Hey all, I have never invested in real estate before, but I have gone through courses and finally have saved up a good amount of money. Everyone tells me now is not the time to get into real estate, but these people are not investors. I know there is some way to profitably invest in real estate even given the state of the economy right now. I ask for your wisdom and insight. Should I rehab and flip, rehab and rent it out, hold off on investing all together, or some other option I’m not considering? Thanks in advance for the insight!
I think rehab/rent & hold is a good option. People have to live somewhere regardless of the economy. Renting is cheaper and more financially accessible to more people than buying a home. Even though this is a perfect time for buyers, people will hold off for fear of losing their jobs and losing their homes. You can probably pick up some good deals that only need minor work.
Renting is cheaper and more financially accessible to more people than buying a home.
Renting is not cheaper than buying a house, if you consider that the landlord has all the expenses of a homeowner plus the tenant related expenses plus must make a profit.
Mike
I think what he was saying is that it’s cheaper for average tenant to rent than it is for the tenant to buy.
My strategy is to buy middle to high priced forclosures, rent, hold, then sell at a profit.
Yeah, that’s what I meant. Sorry for the mix up. When you factor in the cost of home ownership to the cost of renting one half of a duplex, some people just can’t afford a home…Especially in tough times, rentals sould thrive.
Now’s the best time if you’re a cash buyer, or have existing credit lines. I have a huge cash reserve, and I’m gonig to start buying/selling and creating notes this summer! I’m pumped!!! And the best part it’s practically RISK FREE (aka no leverage, though I do think leverage is a great idea in the right circumstances) and it won’t affect my way of living at all. And I can realistically get 25 to 100%+ annual percentage yields in an extremely passive manner. However it does take lots of cash up front, and if you don’t have that…then well you’re out of luck.
You can do it with commercial or residential property. It’s pretty exciting.
I think RookieNYC has talked about doing it recently with residential homes…and he’s doing awesome. I’m going to do it with a diverse array of property types.
I think RookieNYC has talked about doing it recently with residential homes…and he’s doing awesome. I’m going to do it with a diverse array of property types.
I have purchased 2-4 family income properties using cash…I actually have another cashout refi on a cash bought home in 3 more weeks…By my calculations I should be able to get all of my money back out plus 5k…So when correctly used cash purchases put you in way below the bid (sorry for trader lingo)…After I refi the property I’m still getting $275 per door per month on average unless I rent to students for a higher rent…And I go by the rule that if I don’t insult the seller with my offer it was too high…
Yea, I went and talked to a company today here in Houston - Realnet USA - an investment brokerage firm. Looks like the best option right now is to buy/fix/hold. As a first time investor, the agent recommended I get into a property ~$75,000 with rehab work of <$20,000, and an after rehab value of $125,000-$135,000. Recommendation was to fix it up, rent it out, refi, take cash from the refi and repeat process.
That may or may not be good advice. The better advice would’ve been to advise you to do that ONLY if the numbers work. That means that if you can refi, cash out and repeat; the property being refi’d HAS to be able to cover the added debt AND STILL give off positive cashflow of at LEAST $100/mo./unit.
Yea, I don’t quite understand the numbers completely - I have a feeling I won’t understand them until I get into it, but we went through them all and it seems like the type of house I’d get into would usually refi and have the debt covered. The hard money loan Realnet USA offers is 75% of the after rehab value price, at 14.9% interest, paying interest only, and they want you out of the loan in under 4 months - either via selling the house or renting and refinancing at 6-7% interest with a mortgage covering 80% of the ARV. With those numbers using a property with the numbers above would give me about $8-10k cash back.
Again, I don’t completely understand all the numbers, so all that might sound foreign if I’m not conveying it properly. I just don’t want to sit around, and I feel that if I wait around trying to learn everything before starting - I’ll never start.
This is your first RE deal. Don’t feel you need to “jump in” just because you’re getting antsy. Don’t ever feel that the deal in front of you is the only one. Once you develop you criteria, you have to be able to ACCURATELY run the numbers to see if its worth it. But as a quick reference, use the 50/50 rule. Simply, 50% of the gross income will go to property expenses. The other 50% will go toward the principal & interest (taxes & ins. are included in the expenses portion) and your profit ($100/mo./unit minimum). You can get the actual #'s during your due diligence. Take your time and make sure everything makes sense.
I am in Houston too. The numbers RealNet is giving you will give you about $100/month. In Houston that is a pedestrian deal. It is designed to get you in the game, but not win the game. I would have taken that deal every day a couple of years ago. The current climate in Houston dictates that if the deal does not have at least $30k in it I would not do it. I just bought a 3000 sqft house with 4 bed 3 ½ bath 2 car garage with an ARV of $150k for $101k that needs about $6k fix up. Projected cash flow of around $400/month. I would not buy in Houston unless it is a deal. The one before that one (February deal) had an ARV of $140k, I bought for $65k with $10k make ready. Current cash flow $550/month.
Agents will first try to get you to buy the ones that are hard to sell (because there is no money in them). Just like a batter looking to hit a homerun. You have to wait on your pitch. Every ball in the strike zone can be hit, but can’t be hit for a homerun. This buyer’s market won’t last forever; I wouldn’t waste the opportunities I have on mediocre deals.
Based on other postings here, the resetting of ARMs will be more significant in 2008 than 2007. 4-1 ratio. I understand the message about the cash flow but how do you take into account the upcoming wave? Or do you?
I’ve seen foreclosure prices in my area drop anywhere from $25k to $75k in a matter of weeks. If prices dropped that much and that fast due to the 2007 ARMs resetting, I would expect the resetting of the 2008 ARMs to be even more significant.
Thanks…
I understand the message about the cash flow but how do you take into account the upcoming wave? Or do you?
YES! You buy at an even greater discount than normal!
Good Luck,
Mike
Lottomatica.
-Mike
Do any of you run into property limits when you are buying these houses?
For example, lenders that will not allow more than 10 mortgages?
I can buy quite a few houses with hard money, however the problem I will be running into soon is the exit strategy out of those hard money loans since I will be hitting 10 mortgages on my credit report
Do any of you have solutions for this? (except for buying with cash lol)
IF so, what lenders?
I’ve heard of doing a “blanket mortgage” on the 10 properties. I’m not sure of the specifics, but if you have a good relationship with your smaller local banks, they should help you with it. I don’t know if commercial lenders have different guidelines.
CashCow,
10 mortgages is the max for you can borrow if the loans are written under Fannie Mae-Freddie Mac (FNMA-FHMLC) guidelines. The lender can sell the loans if they conform to the guidelines. Had to sell a house quickly last year in order to keep loans at 10.
phlemboy,
My local bank offered to pay off all my existing loans and put the properties under a blanket loan. This was 1 big loan secured by all properties. It sounded warm and cozy, but some of the loans would have had their paid-off dates extended and some would have had higher interest rates.
Also I didn’t like the diminishment of control whereby I would have to ask the bank’s permission to sell 1 property and remove it from under the blanket. I said “No, thanks.” It could have forced me to pay for an expensive commercial appraisal, or not sell the property.
But I did go for a smaller blanket loan on 9 units on 3 different addresses. It was very easy to add units to tuck under the blanket. You need a good payment record with the bank, then they like to re-roll their loan.
Hope this is helpful.
FurnishedOwner