living solely on rental income

[telarsen]

Keith,
I DO take offence to always being referred to as TED when my name is TOM.............lol!

[kdhastedt]

OOOOOOOOOOPS...sorry, my bad.  Not paying attention!  Darn that AADD!

Keith

[arqgroup]

Hi Mike,

Where do you buy your properties? Seems like you are way into your goal!!

Amy

[Betty]

Hey Property Manager (and others)---like the plan for the rentals; what do you consider to be the best money scenario for flipping (turn around in 90 days or less).  In an ideal world, of course.  Not having climbed out on that particular limb; is it hard to find a bank that will extend you enough credit?  Is it just a matter of debt ratio and credit scores?  This forum is great for information and everyone is very generous.  Thanks

[propertymanager]

Amy,

I buy properties near my home here in Ohio.  However, you can do exactly the same thing in 90% of the United States.  The only exception to buying at big discounts might be investing in the bubble areas (generally on the coasts).

Betty,

In an ideal world, the best money scenario for an investor would be to have a lot of CASH.  Cash is king in REI.  Cash opens up deals that are not available to other investors and allows lower purchase prices because you can close very quickly.  In lieu of a big stack of cash (which I certainly don't have), a line of credit is just as good, because you can still buy quickly.  IF you have good credit and income, then getting a loan from a bank isn't difficult.  

For long term rentals, after you've purchased with cash then you need to refinance to pull your cash back out.

Mike

[Betty]

Thanks Mike for your response.  Not being the cash queen either, I will do what I can with good credit and decent income.

Another question, though this may be the wrong forum.  I am just getting into REI in TX (Dallas area).  Do most of you that are experienced in this game work under an LLC?  Want to partner with my son and do this full time. Won't go further in details, but can if I could get some feedback.  

Thanks again for the help.  

[propertymanager]

Betty,

Yes, I would definitely recommend doing your deals with an LLC, especially if you will have a partner.  This will help limit your liabiltiy to your investment in the LLC and will help protect your personal assets.  

Mike

[Roger J]

Yes, you can finance properties 100% and STILL make a comfortable to very good living at REI.  Just look for the deals.  Just because the property is 100% financed does not mean that you borrowed 100% of it's value.  You borrow 100% of what you need to buy it.

When I started, I bought my first 4 or 5 at 110, 120, 130% financed.  I bought properties at 50% or less of FMV.  I used the cashout proceeds to live off of and to buy more properties.  To keep generating income, I bought some to do quick resells and some to lease.

Raj

[reoconsultants]

Wow now this is a fun post can I play PLEASE I will nice!

100% if we are talking about 100% finance and buying at 100% LTV good luck!!!

Here is a deal I did last week!

In Denver (If you want the address plese send a personal message)

                Appraised Value                      169,000.00
                Repairs needed                                  0.00
                my purcahse price                   122,500.00
                cash I brought to closing            1,421.56
               
                Check payable R.E.O. Consultants recived at closing
                                        $46,039
 
           Monthly mortgage                          $1,125.00
           Monthly Rent (already rented)       $1,200.00

I pay water and Trash!   so I am at a negative of $4.98 per month but I got  $46,039.00 back at closing so divide 4.98 by 46,039.00 so that money will cover my negative cash flow for 9,244.77 months or the next 770.39 years after that I will need to raise the rent to cash flow!!LOL

lets run this another way to see how I could of cash flowed off this property

                               Appraised at    169,000
                               Purchase price 122,500
                               Repairs                    0
                               Cash to closing    1,421.56
                               cash back           12,700.00

 Owner carry 20% and dismiss at closing $33,800 (give or take)

   80% loan to value no Mortgage insurance mortgage of $135,200 or 899.49 per month! Rent $1,200.00

                            CASH FLOW $300.51 minus trash and water
                                            so right around $250.00

 Question what is more important CASH FLOW and equity or working capital? It all depends on where you want to be!


            TODAYS LESSON WAS BROUGHT TO YOU IN PART BY THE LETTER E AND THE NUMBER 13

[MikeInCali]

Robb,

Sorry if a bit off topic but how did you find that deal?  

Thats always the most interesting part to me

[reoconsultants]

Another investor rehabed it and could not sell it everything is finished roof to furnace!

[gmtmaster]

Wow, REOConsultants....what a nice post! I have always been the "cash flow is king" type but if I could land 4-5 of those deals a year I would be on cloud 9. Very nice!

[Bigtalon]

I am looking for information in real life to get cash back at closing on deals.  Any suggestions?  

[gmtmaster]

REOConsultants...

Can you elaborate on what type of financing you used to get this cash back? I thought you couldn't get cash back with a conventional loan? Did you use a creative finacing method?

[propertymanager]

REO,

I'd have to question the math in your cash back deal.  You certainly haven't considered your true negative cash flow when you're only considering mortgage payment and water/trash.  You also need to consider taxes, insurance, maintenance, management, vacancy allowance, etc.  Your actual cash flow is MUCH worse than $5.00 per month.  

However, worse than the negative cash flow is that you borrowed away ALL of your equity.  In my book that is absolutely taboo.  When you have no equity in a property, you have thrown away your ability to sell the property quickly in all but a red hot market.  Therefore, if anything goes wrong and you want or need to sell the property, you're going to take a loss or hold it a very long time.  

Like you, I also do a lot of cash back deals, however I would never borrow all of my equity.  In fact, my rule is to never borrow more than 70% of the value, so that I have a cushion in case of emergency.  Having equity is like having free insurance  -  it gives you options.  So, in my opinion, the key to doing cash back deals is to buy at a BIG discount and borrow no more than 70% of the ARV.  

Here's a deal I'm doing now:

This is a house that I bought at foreclosure auction:

Purchase price:  $39,250
Appraised Value:  $96,000
Borrowing: $65,000
Cash Back:  $25,750
LTV:  68%
My Equity after Loan:  $31,000 or 32%

This will give me some cash but also some equity (safety).  If prices drop  -  I'm protected.  If an emergency arises  -  I'm protected (I can still sell quickly).

So, I agree with you that getting money back at closing is an excellent way to generate money, but I wouldn't give away all of my equity to do it.  Don't be greedy!

Mike