I’m looking to buy a home in New Haven or Hamden CT. I am trying to figure out though how long I should hold the home before renting. Also if i finance the entire thing and people don’t rent for the first month how can I come up with that money to pay that mortgage?
Is this a typical concern of new REI’s? Should I take out more money(enough for repares and reserve for unnoccupied rentals)?
Please leave your feedback and suggestions.
JP,
I think you broke the code! You have recognized what a lot of newbies fail to discover, which is that you DO need money and/or credit to invest in RE. Obviously, this is in contrast to the gurus saying that you don’t need money or credit to invest in RE. The gurus are correct in that you can BUY real estate under some circumstances without money or credit, but then what??? If you have no money and no credit, who will make that first month’s payment? Who will make that unexpected repair? Who will pay the mortgages when you have vacancies? Worse yet, what will happen when a tenant gets mad, trashes the house, and refuses to leave? You’ll have at least a couple of months lost rent during the eviction, damage to be fixed, lost rent during the repairs, advertising for a new tenant, lost rent while you’re hunting for a new tenant, etc.
Having a cash reserve or credit is absolutely necessary in every business, and real estate investing IS a business.
So to answer your question - what happens if you finance 100% and the house isn’t rented quickly or some of the other things that I discussed above happen, YOU GO BROKE and another smarter investor gets your property at a discount! It happens all the time.
Good Luck,
Mike
Thanks for the prompt response.
Now what if I was to finance 110%-115% and use the extra cash for repairs, and rent if necessary.
Is that legal? possible?
Hey jpstephens,
If I were to find a property that fit your criteria and it was appraised at 250k and I could get it to you for 200k with 50k cash back would that be of interest to you? Of course it would. What if I told you my finders fee was 5k would you pay it? OF COURSE YOU WOULD no code broke here I never used my credit and or had any money in the deal and I made 5k.
Robb
Good try though!!
I don;t really understand where your goign w ith that? can you explain what u mean just a little better?
Thanks though, I have learned more in the last 3 days on this forum then from all the books i read.
Why wouldn’t you just scoop that deal up yourself? You mean to say you’d give up the $50K for $5K? You know you would take the $50K IF you were to have found such a deal! Help me out. What am I missing?
yea im lost too…
JP,
REO was trying to suggest that you could wholesale deals instead of do rentals. He wasn’t answering your specific question but instead providing an alternative.
In answer to your question, I never borrow more than 70% of the market value. Doing so eliminates your ability to quickly sell the property in an emergency and also damages your ability to borrow from the bank in the future (because of the high LTV). In addition, as you borrow more, your mortgage payment will increase which decreases your cash flow. So, I definitely would not borrow 110-115% of the market value.
I think the answer to your question is to find a deal where the property will cash flow AND you’ll have some significant equity. When you’re new, it seems like these deals are impossible to find. However, great deals are everywhere - you’ve just got to learn to find them. In your situation, you could buy a property at 50% of appraised value, finance it at 70% of appraised value (giving you 20% cash), and then rent it out. I’ve done this many times.
Good Luck,
Mike