount, you're better off with a local bank or a credit union or a company like Ing Direct, they seem to do small loans, had a friend do one there for $75k. Most mortgage brokers won't make any money on it so that's why you're getting the high rates. And because the refinance costs are so high relative to the amount of money borrowed, you're better off with just one loan, plus rates are going up so you shouldn't count on a low rate 6 months down the line.

Oh as for Boston, the market is actually picking up, inventory is down a little, further out about 10-20 miles out it's still soft and even further out some areas have prices that are still going down. Very little foreclosure/short sales close to Boston. Some expensive areas like Winchester still get multiple offers and homes there that are priced in the 800k to a million are still selling.
Realtor/Rental Property Owner
Boston, MA

Offline Bluemoon06

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Re: Did I make a good deal?
« Reply #19 on: June 25, 2007, 11:09:46 am »
Every lender I talked to told me that in my case the difference between owner occ. rate and investment rate is going to be at least 2 percentage points.

Matt I suggest you think through your plan with the end in mind.  First ask yourself why are you doing real estate?  Are you doing real estate because you want to live a certain lifestyle?  If so how do you get to that lifestyle?  I would suggest that an income of so much a month will fund the lifestyle that you desire.  That is where real estate comes in.  You need to do this in order to determine how many houses you need to yield you that much income per month.  Then you go and buy that many houses.

You then look at the constraints to getting them.  One is running out of time or money before you get enough houses.  You overcome that by using leverage.  I suggest that 10 to 20 houses yielding $200/month will fund a really nice lifestyle in Houston.  I know that you can get to this level in 2 years.  Using this plan it will become obvious that you donít need to be sweating 2% on a mortgage when you need to be making some real money.  I am in Houston too.  What I do is find REO properties that are 3/2/2 1500 sqft or larger that retail for $100k to $120k that I can buy for around $60k.  I put $6k to $12k into them using a rehab loan.  I then have a PITI of around $550/month to $650/month.  I then rent them out for $900/month to $1000/month.  You can buy fix and rent 6 of these houses in the 6 months you are taking to fix up that one house you are doing.  And instead of saving 2% of a mortgage you could have $300,000 in equity and an additional income of $1000/month by then.

We are not doing this for the money; we are not doing it because we like to work with our hands.  We are doing it for the lifestyle that it provides us.  Begin with the end in mind.
Real estate to Retire you
http://sphinxwealth.com/

Offline bizarrefun

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Re: Did I make a good deal?
« Reply #20 on: June 25, 2007, 11:17:36 am »
Well said Bluemoon!!!!!!!!!  same concept in bad neighoods,,,,just double the houses! he he lol

the key now is 50% off...not 75%...25% will be lost in the doom and gloom coming within the next18 months

your deals will be even better within the next 18 months,,,watch and see..bank s will be giving away the great deals here in the coming months

my 2 cents

Robert A. Doncaster, Jr.
Import/Export Entrepreneur & Investor
*** DO YOUR HOMEWORK ***

Chicago Illinois USA
& sometimes Salzburg, Austria
--------------
It's A Short Time From The Cradle To The Grave!!!

Offline txguy79

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Re: Did I make a good deal?
« Reply #21 on: June 25, 2007, 11:39:29 am »
Bluemoon

I agree with everything you are saying but since I did buy this house cash (because my first exit strategy was to buy and sell) I am being told by most lenders that I will have to wait 6 mos. to refinance. Since that is the case I might as well save some money on the rehab and get the owner occ rate to go with it. I will definatly finance the rest of my deals from the beginning, from here on out.

Im all about the lifestyle. My ultimate goal is enough passive income to quit my day job. I just dont see a pace of one house per month as being realistic for me right now.

Thanks for the advice

Matt


Offline henryinma

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Re: Did I make a good deal?
« Reply #22 on: June 25, 2007, 11:51:56 am »
I think you're getting a little too caught up in theory and reality. What you're doing sounds about right if you're talking about a 200k+ deal or more where the lower interest rate has a real effect on the bottom line, however with such a small amount of money, the refinance costs are so high relative to the loan that a lower interest rate really means nothing compared to what you're losing in potential rent.

Most people focus too much on the interest rate and not on the monthly cash flow. As I said before, your real problem is not talking to more lenders, you'll get a different story out of them the more you talk to. You can finance this now, it's just that they normally go by the purchase price when it's under 6 months.
Realtor/Rental Property Owner
Boston, MA

Offline txguy79

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Re: Did I make a good deal?
« Reply #23 on: June 25, 2007, 07:40:05 pm »
I understand what you are saying but the damage has been done. I bought the house for cash and now need to get my cash back. If i rent the house out now it will be labeld investment property. If I wait 5 mos I can make it owner occ. My total closing costs the first go round were 338.00. To refinance im looking at 2500-3000.

60,000.00 at 6.25% for 30 yrs. is 369.43 mo.  Total interest 72,994.92


60,000 at 8.5% for 30 yrs. is 461.35 mo.   Total interest 106,085.31


I think ill wait a few months to get those numbers. Besides, im going to have to pay the closing costs of 2500-3000 regardless.

i thought i was going to buy, rehab, and sell. I bought it cash to avoid HML. This is plan B for me and I dont think a few months of lost rent is going to hurt in the long run.

Thanks for the advice though...

Matt

Offline txguy79

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Re: Did I make a good deal?
« Reply #24 on: June 26, 2007, 03:02:38 pm »
Bluemoon

I assume you are a member of lifestyles here in Houston. " Its not the money, its the lifestyle."

I asked Del about his opinion on operating expenses running 45-50% of gross rents and he wouldnt answer my question. He basically said that he could rent a house in 3 days where it might take someone else 3 months- And his repairs would cost less than another persons would. I agree with that to a certain extent.

I just wanted to ask you your experience with what OE run you.

Thanks for your reply

Matt

Offline Bluemoon06

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Re: Did I make a good deal?
« Reply #25 on: June 27, 2007, 12:58:51 pm »
Yes lifestyles is one of the clubs I belong to.  I also belong to the Real Estate Investors Club of Houston (RICH club). Glenn Dickson's club (Complete Property) the best thing about his club is that it is free and he provides drinks.  I am also a member of MMAP.  I think that MMAP gets me the best conections and I do my financing through them.  These people are buying houses.  Del at Lifestyles gives you good foundation like renting a house in 3 days and cutting costs.  Glenn's club gives you good market information and RICH is good for networking. 

I can give you contact info for all these clubs if you would like.  If I had to pick 2 clubs to actually do the business I would say that Lifestyles and MMAP are mandatory.
Real estate to Retire you
http://sphinxwealth.com/

Offline txguy79

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Re: Did I make a good deal?
« Reply #26 on: June 27, 2007, 02:57:27 pm »
I belong to RICH and of course have heard of Lifestyles but I havent heard of the other two.

Id like some info on MMAP and glen Dicksons club. Thanks.

Matt

Offline Bluemoon06

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Re: Did I make a good deal?
« Reply #27 on: June 27, 2007, 04:16:45 pm »
I just sent you a pm with their contact information.
Real estate to Retire you
http://sphinxwealth.com/

 




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