How to get highest ROI?

General Real Estate Investing
1

I’m new to REI and I need expert advice. Here’s my plan.
Buy property at 6% below market value.
5% down.
Seller finance closing costs (4%).
30 yr interest only 6% loan.
Potential 74% ROI.

What are the best ways to do this deal with minimum out of pocket?

2

Hi Cali,

What are you wanting to do with the property once you buy it and what type of properties are you trying to buy? Each niche in RE may require a different approach. I buy crappy houses and fix them up, then try to get market value out of them. I get my loan through a mortgage broker that gets the loan from a bank. I get 100% financing on the purchase price with up to 80% ARV. This allows me enough money to buy the house, fix it up and pay my monthly interest-only payments. You asked about a 30 year interest only loan, but you need to clarify if you want a 1, 3, or 5 year ARM before it becomes amortizing. For rehabs like I do, where its a quick fix, short hold then flip, I use 1 year interest only. I would have to refinance if I decided to keep the property. See how it works. Why are you stuck on 6% below market. Buy 20-50% below market value. I just bought an REO for 50 cents on the dollar.

3

Howdy Cali:

I too thought the 6% below market was strange. To increase your rate of return invest nothing and you get to divide by zero which is an infinate rate of return if I remember my math correctly. With seller financing or buy and fix and refinace and several other methods you can get zero down rental property. Cash flow will be less but with high enough rents and low enough interest rates and expenses you can still make money. Even if you net a dollar a year the rate is still infinate with zero down.

There are mortgage companies even offering 100% financing with 620 plus credit score or above. I am sure there will be some closing costs but the seller can pay some of these and or finance them for you. I just bought a 31 unit where I did a HML for $250,000 and borrowed $10,000 from a 3rd party and actually got back my appraisal costs and most of my earnest money. My net is about $600 out of pocket, Oh I forgot I borrowed that from my dad and he needs it back 4/15/05 to pay the IRS.

Hope this helps some

4

31 unit for 250K?? Are you serious?

Also, how’s the Austin market?

5

I know 31 units for 250k!, that is crazy!, I just bought a 3-unit for 230k, that is amazing the difference in markets.

6

I had a chance a couple of years ago to buy a 32 unit complex for 100K, but it would have required over 3 times that amount to get it back into shape and then the units would have only rented for about 200/mon each. After expenses it would have only been about break even. I was not looking for another job, just an investment.

Wilson

7

Thank god that is not mine, I have a property manager on it at all time.

8

Howdy Magega:

Since you asked I actually only paid $154,000 and the seller paid $6000 to sell them to me. The other money was for rehab of $80,000 and fees etc. They will only rent for $225 for 29 of them and $325 for 2 two bedrooms but that is $7000 per month if 100% collected. Not too bad. I can buy duplexes for $30,000 that are rented for $600. I saw one for $18,000 but it is vacant but in pretty good shape. Another 4 plex is a wreck but only $15,000. Too many deals and not enough money or partners etc

9

TEDJR,

That’s some cash flow!
Are you buying in Austin only?
I’m looking to buy in Texas shortly and may contact you in regards to this.

10

Mr. Fancypants,

You stated that you get ARV loans that are interest only for one year. What kinda interest rates do you pay for the first year and then after the first year?? Can you give me an idea of what your payment would be per month for the first year and after the first year if a home were to appraise for 100,000?

Thanks, Joe.

11

Hi JoeDC

It works like this: $100,000 x 6.25%= $6,250. Divide this by 12 months and you get roughly $520. For some reason though, it always ends up being a little more expensive than this formula. So as a rule of thumb, I add about $100 to the answer= $620. At the end of the year I would have to refinance or pay a huge balloon payment. But I don’t keep my properties that long. I fix and flip.

12

Howdy Mageda:
I am buying in and around Austin and San Antonio and Waco and Killeen. The 31 units are in Killeen a city of 100,000 with Fort Hood as the main employee. Great potential to increase rents too in 6 moths to 1 yr. Kind of a shortage of tenants today but I should be fine with even 20 units leased.