Are we crazy?!

ok, i dont know if i would technically classify my husband and myself as REI’s… sort of REI’s by mistake. It seems a series of bad purchases, are sort of forcing us into investors/flippers and landlords. Our first home purchase was in 2004, a condo, which we were miserable in due to a bad neihbor mainly… we sold it for a decent profit, and move in w/ the inlaws. House #2, a fixer upper, which we bought, and renovated, and learned allot of crap - A LOT of crap about houses, old wiring, yadda yadda… then we decided to rent that one and stay w/ the inlaws… So, we then find another condo, which was perfect, a townhouse style (no bad neighbors to contend with), and only needed some fixing up (kitchen, bath, carpets…) which by now, my husband could easily handle. So, earlier this year, we bought that, fixed it over 1-2 mo’s, and have lived there for 2 months or so. We have been reasonably happy however once we fixed it up, it was worth considerably more, and we also could fetch a good rent for it, w/o a whole ton of o/o pocket expenses. So, just the past few days, i have been contending w/ someone who wants to rent our condo, badly, and pay allot of $$ (3,000/mo). I feel crazy not to take the deal. So, my hubby went to talk to his dad. In order to purchase again, and hopefully something decent this time, that we should ask him to re-fi his house (basically owns free and clear) and we will cover all expenses, and payments etc. (we have done this before w/ an existing Heloc, we could now convert to a better rate, and get some cash for next deal). The other catch for them, we need a place to go for 3 months or so, while waiting to find/buy our next place. My parents also offered to let us use a guest house upstate… hoever , I want to note- we have been while living w/ the inlaws who are extremely gracious to my husband and I (they also have a large house and room to spare).
My DH wants to move back one last time- once and for all- w/ his parents, then make a final and ultimate purchase in the place we intended to buy in Ct. Sooo, we obviously take allot of heat from family, called nomads, gypsys etc. Its really not funny, b/c we dont necessarily welcome the madness, it just seems to work out this way, financially. I should note that this is sort of a culmination of late night tired thoughts, and i apologize if this is a frantic sounding bunch of random thoughts at this hour. BUt, we have a guy potentially coming tomorrow w/ a large payment and a lease agreemet to sighn. We are worried, we will have to either move back w/ inlaws, or upstate or both. We again will essentially be homeless. BUT, we are offered these options - we know this is absolutely the last time we could consider using help before were looked at very strangely (were both nearing 30). So, what do we do? Its really unusual, my DH is from a small family, who really understands real estate, and were in the BIZ which of course presents us w/ all kinds of deals… we do both RE and mortgages, so it can get tempting, and well- put us in sitations similar to the one were in.

We want to just move onward, in the right town, settle and have a family- b/c we definately will burn out at this rate.

Anyhow, enough- i am sure i missed some points here- and will be glad to fill in where need be.

And, i know your thinking, if you have to live w/ inlaws, or borrow from them, you cant afford it. … but, the funny thing is- we can actually afford it, but the banks see that we own two other pptys, only taking such amount of rent into consideration, etc. And the first two pptys will be covered by rent, left to (hopefully) appreciate, one were breaking even on and have gained already a good amount of appreiciation, one were making a good profit on each month. We dont want to sell either… bad market, and we want to wait- its just not time yet to liquidate. So, on to ppty #3. Thats what we think we should do. But, we are wondering if were seeing clearly or not… thas why im here.

:slight_smile: Thank you!!

Through all that long post, you ommitted the most important thing - THE NUMBERS! Operating rental properties is all about the numbers. All the other stuff is extraneous and shouldn’t really enter into the equation of “should we buy the property” or “should we rent our property”.

one were breaking even on and have gained already a good amount of appreiciation

When I see a statement like that, it usually means that you are losing money. The vast majority of newbies don’t understand operating expenses and therefore think things are better than they are. This is a recipe for disaster as your rental portfolio goes. Ironically, you already know this because in a different section you say:

We dont want to sell either.. bad market, and we want to wait- its just not time yet to liquidate.

There is significant downward risk in this market. Instead of appreciating, your property could significantly depreciate and stay at a lower price for many years. This has already happened to a lot of people and they frequently post on here - desperate for some way to get out of their property. Unfortunately, since they are upside-down, there is no getting out. Foreclosure is the only option in a lot of cases.

Also, if I understood you right, your husband was going to ask his parents to refinance their house to fund your real estate adventure. If this is what you are saying, I THINK THAT IS A TERRIBLE IDEA - TERRIBLE. (If I could think of a word worse than terrible, I would have used that). It’s one thing for you to risk your money and credit, but to put your father-in-law’s property in jeopardy is inexcusable.

Real estate investing is risky. The vast majority of new investors fail in a short period of time. You don’t appear to understand the realities of the business as evidenced by a huge post that ommitted any numbers.

My suggestion is that you learn the rental business before you buy anything else. Join your local REIA and meet the SUCCESSFUL investors in your area. Learn the realities of the business. Learn your market. Then, if you decide that you want to be in the rental property business, do it right. Doing it right does no include putting your in-laws house in jeopardy.

Good Luck,


I have to wonder if you’re making any money at all on these after capital gains taxes, rehab costs, closing costs, moving costs, realtor commissions, etc are factored in.

Well, I have omitted the financials per my husbands request- he is just paranoid, LOL.

So, i will take liberty to disclose-

We purchased our 1st house for 800k. We had intended to live there ourselves once we fixed it all up. I would say put around 100k into it or so, but its a long story, but we ended up putting for sale/rent by owner… Initally we had an offer to purchase of just over $1mm when we were done. Per the advice of my dad, and some other reasons, we didnt sell. We are in the suburbs outside of NYC, and the values of ppty dont seem to fluctuate nearly as much here. My family has resided in the town for 5 generations now, and we have never seen anyone lose money as long as its a smart, desireable lot/house/investment. That price is still entry level for that town. We are very confident we can sell at any time, worse case, around $1mm. I have been following the market here closely being a realtor. We are renting it for 5,000/month, and will be raising it to 6,000/mo at which point we will be making a small profit. Right now, yes- we are losing alittle bit/floating it. But, we have been using all our equity in it to leverage against it for our other pptys, and we still keep a good amount of equity (few hundred thousand) available for emergencies and dont want to max it out. We are somewhat holding off on selling it, for a few reasons. 1) We hadnt owned it long enough at the time when we put it for sale/rent to make sense, re: capital gains (it was under 1 year point). 2) We didnt see 100k+/- as enough incentive to make us sell, after the ton of work we had done, and figured the market was soft, and wanted to wait it out. 3) we arent completely sure if we were going to want to move back into it one day. And, we have a fixed mortgage on it (My husband is a Certified Mortgage planner), so were not paranoid of rates jumping around on us or Neg Am. AND- we have amazing tenants who pay the rent on time or early.

Ppty #2 was a condo for 300k (a deal). We fixed it up and have it listed FS for 399k, and for rent for $3000/mo (just shy of that). Weve had a good number of showings, but are leaning more towards the rental, as were nervous it might not appraise out, per the advice of a appraiser friend. I have someone ready to sign the agmt for a 6+ mo lease (he works for local Corp and will be helpful in replacing himself, and possibly may stay for 2 years) for our price this weekend. We are wondering if we should take it. We will be making just shy of $1000/mo on this ppty. We could also just stay put, try to sell By owner as we are or rent later once we fall in love w/ another ppty. I am really really picky now about our purchases, after learning sooo much about houses. i wont go into a ton of detail, but im picky now. Really picky. (structurally speaking/quality of build-wise, not cosmetically). We have had some interest in our condo to sell, and we also are considering selling b/c of speak of cell tower to be built nearby, which were nervous about, but doubt it will be allowed to be built b/c the people are outraged. And, there is talk of another 46 condo units to be built w/in next few years. Much more expensive then ours, and some realtor friends say it wont affect our value, b/c they will be double + the price. Still, we have to consider these things.

Potential ppty #3… Being in the business, we find good deals. We have found some excellent deals. This ppty would be our home base, which is what we have needed for a long time. The condo isnt providing enough space. We want to start a family w/in a few years (2-3) we want to set up nice offices for our business (Real estate and Mortgages, both mainly from Home)… However, as mentioned- To buy it, we would either have to get 100% financing (not likely, b/c we are in the business we have a hard time finding Lenders willing to go stated/100% ltv), sell the condo, or use our own funds from our Heloc that we Leveraged against Ppty #1 and some $ from in-laws.

The in-laws are in this with us. Starting when we first got married. They wanted us to live near them, and wanted to do what they could to make that happen. That was maybe their/our first mistake- takinga $30k wedding gift from them… which provided our first down payment. We faced the decision of moving away like all our friends, to much cheaper areas, or getting creative to stay, and maybe even make out $$ wise from the desirability and exclusivity of the area. This was even before both of us were in the business. Its hard to explain, however, it would never get to the point of foreclosure, we could sell and cut even before that would ever happen. they are getting old, thinking of retirement w/in 7-10 years. So, by us using their equity- they really dont care, b/c we pay the bills each month. They own their home free and clear, and even if we re-fi for another small cash out, and to lock in a better rate on the existing Heloc w/ them, it brings their LTV to only 30% (it is worth close to $2mm). We would never ever allow default against their mortgage. We have had a Heloc with them for 2 years, never a late payment. Either way, i appreciate the advice. But, we are not as dumb as I may be explaining us to be… I am not as eloquent and familiar with REI terms etc. My husband would kill himself as a golf caddy before we would ever allow payments to go short on their Heloc/loans. They know that also. In fact, our policy is to never ask for something we wouldnt feel comfortabel doing w/ our children one day. While we dont have children yet- i would definately help out my child IF they are responsible and of the appropraite age and maturity level. Either with cash, or co-sign etc.

BTW- Most of this is my husbands planning, a former Financial planner, currently working as a Mortgage Planner. For the most part, i am along for the ride, and give my input when renovating, and occasionally even pitch in the patch or paint. But, thats why im here. I am double checking things. I am trusting of my dh, but feel like were getting to the point of being nomadic. I dont know how often most people move, but in our short marriage, were leaning towards 3 in 3 years. Thats 3 for 3! yikes.

Long term goals (1-2 years) : to sell Ppty #1, and sell Ppty #2, pay off all debts with the parents. Apply the profits towards any further debts and/or purchase some “real” investment pptys, or save some for our children/college etc. We will then have 1 house, and be ready to start our family and be NORMAL happy people. lol

One of the reasons also we want to buy “in” is that the town in CT were looking, we have been following for 3 years + now. The prices are the most affordable we have EVER seen, and we can actually buy something reasonable as we had hoped, that we actually would like living in as well, and could see some nice appreciation on once market stabilizes. Funny though- across the NY border, markets are better, more stable. So… we feel alittle safer about those Investments. But, of course- it is a risk, and there are definately some sleepless nights associated to this namely in the early stages of all this.

What else am i missing here??

If you are going to be serious about investing I would start shooting for bigger discounts.

  1. Bought $800k + $100k repairs = $900k, ARV of $1mm = Bought at 90% of ARV including repairs.

  2. Bought at $300k, worth $400k. That’s 75% of retail, that’s a better spread and closer to what you should be shooting for.

In example 1 and 2 you have a potential net of $100k and property 1 is triple the price so you have 3 times the chips on the table for the same payoff. If you are going to start seriously rehabbing you need to shoot for 65-70% of ARV minus repairs.

ARV $800k
Repairs needed $100k
Max offer (at 70% of ARV minus repair costs) $460k
Total investment $560k

To get the bigger discounts you’re going to need to find people that need to sell quickly or houses that need some work. Unmotivated sellers with perfect homes don’t sell for big discounts.

Ps- My personal opinion is that you need to find a nice house to move into for the long haul and get comfy. The nomad crap is for the birds. Keep the rehabs and your personal residence seperate.

Thanks. Yes, we hadnt intended to sell or rent ppty #1. So, we didnt really know what way to go w/ it. We have a small mortgage and Heloc on it so thankfully we can tap into it if need be.

do you suggest renting over selling ppty #2?

We were sort of forced into being rehabbers by accident, but now we like it! Once we settle and get comfy, i think we could do at least 1 real rehab every year, or two.

Thank you- and obviously we have a good amount of research and work ahead of us … but were still not sure if we should stay or go re: ppty 2, and if we go - sell or rent. ?

#2 you say it will rent for $3000 a month, what’s the underlying mortgage?

total expenses for ppty #2: monthly expense: $1280 for mortgage, plus
$440 commons (will be reduced by $50 in a few months), plus 3200/year for taxes and I am not sure if they are escrowed or not in that mortgage figure… my husband would know. I will try to find out asap.

Sounds like it could be a good rental. It’s a tough call whether or not you should sell it now. I’d be tempted to keep it for now for cashflow and cash in that equity when you either need the money or need some cash for a better investment that offers a greater return.

I agree… its almost another 10-12k/year in rental income, plus we now have the equity since the improvements. If we sell, were worried it might not appraise out as well, where if we hang onto it, we can sell once market is better, and more comps … If we dont have an offer on it by Saturday, and after a full day of house hunting tomorrow, well probobly go ahead and rent it. I have two showings for the next two days for sale, and 1 for rent (he is basicaly already locked in). One of the potential buyers has preapproval and flexibility… other buyer said they would be willing to wait 5 months after the lease if we put on the market. It seems we dont really have much of a problem finding buyers and renters, even in this slightly stinky market. (not complaining… ) Thanks for your help!

ps- i realized i might be inflating the numbers by rounding them. Here is exactly what we are agreeing upon: 2775/month for rent, 5 month term, possibly as long as 2 years, and he can most likely help us replace himself w/ another employee w/ the same Corp. We pay for most utils, but they are capped, and anything in excess he pays for. (we are paying electricity up to $100/mo, and cable $99/mo and water, which is billed every few months, around $100 for 2-3 months.). So, i dont want to paint the wrong picture for you- this might be a more accurate/different scenerio. Sorry i left it all out. thank you.


Let’s get real here. Property number 2 is a LOSER as a rental. With gross rents of $2,775, you’ll be losing each and every month.

Let’s look at the numbers:

Gross Rents: $2,775
Operating Expenses: $1,250 (45% of gross rents)
NOI: $1,525

Mortgage: $2,200

Monthly LOSS: $675

This is a TERRIBLE DEAL. Obviously, you’re using some kind of gimmick loan to get a payment of $1,280. This is a recipe for disaster and exactly how people go broke! I would sell these properties and only buy rentals that make sense.


Mike- Here is the deal-

Our mortgage is 1280 (my husband confirmed are including taxes) (not 2200 like you said?!) Plus commons of 440 ($50 Special asesment is coming off soon). Total of $1,720.00. As I am seeing it, we are netting $1,055.00 /month. Then from this, we are paying up to $200 MAX (most likely less) per/mo. So, we are netting $855.00/month. Not amazing, but not horrible for floating this if we absolutely cant sell it.

As for NOI- we have NO operating expenses- $0.00 Everything is brand NEW and this is a condo. There is nothing to repair. They maintain everything - which is what is the common charge of 440.00 We take care of interior items, but even if they are caused by external issues then they still pay to fix them. This is the 2nd unit we have owned here, so we know from experience. Everything here is new, so again- Operating Expenses are non existant.

My husband is a Certified Mortgage planner, so as for Gimmicks- no one is pulling anything over on us. Yes, we are using an Option Arm, however, we are using it for its intended purpose. To maximize cash flow.

I dont see the numbers as you are.

As for NOI- we have NO operating expenses- $0.00

That’s amazing! You’re the only landlord in the entire United States with NO operating expenses - $0.00. You might be interested to know that the hundreds of thousands of other landlords have operating expenses of 45% to 50% of gross rents. But I’m sure you are correct!

I tried. :banghead


What do you list as a operating expense and i can properly clarify as to what mine are- thanks. I know you are trying to help, and I appreciate- really. :smile

from the following list I took off the internet:
Accounting Expenses License Fees Snow Removal
Advertising Office Expenses Supplies
Attorney Fees Pest Control Telephone
Insurance Property Management Trash Removal
Janitorial Service Property Taxes Travel Expenses
Lawn Care Repair Costs Vehicle Expense
Leasing Commissions Resident Manager Utilities
Legal Fees Salary and Wages Etc.

The only operating expenses we are incurring are:

Our insurance policy will change
We have $0 advertising expense (yay craigslist!)
and we are paying his utilities, which is considered in above figures.
Everything else is covered in our Common Charges.

I would say that most of these items my tenants pay for our property #1

We’re making a little progress. At least you do now understand that you have at least a few operating expenses. For example, you’ve already said that you have taxes $3,200 per year ($265 per month) and insurance (probably at least $100 per month for NOO Landlord Insurance). I’m sure that you realize that homeowner’s insurance won’t cover losses if you’re renting it out. Then, you have utilities of about $250 per month. Additionally, you have HOA of $440 per month, which only covers things on the outside of the unit. So, even if we pretend that you are somehow exempt from all other normal expenses, you’ve already got operating expenses of $1,055. Not quite the zero ($0.00) that you were claiming yesterday.

Now, let’s talk about your negative amortization loan. You claim that the $1,280 payment includes the taxes. If so, that means you’re only paying interest in the amount of $1,015. The interest on a $300,000, 30 yr, NOO loan is $2,000 per month. Therefore, even though this isn’t an operating expense, you’re really LOSING another $1,000 per month in negative amortization. That is money that is being tacked onto your principle. You can only ignore that loss if you’re in fantasy land!!!

Back to operating expenses. How about management? Somebody is managing it and that is costing you something. Are you driving to the property to show it to potential tenants? Are you screening them? Do you have a lease? Did you print that off your computer? Does your printer use ink? So even if your time is worth zero ($0.00), it is costing you something.

How about maintenance? What happens if you get a really bad tenant that trashed the place? That happens! So far, you’ve been lucky. What happens if your luck doesn’t hold out? One of my friends had a tenant do more than $10,000 worth of damage to her house. I’ve had many instances where tenants have done damage. Are you exempt?

What happens if your tenant slips and falls? Chances are that they will see one of those scumbag contingency lawyers on TV and sue you! Are you exempt from that?

Vacancies? Do those ever happen in NYC? What if the tenant stops paying and you must evict them? Is that free in your area or do the liberal laws in your area mean months of vacancy and expensive court costs and legal fees?

What you’re basically doing is pretending that everything will go perfectly. You could get very lucky and maybe that will happen. However, you could also be unlucky and have a nightmare tenant that destroys the place; doesn’t pay rent; and works the legal system to stay in your property for months without paying.

Finally, let’s look at what happens if everything goes PERFECTLY.

Gross rents: $2,775
Mortgage: Gimmick Loan $1,015 paying part of the interest
Interest tacked on your principle: $1,000
Partial operating expenses: $1,055 (only taxes, insurance, HOA fees, utilities)

Monthly Loss: $295 (OUCH!) And that is using YOUR NUMBERS and pretending that the normal operating expenses don’t exist! The real loss is much greater!


Thanks Mike for pointing those issues out.

When i said we have no NOE, i had already mentioned HOA etc- so while my terminology was off on what exactly our NOE were, now i most certainly know- so thank you. But, it wasnt a number being neglected- so however we classified it, it was included.

In re: to the Neg Am loan, our mortg, pmt is $1029 Min due, we are not paying $800 towards the interest (deferred interest).

Re the remainder NOE- management- my husband, We live at the ppty so the only inconvenience is cleaning it up and dealing w/ no shows (its a condo in the woods, not exactly NYC-lol although we are 1 hour or so driving distance), Lease- NO! Month to month only, per our attnys advice. Or, short term lease if possible, so we can evict right away.

We require all tenants to have renters insurance, and we have renters policy, and umbrella policy.

I may seem to be pretending it will all go perfectly, but I pride myself in taking massive precautions to ensure that it does.

We screen all tenants w/ Credit checks, detailed application, etc.

Long story short- We did have a potential tenant come in willing to pay the price, but the following day we decided after all Not to rent. Thats the kicker.

We are either going to stay here ourselves, or sell it. If you read my initial post, this is our residence, and not a flip or inv. ppty- we are simply trying to see if and what makes the most sense.

Sooo- thank you! I appreciate all the time you spent on this. Actually, my DH and I are really seriously considering getting further into the flip market, if after we do allot of research, it proves the right choice. I will certainly be back. So, thanks!