I’ve been able to convert the tips and knowledge I learned from this forum to accumulate a decent cash reserve for my first Personal residence. I’ve managed to assign a few contracts for foreclosures and have done an extensive amount of Bird-dogging. But here’s where the problem comes in.
I’m looking to position myself correctly with the purchase of my first personal residence to have enough money in equity to purchase my 2nd buy & hold property. They way i figure from previous situations,the numbers will look like this:
1st Property(3/3 DBL, 2500 sq feet, 1 unit OO)
ARV x 70%-Repairs = MAO
(50k x 70%)-5k max = 30k
Equity available for HELOC= 11,250
Gross rents:$500 a month
Approx PITI: 394.12 @ 8.5%
Cash Flow: -$144.12 (using GROSS RENT/2-PITI)
2nd prop (3/3 DBL, 2000-2500 sq feet, NOO)
ARV x 70%-Repairs = MAO
(50k x 70%)-5k max = 30k
Equity= 15k
20% DP of 35k max= 7k
gross rents: $1000 a month
HELOC Pmnts (7k): $174.20 (9% 48 months)
Mtg PITI (28k): $342.78 (8.625% 30 yr)
CASH FLOW: -$16.98 (using GROSS RENT/2-PITI)
As you can see, THIS JUST DOESN’T WORK!!! Am I missing something? I figured using my formula from other areas of REI would help make the “buy and hold” strategy a bit more profitable, instead I’m ending up with negative cash flow on my Personal residence and on my investment property. It’s driving me crazy because I know i’m missing something but I can’t see where.
I assume the NCF on my first residence is normal given that only 1 unit is rented. But why on the second property? I would assume I should be able to at least turn some sort of profit outside of the earned equity. If you can figure this out PLEASE HELP ME! Any suggestions would be extremely helpful. Thanks!
WHOO HOO! Thanks alot propertymanager, now i can stop driving myself crazy. Another quick question: Does the strategy seem valid?
The “buy and hold” method is a totally new step for me as I’ve been able to find a large amount of buyers pretty quickly in my area. I haven’t stepped into the realm of HML’s yet so I’m hoping that I can “kill two birds with one stone” so to speak with the HELOC’S by leveraging my properties(even if i don’t use the HELOC’s) and occasionally using them to purchase properties.
To be honest, I’m quite nervous after reading some of the posts concering tenants (some of your prior tenants included). With such a small cash flow and a negative cash flow on my primary residence and I basically burying myself alive before I get started?
Yes, your strategy is valid. You may have a small negative cash flow on your personal residence. I wish I only had a small negative cash flow on my personal residence!!! Then, you will have a positive cash flow with your rental property. The only thing that I would do differently is that I would try not to put any money down. If you buy at 70% or less of market value, you really should be able to borrow all the money needed for the deal.
Remember, you “make money” 5 ways with rentals:
Equity at closing
Cash flow
Tenants paying down the mortgage
Appreciation over time
Depreciation for tax purposes
So, in the long run, you’re doing a lot better than simply the cash flow you make. How much do you want to make each month? If you want to make $10,000, then you need 100 rentals at $100 per month per rental. If you do the management and maintenance yourself, you may only need 40 to 50.