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Author Topic: I am Hooked  (Read 4789 times)

Offline Bluemoon06

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I am Hooked
« on: January 28, 2005, 03:54:13 pm »
I found a house 3 weeks ago.  I bought it for $78,000.  I put 7,800 down I put $6,000 into it. (roof, fence, two garage doors and flooring and paint).  Comparabels indiucat it should go for $94,000.  I just put a tenant into it.  My payments are $456 principle interst and PMI.  My taxes and insurance are $200 per month.  Total monthly outlay is $656.  I just rented it for $900.  That is $244 positive cash flow.  I thought about flipping it, but I was told not fo flip houses with less than $15,000 to gain.  The holding costs can eat up the deal.
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Offline ARamirez

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Re:I am Hooked
« Reply #1 on: January 28, 2005, 04:04:07 pm »
Sounds awesome! I hope ya did all your homework on lease/rental agreements and so forth so you are covered. Great start!
Abel B. Ramirez II
MHSolutions.biz
REI Noob - 2 deals purchased, 2 completed.
Dallas, Texas
214-529-5626

Offline Mr.fancypants

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Re:I am Hooked
« Reply #2 on: January 28, 2005, 06:26:49 pm »
If you keep it for 2 years and rent it out and then decide to sell it, you won't be taxed for capital gains. This is what my CPA has told me. Sounds like you should hold on to it and milk that positive cash flow, let it appreciate and then flip it. Good job!!
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Offline handyman1977pa

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Re:I am Hooked
« Reply #3 on: January 30, 2005, 08:45:25 pm »
  I think you might wanna ask your cpa again about that. If its a home you live in then yes 2 years and you wont have capital gains but on and investment since he has a  tenant living there it isnt the same. You have to live in it for a total of 2 years not neccessarily consecutive but a total of 2 years within a 5 year period for investment properties as far as I understand it to be. I am not a mortgage expert by any means but you should have checked around to find a lender so you could get rid of PMI. Do you only have one mortgage or a 1st and 2nd? Usually if you do a 1st and a 2nd you can get rid of PMI which will add to your monthly cashflow. Maybe a mortgage broker can help you out more then me. I dont think you will be happy with the money your left with after paying off your loan, holding costs, realtor costs, and then taxes... In my own opinion keep it for awhile until you feel you can hit the profit you would like to.

Offline Mortgages

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Re:I am Hooked
« Reply #4 on: January 31, 2005, 05:40:28 am »
Folks it's ok to pay PMI. especially when you are rehabing.  because when you have completed the project the value will sure be higher, usually in 6 to 12 months you can get an appraisal  and have them take it off.  With an 80 20 your stuck paying for a second which never goes away. This is a concept that lenders love because they feel that they will refi you out of it when the seconds payment is increasing (due to prime increasing 2nd is usually a heloc) and the broker gets another deal.  In the first scenario you just stop paying pmi when you reach a value of 80%.  Also  please keep in mind it is harder to get approved on an 80 20 and now you have a loan on your credit which has a maxed balance(interest only payments)and this could adversely affect your credit.  And finally when you have 2 lien positions against a property it is harder to take out cash, because you can't get a 3rd position onto an investment property.  I almost forgot heloc's usually have a pre-pay(even if you live in a non prepay state) and your usually paying more in closing costs.  Hey don't get me wrong i love the 80/20 programs and programs that don't have pmi but you gotta way out the costs bassed on your goals.  As for your situation congrats, but ask your CPA again the scenario you have is not your primary and depending on how you file (rent losses, depreciation, etc) you may have some tax consequence at sale- no biggy your makeing money as well, congrats again!!!
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Offline Bud Branstetter

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Re:I am Hooked
« Reply #5 on: February 01, 2005, 02:12:24 am »
Let us clarify that on an investment property you have to hold for a year and a day to get long term capital gains treatment.

The 244x12/13800=~21% sounds good.  But what happens if you have a bad tenant.  Lose three months in no payments or repairs and it becomes: (244x9-3x656)/13800=1.6%

NOT SO GOOD.

Now when you sell you may have to utilize a realtor. Average closing costs will be about 8%.   In the DFW area appreciation in 2003 was ~2.5%.  That would mean I would have to wait about 3 years to cover my sales cost even if I lost no monthly rent.

I wonder why people sell on a L/O. Maybe to get higher income. Maybe to avoid sales costs. Maybe to avoid vacancy.

You thought you did good buying at ~83% LTV. I'm not trying to rain on your parade just being realistic.

Offline Bluemoon06

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Re:I am Hooked
« Reply #6 on: February 01, 2005, 09:09:22 am »
21% risk free?  I don't think so.  BTW I expect to have repair costs on move out.  If I end up with that 1.6%...that is still more than I am getting in my 401k now and I can't sell to get the cash if I need to.  Still a good deal.

I don't plan to flip because my goal is to replace my income with rental properties.  Which means that I will be getting 10 of these and spreading out the risk.
Real estate to Retire you
http://sphinxwealth.com/

Offline ARamirez

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Re:I am Hooked
« Reply #7 on: February 01, 2005, 10:58:42 am »
Blue,

I think if you are going to rent the porperties and hold them you are atleast starting, which is better than most new REIs.

I see where you are coming form with saying 1.6% is better than where you are at now, but you obviously can't continue with that kind of return on your money. I think the biggest improvement you can make on future deals, which is EASY to do is to NOT put 10% down on the property!   ;D

Let's look at the numbers if you only put 5% which even I with a score of 655 can get...

$78,000 purchase price
$3,900 down
$6,000 repairs
$9,900 in the property

Now true you still have a low side when you have vacancies etc. But atleast over the long term you will have more cash available for those other 9 properties you will be buying.


Abel B. Ramirez II
MHSolutions.biz
REI Noob - 2 deals purchased, 2 completed.
Dallas, Texas
214-529-5626

Offline Bluemoon06

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Re:I am Hooked
« Reply #8 on: February 01, 2005, 11:30:58 am »
That will speed me up.  Right now I am recouping down payment from personnel savings.  My original plan was to refinance in 5 years to optimize returns anyway.

I ran the numbers with 0 down deals the property does not yield enough monthly from the rents, but 5% and the deal still flows well.  I am looking to do another in the early spring (probably April or May) and I will talk to my mortgage broker about 5%.

My original plan had me getting 3 houses by year end.  I may be able to get 4 in with 5% down!

Thanks…this site may have paid for itself already.
Real estate to Retire you
http://sphinxwealth.com/

 




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