Have you tried the Real Estate Club link under Investor Resources?
http://www.reiclub.com/real-estate-clubs/Maryland.html
Any of these close?
Baltimore Real Estate Investors Association
Email: reicnews@excite.com
Phone: 410-296-1871
Address: 1210 Deanwood Rd, Baltimore, MD 21234
Beltway RE Investing Association
Email: marquise@beltwayreia.com
Phone: 703-349-2934
Central Maryland Real Estate Investment Association
Email: cmreia@myesa.com
Phone: 866-205-1487
Chesapeake Bay Real Estate Investors Association
Phone: 240-426-5675
DC/Central Maryland Real Estate Investors Group
Phone: 202-783-0093
Address: 3540 Crain Hwy #220, Bowie, MD 20716
Landlord and Property Owners Association of Washington County
Phone: 301-745-3159
Maryland Real Estate Exchange
Email: charles@investorsunited.com
Phone: 443-253-3886
Address: 6721 Harford Rd, Baltimore, MD 21234
Mid-Atlantic Real Estate Investors Association
Email: alan@mareia.com
Phone: 410-728-0287
Address: PO Box 5899, Baltimore, MD 21282
Minority Real Estate Investors Association
Phone: 410-206-5423
PatheFinders
Phone: 240-832-6670
Real Estate Investors Club of Baltimore
Phone: 410-296-1871
Real Estate Investors Metro Washington
Phone: 301-340-9399
The Maryland Real Estate Exchange Network
Phone: 443-253-3886
Washington REIA Network
Email: washingtonreia2@aol.com
Phone: 301-231-5437
Address: 152 Rollins Ave. #200, Rockville, MD 20852
thanks for that info! you all are awesome. ok, so I have an agent picked out, she’s a long time family friend and I will be discussing all of this with her this evening. so what exactly am I looking for? I mean, what is the term? HUD? short sale? foreclosure? Also, just to be CERTAIN, that rule for how much to buy is rent x 30-50 minus repairs. and repairs should be set at 50%?
so check my math. say the rent is 100/mo (argument sake) so rent x 30(more desirable than 50 I presume) would be 3,000 minus 50% (of 3k I presume) would make my maximum purchase price 1500.00?
also, lemme just check my process real quick.
- find a property
- find out what the rent would be (talk to housing authority)
- figure if it’s a deal that is going to work financially using the above rule
- resume with the rest of the buying/renting procedure.
right?
oh yeah, one more thing, if the housing authority has set the rent at 100/mo then that IS the rent. In other words I can’t say to the renter “well, the rent is 200/mo, now, the voucher will pay me 100 and you need to pay the other 100” right or wrong?
ok, the quote feature is not working right now, I will manually quote this stuff.
couple questions just reading back through all this amazing content…
this was from hooch’s post.
“You make your money on the purchase of a property and don’t realize it until it’s sale. What’s in between is very little.”
-what do you mean by not realizing until the “sale” ? I thought what was in between was your cash flow/bread and butter?
“Triplex example
1br - $425
1br - $425
3br - $595
Total rent = $1,445 X 30 = $43,350 total value of the house
Now lets say that you have about 5k in repairs.”
-5k in repairs? you mean the initial repairs, like the ones necessary to pass inspection right? so it’s like buying a car, you just deduct the amount of money it will cost to get it on the road from the purchase price. and why 30-50? who came up with that figure? is that just something that has been established from years of mistakes from savvy investors or is there some sort of sound mathematical principal driving that?
“Gross Income: $1,445/mth = $17,340 annual
Expenses (50% rule of thumb) -8,670
NOI: $8,670
43,350k@7%/20yrs: $1,865
Yearly Cash Flow $6,805
$567 per month or $189 per door.”
-what is NOI?
-so these are “commercial” loans and not regular mortgages?
-on the above scenario, what would the monthly payment be to the lender?
and last but not least, seriously do you mean that you can consider the repairs on your average sec8 investment to total half the rent? I mean, running repairs? ongoing?
so what exactly am I looking for? I mean, what is the term? HUD? short sale? foreclosure?
Investor deals, it could be anything, she will know what to show you.
Also, just to be CERTAIN, that rule for how much to buy is rent x 30-50 minus repairs. and repairs should be set at 50%?
NO. Go here for clarification http://www.reiclub.com/forums/index.php/topic,43281.0.html . I wrote that because there are so many questions on real estate valuation. Repairs are estimated based on the house. The 50% thing you are referring to is the national average of expenses per year that an investor has. In this situation we are talking about getting the property up to speed. Up to it’s full value for renting. The Hooch method of Valuation is used for one specific thing, low income property landlording. Rent X 50 would be equivalant to the 2% rule which is used in middle class neighborhoods. Both are for landlording and useful if you are selling to a landlord. If you are flipping or selling to a flipper go by the MAO method.
1. find a property
2. find out what the rent would be (talk to housing authority) OR USE CRAIGSLIST OR THE PAPER. SECTION 8 WILL PLAY GAMES WITH YOU AND TELL YOU ONE NUMBER AND THEN WHEN YOU GET IT RENTED THEY WILL SAY THEY WILL ONLY PAY A LOWER AMOUNT
3. figure if it’s a deal that is going to work financially using the above rule USE WHAT RULE IS APPROPRIATE BASED ON THE LINK ABOVE.
4. resume with the rest of the buying/renting procedure.
oh yeah, one more thing, if the housing authority has set the rent at 100/mo then that IS the rent. In other words I can’t say to the renter “well, the rent is 200/mo, now, the voucher will pay me 100 and you need to pay the other 100” right or wrong?
I think this is based on where you are. In Roanoke Virginia that IS the way it IS. You can not charge any more than what they say it is. But I have heard different from people in other areas. You will have to ask them directly about this.
“You make your money on the purchase of a property and don’t realize it until it’s sale. What’s in between is very little.”
-what do you mean by not realizing until the “sale” ? I thought what was in between was your cash flow/bread and butter?
There is very little bread and butter in the cash flow. Think of how many units you will have to have at $100 cash flow per door to actually live on. The bread and butter comes from getting a fantastic deal on the property, appreciation (if you are buying higher end property, low income appreciates but much slower however it cash flows and most higher end property wont), and amortization (relating to the tenant paying the property off for you).
When I am referring to your assets as not being “realized” I am talking about this. Lets say you have 10 100K houses that you got awesome deals on a few years back, you benefited from a small amount of appreciation, and the tenants almost paid off those awesome deals for you. Now 10 X 100K equals a million and you are now officially a millionaire BUT the money is not realized until you sell those properties. You are still making $100 per door X 10 = 1k a month. Once the house are completely paid off and no mortgages the cash flow will go up and you may make 30K a year from those 10 houses but you still don’t have 1 million dollars in your hands. So your a millionaire on paper because the money is not yet realized.
[b]“Triplex example
1br - $425
1br - $425
3br - $595
Total rent = $1,445 X 30 = $43,350 total value of the house
Now lets say that you have about 5k in repairs.”
-5k in repairs? you mean the initial repairs, like the ones necessary to pass inspection right? so it’s like buying a car, you just deduct the amount of money it will cost to get it on the road from the purchase price. [/b]
Yes, the initial cost of buying the house is included with the initial cost of getting it up to speed and rent ready. A little paint here and there, fixing those safety issues that Section 8 wants you to fix, etc.
and why 30-50? who came up with that figure? is that just something that has been established from years of mistakes from savvy investors or is there some sort of sound mathematical principal driving that?
I came up with the 30. I buy low income property. I deal in junkers. Properties can not be judged the same and have to have different pricing depending on where you are buying. NO experienced landlord is going to pay Rent X 50 (equivalent to the 2% rule) for a “junker” section 8 property. But the 2% rule is great for the middle class neighborhoods and you won’t likely be able to use the Hooch method in the middle class neighborhoods as you will not get anyone to accept your offer. *** please note that you are doing the right thing if you are getting turned down on one property after another. That is the name of the game. The deals come via looking at boatloads of potential deals***
I came up with the Hooch Method as a faster way than I was presently using which was the Capitalization Rate. Rent X 30 = about a 15-18% cap rate. Determining the CAP rate on one single house can take a long time even when you know what you are doing. Once you have done the Hooch Method a few times and start to understand what things are renting for you will be able to give an offer on the spot within a couple of minutes. Doing it this way will allow you to focus your efforts more on the important things like thoroughly estimating the repair costs.
[b]“Gross Income: $1,445/mth = $17,340 annual
Expenses (50% rule of thumb) -8,670
NOI: $8,670
43,350k@7%/20yrs: $1,865
Yearly Cash Flow $6,805
$567 per month or $189 per door.”
-what is NOI?
-so these are “commercial” loans and not regular mortgages?
-on the above scenario, what would the monthly payment be to the lender?[/b]
NOI is net operating income. Just a name for the money you have to work with after expenses. If you had NO loan on the property this would be the money you would walk away with each year from that house.
I get commercial loans because I have each house in a seperate LLC that I set up and banks give commercial loans to LLC’s.
-on the above scenario, what would the monthly payment be to the lender?
Sorry, I figured it wrong above. Here it is and I will break it down how to do it.
Gross Income: $1,445/mth = $17,340 annual
Expenses (50% rule of thumb) -8,670 (repairs, taxes, new roof, hot water heater, insurance, etc, etc, etc)
NOI: $8,670 (what you have to work with after all is said and done)
43,350k@7%/20yrs: $4,033 (practice this, go to http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx and punch in a loan of 43,350 at 7% over 20years. Then hit calculate, then show amortization table. Go to the bottom of the table and see how much interest you will have to pay over those 20 years. 37,312 + $43,350 = $80,662 which is the total amount you will pay for that house. Divide it by the 20 years and you have $4,033 that you will pay per year. Divide that by 12 months and you have close to what the total monthly mortgage payment will be. $336 per month. Now subtract that NOI which is the yearly money you had to work with from the yearly loan of $4,033 and you have:
Yearly Cash Flow of $4,637 in that scenario.
Now divide that by 12 and you have $386 per month. If it is a triplex that is a monthly profit of $128 profit per door.
ok, so this ought to be a bold yet stupid question to frustrate everyone that reads it…
If there is virtually no appreciation in low income housing, that would essentially negate the benefit from buying at a good price and then selling a couple years later, renting in between…
on the other side of the coin, if there is virtually no “bread and butter” lively hood supporting cash flow in renting low income housing through section 8, then that would essentially negate the benefit of land lording.
I know I’m going to get flamed for missing something here and appearing so stupid and unprepared but going by the above information, there is no point in being a section 8 land lord, no?
so confused… every person I’ve told about this section 8 land lording thing has said something like “damn, I know this guy that did that and made a ton of money” so now I’m lost.
can someone please come and pick my head up, place it back on my shoulders and screw it in? maybe I’m just having one of those mindless mornings. I’m actually quite brilliant intellectually however sometimes what’s obvious to some is not such to others (like me lol)
:banghead
If there is virtually no appreciation in low income housing, that would essentially negate the benefit from buying at a good price and then selling a couple years later, renting in between…
Not if you truly are buying at a good price which would be wholesale and would follow the buying criteria that I listed. If you do that correctly, you would be able to sell it the next day and make a bunch of cash. However, it is a little more difficult to move low income property. If I was selling one of my rentals I would sell it to an owner/occupier for full ARV. I would sell it with a lease option.
on the other side of the coin, if there is virtually no “bread and butter” lively hood supporting cash flow in renting low income housing through section 8, then that would essentially negate the benefit of land lording.
There is the best possible “bread and butter” in low income housing as it cash flows much better than all other types of residential rental property. Once the tenant has paid off the loan (if you buy using the Hooch Method and you take NO cash flow they will pay it off in 5 years) than the cash flow goes up significantly, unless you use the property to put another note on to buy another house with cash. Landlording is not about bread and butter, it is primarily about working your butt off to be a millionaire in 10-20 years.
there is no point in being a section 8 land lord, no?
The point in being a section 8 landlord is that you WILL get your rent and reduced evictions. That’s pretty much the only benefit.
so confused… every person I’ve told about this section 8 land lording thing has said something like “damn, I know this guy that did that and made a ton of money” so now I’m lost.
There is no get rich quick thing with investing. You WILL make a ton of money but not monthly. Your money will come from buying right and having people pay off your mortgage and other bills on the house.
In my opinion, there is NO better investment than real estate. It blows the stock market out of the water. But there is work involved. You WILL become a multi-millionaire if you do it correctly. Most people start out BOTH working and investing and drop the job only when they have brought their cash flow up to a level where they can. If you want more monthly cash flow you get your houses paid off and you will have it. BUT, to continue to grow most investors will get a loan on their paid for house to buy another for cash. Then that other is paid for as the loan was on the first, so they will put a loan on that one and again, buy another.
When you are at a point where you have a few paid for houses than it gets easy because you can have some of them that you are getting the loans on and others that are paid for and you are living off the cash flow. It takes a while to get to that point though if you don’t have the money upfront to just pay for them all in cash with no loans.
Other options where you get large paychecks right off the bat include flipping and wholesaling. Wholesalers often make between 1K and 20K selling to investors. Most often from wholesalers I know is around 5K. A flipper often makes 20-40K on their flip. More often in the 20K range from the people I know after paying holding costs, realtor, etc. In these cases you are using your money and good credit to essentially buy yourself a job. You live off the money you made. The problem here is that you have to be doing this on a very large scale to actually make tons of cash that builds up to make you a millionaire. There are people out there doing this on the large scale and have become wealthy from doing so. There is significantly more risk in this than landlording.
ok, just so I am completely clear, here is the most fundamental question of all time. you know what I intend to do with myself in the future so as a starting point…
RIGHT NOW I am to buy a cheap house and rent it out under section 8. correct? first things first right?
ok, now, make a note that I am NOT seriously looking at this property, I just found it and wanted to post it to see what you all say about it.
please review and explain to me if this looks good or not and why.
3-Unit
Brick structure duplex
5200 Block Kramme Ave
Off Church St
Neighborhood: Brooklyn Park
Anne Arundel County Zip: 21225
Ride this Turnkey Cash Flow machine for years to come.
All three units are 1 bed / 1 bath.
All units occupied.
Condition: Very good
Roof and HVAC in solid shape.
Rents: Upper level: $800
Middle unit: $750
Basement unit: $700
Monthly Income: $2250 / Annual: $27,000
Lease Status: All on 1 year. One tenant has 5 months remaining, the other two, 10 months.
*Not separately metered. Owner pays utilities.
Annual expenses: $8774
2007 and 2008 NOI available for review.
Cap Rate: 11%
Available immediately via Wholesale assignment now only: 150k
This is what I would think when looking at this. (Keep in mind that all of these ads are full of lies and it is your job to uncover them. Also what they are asking for a house is completely irrelevant. The question is what will you give. It is only useful for a general idea of how crazy they are and if you think you will be able to talk enough since into them to get them where they need to be for you to buy it.)
3-Unit
Brick structure duplex I don’t know how a 3 unit triplex is a duplex but whatever. I’ll just chalk that one up as ignorance on their part.
All three units are 1 bed / 1 bath.
All units occupied.
Condition: Very good
Roof and HVAC in solid shape. We’ll see. Lets find out what isn’t.
Rents: Upper level: $800
Middle unit: $750
Basement unit: $700 This will have to be verified prior to purchase. I have had people lie to me on how much something rents for too. As if I won’t find out until it’s too late. :banghead2
Monthly Income: $2250 / Annual: $27,000 So that means that the property is worth $67,500 if it is in a low income area using the Hooch Method, or using the 2% rule it is worth $112,500 if it is in a relatively nice upper middle class, lower white collar area. MINUS REPAIRS.
Lease Status: All on 1 year. One tenant has 5 months remaining, the other two, 10 months. I don’t care about that, it’s nice that it is rented though.
*Not separately metered. Owner pays utilities. - The alarms just went off and all I can see are stop signs and red flashing lights that indicate watch your a**. Now the equasion just became, Rent X 30 or 50 depending on the neighborhood minus repairs AND costs of SPLITTING THE UTILITIES. I do not split water, just gas and electric. AND YOU HAVE TO MAKE SURE WITH THE GOVERNMENT THAT THEY ARE GOING TO LET YOU DO IT. ONLY SOME AREAS IN MOST TOWNS ARE ZONED TO ALLOW THIS. LOCAL GOVERNMENTS TRY TO PLAY THESE GAMES BECAUSE THEY ARE ATTEMPTING TO TURN THE NEIGHBORHOOD EVENTUALLY BACK TO ALL SINGLE FAMILY RESIDENCES.
Annual expenses: $8774
THIS IS A BOLD FACED LIE AND EVEN IF YOU GET THE NOI IT WILL BE MISSING EXPENSES. THE ANNUAL RENT IS $27,000 AND THE ANNUAL EXPENSES ARE IN THE BALLPARK OF $13,500. Landlords will cook the books a few years prior to selling to make it look more profitable. This is what I do when I sell property too. Wise investors know this.
2007 and 2008 NOI available for review. I would like to see it so I can call them on stuff and expose them as lairs. I will use this as part of my negotiation.
[b]Cap Rate: 11%
Available immediately via Wholesale assignment now only: 150k[/b] Compare that to what we decided it was worth above that didn’t even consider the costs of splicing and dicing the electricity and repairs needed. What they want for it is irrelevant and is not to be considered in any way more than determining how high of a horse you will have to knock them off of.
Moveright,
Why not think of a simpler plan…You are paying for a roof over your head right now, correct? So why not buy something to live in and rent out.
Why not use the $8,000 Federal stimulus money that is FREE to 1st time homebuyers. This is a once in a lifetime chance!
Find a duplex or house with a cottage so you can have rental income, if at all possible. If not possible in your area, then buy a single family house, fix it up, and plan to move in 3 years. You will have your start.
Furnishedowner
Really? Why not just be honest about your expenses? What are you telling (or not telling) the IRS?
Ditto what Hooch says though about not paying utilities. Water is not that great of an expense, but there’s no way I’d be paying gas/electric for someone else. You’re just asking for them to abuse the utilities because they’re not paying it. Splitting utilities can be expensive. Definitely check this out if you’re interested in a property like that. Many smaller multi-unit buildings will not have separate utilities. Our 6 unit building has common water, but is separately metered for electric (there’s no gas in the bldg). We pay common area electric and the water bill, but the residents pay their own electric.
[/b] THIS IS A BOLD FACED LIE AND EVEN IF YOU GET THE NOI IT WILL BE MISSING EXPENSES. THE ANNUAL RENT IS $27,000 AND THE ANNUAL EXPENSES ARE IN THE BALLPARK OF $13,500. Landlords will cook the books a few years prior to selling to make it look more profitable. This is what I do when I sell property too. Wise investors know this.
Really? Why not just be honest about your expenses? What are you telling (or not telling) the IRS?
I would NEVER not report INCOME to the IRS. “Cooking the books” has nothing to do with the IRS. It involves not showing the buyer EXPENSES that you DO have like gasoline in your car when used in relation to that house, personal time spent in property management for that particular house, materials purchased etc. TRUST ME, the IRS is more than happy for someone NOT to report deductions (EXPENSES) they could have as that is MORE money IN their GREEDY little hands. They don’t tax expenses, they tax income.
I understand what you’re saying. Guess you must not mind missing out on some deductions to make your expenses look lower.
It’s a better trade off.
Missing a few thousand in deductions, of which in reality your savings is only a small percentage of that based on your tax bracket, doesn’t even closely compare to the gains you will get from making a property appear to be more profitable than it is.
That’s why loosing some of the deductions is of no concern to me.
ok, I spoke to my real estate agent and discussed my intentions with her. she told me that the first thing we need to do is get the lending situation under control. she is going to check with her lenders to find out which will work best for this. she told me that most lenders don’t like to get involved in this type of stuff which is discouraging but hey, some lender out there wants a piece of the action!
Anyhow, she told me that she THOUGHT investment loans required more down than conventional loans. if that holds true, I’m going to be screwed because I have basically no cash. I suppose I thought I would just VA my first loan for the 3.5% down and move on from there once my cash flow is under control.
As far as using the 8k obama money, not sure how to do that, I’m very inept with this stuff. I’m renting an apartment right now and I really wanted to jump in this with both feet (intelligently of course) taking the cues from people that know and in 3 years instead of moving, I’d have ?? properties in my portfolio producing some reasonable cash flow.
I don’t even know where to start! While there was some good info in this thread, there is also a bunch of bad info, which I will try to correct.
My general consensus is that I should start my venture by purchasing an inexpensive foreclosure and rent it under the section 8 program in maryland. Problem is, I don't know what steps to take first. do I assemble my team (lawyer, real estate agent, mortgage broker, etc) first?
First of all, if you want to get into the rental busienss, you should be buying a property at a huge discount. There is absolutely nothing magical about a “foreclosure”. I would look for properties that will meet your purchase criteria, not a specific type of sale (foreclosure, pre-foreclosure, tax lien sale, etc).
Having said that, your first step is to study the business. I would start by reading EVERY SINGLE POST in the landlording forum. Yes, that’s going to take some effort, but you MUST learn the business or you will surely fail. The vast majority of newbies in this business fail and they fail because they don’t understand the business. You are NOT EVEN CLOSE TO BEING READY TO LOOK AT PROPERTY!
1. purchase a low cost house 50k or so (all these numbers are for the sake of argument)
You can lose your butt on a $50K house just as easily as you can on a $100K house. The cost of the house isn’t what’s important, the ratio of rent to acquisition cost IS the critical issue.
2. get it to pass the section 8 inspection
There is nothing magical about Section 8. It’s just another source of money that pays the rent. The goal is to make the rental safe and clean and get it rented. Whether the tenant pays the rent or Section 8 pays the rent is irrelevant.
3. let's say my mortgage payment (again for argument sake) is 500/mo so I rent this place out for 900/mo and the government direct deposits let's say 550/mo on time in my account and I collect the remainder from the tenant which becomes my cash flow.
You don’t get to set the rent - the market does that!
Ok, I will be the first to bust the bubble. You will be the safest with a multifamily home rather than a single family.
That is certainly not true. There is no decrease in risk with a duplex or triplex as compared to a SFH. In fact, since the tenants are generally a little higher up the food chain in SFHs, your risk is normally lower with a SFH than with a duplex or triplex. A 5% or 10% vacancy rate in SFHs has absolutely no more effect on the bottom line than a 5% or 10% vacancy rate in multis! Again, you need to understand the business before you buy anything. Additionally, there is generally a higher turnover and therefore a corresponding higher vacancy rate in multis than singles. So, your vacancy expense will likely be higher in multis than in singles.
purchase an investment multifamily (rent x 30-50 minus repairs is a good place to start
“Rent x 30-50 doesn’t make sense”! What that really means is that the purchase price should be less than or equal to 50 times the rent (less repairs). There would be no logical reason to limit the lower side to 30! Would you buy a property if the purchase price was rent X 30, but you wouldn’t buy it at rent X 25? That’s just silly. Moreover, the 2% Rule is just a screening tool. As the numbers of units go up, you will need more than 2% (less than 50 X rent) to make the property cash flow correctly. YOU ALWAYS NEED TO DO A CASH FLOW ANALYSIS IN ADDITION TO USING THE 2% RULE!
oh yeah, concerning the state "determining the rent", I know this is a semi-loaded question with no single answer but can you give me a rough, and I mean rough idea of the sort of cash flow that section 8 investors work with? I mean, let's say for argument sake rough numbers, if a person bought a 50k property in a low income area with the intent of being a section 8 landlord, what would be a typical cash flow return on a monthly basis?
This is really two different questions. The vast majority of new landlords in this business lose their butt. So, the truthful answer to your question is that the average landlord (including Section 8 landlord) loses money every month. Obviously, the minority of landlords that are successful do make money. Personally, I have about $100 per unit per month in positive cash flow.
I do know this couple who own a management company. They seem awfully busy but they manage about 45 properties (as of a year ago when we last spoke). All I can remember from my conversations with them at that time was the husband telling me "yeah, you get calls at 3am and there are many headaches and sleepless nights but the money is so good you just forget about it the problems". that's all I know about management.
Sorry to be blunt, but every word of this is b.s. I have significantly more than 45 rentals and I have NEVER gotten the fabled 3 am call. I also sleep very well at night. The ideal that the money is “so good you just forget about” the problems is ridiculous. Yes, you can make good money, but you work for it. The money in rentals certainly isn’t extraordinarily good - it’s just normal for running a successful business.
and why 30-50? who came up with that figure? is that just something that has been established from years of mistakes from savvy investors or is there some sort of sound mathematical principal driving that?I came up with the 30. I buy low income property. I deal in junkers. Properties can not be judged the same and have to have different pricing depending on where you are buying. NO experienced landlord is going to pay Rent X 50 (equivalent to the 2% rule) for a “junker” section 8 property. But the 2% rule is great for the middle class neighborhoods and you won’t likely be able to use the Hooch method in the middle class neighborhoods as you will not get anyone to accept your offer. *** please note that you are doing the right thing if you are getting turned down on one property after another. That is the name of the game. The deals come via looking at boatloads of potential deals***
RIDICULOUS! Let’s take a real example of a low income Section 8 rental house that has a monthly Section 8 rent of $600 per month. According to the 2% Rule, the MAXIMUM purchase price (to have an acceptable cash flow) would be $30,000. Now, let’s see if this works from a cash flow standpoint.
Gross rents: $600
Operating Expenses: $300
NOI: $300
Mortgage (30 yr, 7% NOO, $25K): $199
Cash flow: $101
So, you see - YES IT DOES WORK WITH LOW INCOME SECTION 8 RENTALS.
Landlording is not about bread and butter, it is primarily about working your butt off to be a millionaire in 10-20 years.
I completely disagree! Landlording is about bread and butter. I make my living with my rental property business. It’s about cash flow. Furthermore, if you build a significant rental property business, it certainly won’t take 10 to 20 years to be a millionaire. In fact, if you build a rental property business large enough to generate a significant cash flow, you almost can’t help being a millionaire. However, before getting too excited, it is important to realize that being a millionaire won’t even buy you a bag of McDonaldLand cookies at McDonalds. It the cash flow that allows you to buy groceries and go on vacation!
Missing a few thousand in deductions, of which in reality your savings is only a small percentage of that based on your tax bracket, doesn't even closely compare to the gains you will get from making a property appear to be more profitable than it is.
That’s ridiculous! I’m not ommitting deductions on my taxes so that I can lie to a buyer. In fact, I wouldn’t lie to a buyer under any circumstances. If you want to build a successful business, you’ve got to be honest and have some integrity! Furthemore, if you want to be in the rental business, you won’t be selling the goose that lays the golden egg.
Mike
That is certainly not true. There is no decrease in risk with a duplex or triplex as compared to a SFH. In fact, since the tenants are generally a little higher up the food chain in SFHs, your risk is normally lower with a SFH than with a duplex or triplex. A 5% or 10% vacancy rate in SFHs has absolutely no more effect on the bottom line than a 5% or 10% vacancy rate in multis! Again, you need to understand the business before you buy anything. Additionally, there is generally a higher turnover and therefore a corresponding higher vacancy rate in multis than singles. So, your vacancy expense will likely be higher in multis than in singles.
Just as property manager said, there is some good info on this thread and some bad and I will try to correct.
We are talking about low income property. I would like to see your statistical information that a section 8 SFH has a lower vacancy rate than a section 8 Multi. Beyond that, a vacant SFH brings in $0 dollars. A vacant unit in a triplex brings in 2/3rd’s of the rent. Point made.
“Rent x 30-50 doesn’t make sense”! What that really means is that the purchase price should be less than or equal to 50 times the rent (less repairs). There would be no logical reason to limit the lower side to 30! Would you buy a property if the purchase price was rent X 30, but you wouldn’t buy it at rent X 25?
This is a ridiculous statement. It is pretty obvious that you would buy it for Rent X 25. Rent X 30 is a generality just as the 2% rule (rent X 50) is. BUT it is a generality for low income property. If you read all of the thread and followed the links you would know that this was covered. No one is limiting anything to Rent X 30 minus repairs. However, rent X 30 minus repairs WILL cash flow at $100 per door per month or more! It is a simple and easy way to determine a 15 to 18% capitalization rate that can be done within a few seconds.
YOU ALWAYS NEED TO DO A CASH FLOW ANALYSIS IN ADDITION TO USING THE 2% RULE!
This was also covered. Please thoroughly read a thread prior to making off the wall comments as if we didn’t already discuss it.
[b]I do know this couple who own a management company. They seem awfully busy but they manage about 45 properties (as of a year ago when we last spoke). All I can remember from my conversations with them at that time was the husband telling me “yeah, you get calls at 3am and there are many headaches and sleepless nights but the money is so good you just forget about it the problems”. that’s all I know about management.
Sorry to be blunt, but every word of this is b.s. I have significantly more than 45 rentals and I have NEVER gotten the fabled 3 am call.
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And I have well over 200 and I have had the 3am calls. Especially from the low income section 8 areas.
RIDICULOUS! Let’s take a real example of a low income Section 8 rental house that has a monthly Section 8 rent of $600 per month. According to the 2% Rule, the MAXIMUM purchase price (to have an acceptable cash flow) would be $30,000. Now, let’s see if this works from a cash flow standpoint.
Gross rents: $600
Operating Expenses: $300
NOI: $300
Mortgage (30 yr, 7% NOO, $25K): $199
Cash flow: $101
So, you see - YES IT DOES WORK WITH LOW INCOME SECTION 8 RENTALS.
I can’t believe that you are actually telling him to take a 30year loan to get a hundred dollars a month cash flow as if that was the BREAD and BUTTER of Real Estate Investing. NICE INVESTMENT! YOU’VE GOT TO BE KIDDING ME. Investors who are in it to actually make money have an objective of a business investment paying itself off in 5-7yrs. This is the same objective of someone buying a regular business as it is for someone buying real estate.
Bought with the Hooch method of Rent X 30 minus repairs, a 15yr loan is paid off with double payments in 5 years with no cash flow. Paying off the property every 5 years with no cash flow is an investment. Waiting for 30 years while making a lousy $100 per month is COMPLETELY INSANE.
Here is a more realistic formula. Also, I don’t know exactly where you are investing but in a great deal of the country banks will not allow 30 year loans on investment property. THEY DON’T EVEN WANT TO LOAN MONEY ON A RISK LIKE THAT. Here they will loan for 15 years max on rentals. I heard from someone else here they were able to squeeze out 20 from their bank. This type of misinformation attributes to newbie failure rates.
Gross Annual Rent @$600 $7,200
Operating Expenses $3,600
NOI $3,600
30K 15yr @ 7% $3,235
Yearly Cash Flow - $365
Monthly Cash Flow - $30
Now the same property bought using the Hooch Method.
Gross Annual Rent @$600 $7,200
Operating Expenses $3,600
NOI $3,600
18K 15yr @ 7% $1,941 / monthly payment $161
Yearly Cash Flow - $1,658
Monthly Cash Flow - $138
COME UP WITH $23 PER MONTH OR TIGHTEN YOUR OPERATING EXPENSES AND MAKE DOUBLE PAYMENTS. IT WILL BE PAID FOR IN 5 YEARS.
[b]Quote
Landlording is not about bread and butter, it is primarily about working your butt off to be a millionaire in 10-20 years.
I completely disagree! Landlording is about bread and butter. I make my living with my rental property business. It’s about cash flow. Furthermore, if you build a significant rental property business, it certainly won’t take 10 to 20 years to be a millionaire.
[/b]
So you’ve been an investor for how long? And you have “45 rentals” and you like to get $100 per rental so it took you __ years to get to a point where you are making $54,000 a year. This pays for your time but the bread and butter is in the sale of the property that the tenants paid off for you. You say on one hand that it won’t even take 10-20 years to be a millionaire and on the other you tell people to take loans for 30 years. I’ve got news for you, holding millions in assets that are not paid off doesn’t mean that you are a millionaire. THE BANK IS THE REAL OWNER, YOU ONLY OWN A PORTION OF IT.
That’s ridiculous! I’m not ommitting deductions on my taxes so that I can lie to a buyer. In fact, I wouldn’t lie to a buyer under any circumstances. If you want to build a successful business, you’ve got to be honest and have some integrity!
No one told YOU to NOT claim all of YOUR deductions. This is where your inexperience really shines. Almost every single property that I have bought, the owner lied about the operating expenses. Look at multifamily homes on Realtor.com and see the rent amounts vs the operating expenses. Every time I verify the operating expenses they are wrong. If you don’t know this you are very wet behind the ears.
And I am very happy that you think that every person selling in the country on Realtor.com has no integrity. But don’t tell him that “if you want to build a successful business, bla bla bla…” because that simply is a lie hence you are saying that every investor that has lied on Realtor.com (which is almost all) does not have a successful business.
No one told YOU to NOT claim all of YOUR deductions. This is where your inexperience really shines. Almost every single property that I have bought, the owner lied about the operating expenses. Look at multifamily homes on Realtor.com and see the rent amounts vs the operating expenses. Every time I verify the operating expenses they are wrong. If you don't know this you are very wet behind the ears.And I am very happy that you think that every person selling in the country on Realtor.com has no integrity. But don’t tell him that “if you want to build a successful business, bla bla bla…” because that simply is a lie hence you are saying that every investor that has lied on Realtor.com (which is almost all) does not have a successful business.
I find it very troubling that you are supporting and defending lying to buyers. That speaks volumes to me. I don’t care if EVERY SINGLE PERSON on realtor.com or every single seller in the country is lying and conducting their business in a dishonest manner - I WILL NOT CONDUCT MY BUSINESS LIKE THAT! Furthermore, there are MANY honest business people out there and they are the ones that succeed in the long term. There are also many dishonest business people out there and if you want to be one of them - so be it!
I would like to see your statistical information that a section 8 SFH has a lower vacancy rate than a section 8 Multi. Beyond that, a vacant SFH brings in $0 dollars. A vacant unit in a triplex brings in 2/3rd's of the rent. Point made.
If you understood the rental business and had 200 rentals as you claim, you should KNOW that SFHs generally have better tenants than that found in multis. You would also know that the vacancy rate is generally higher in multis than in SFHs.
You are correct that a vacancy in a triplex brings in 2/3 of the rent - that’s not brain surgery but it also is totally irrelevant. That’s no different than saying if you have a rented SFH, it is 100% occupied but if you have a triplex with only one unit rented, it is 33% occupied. Totally irrelevant! Vacancies should already be calculated in the cash flow analysis for any property you buy. Whether you own SFHs or multis, a vacancy rate of 10% in a SFH has absolutely no more effect on cash flow than a vacancy rate of 10% in a multi. You SHOULD understand this since you claim to have 200 units!
Gross Annual Rent @$600 $7,200 Operating Expenses $3,600 NOI $3,600 30K 15yr @ 7% $3,235 Yearly Cash Flow - $365 Monthly Cash Flow - $30Now the same property bought using the Hooch Method.
Gross Annual Rent @$600 $7,200
Operating Expenses $3,600
NOI $3,600
18K 15yr @ 7% $1,941 / monthly payment $161
Yearly Cash Flow - $1,658
Monthly Cash Flow - $138
COME UP WITH $23 PER MONTH OR TIGHTEN YOUR OPERATING EXPENSES AND MAKE DOUBLE PAYMENTS. IT WILL BE PAID FOR IN 5 YEARS.
The “Hooch Method” is nothing more than telling people to buy at a bigger discount! I completely agree! In fact, I could invent the “Billy Method” which is MUCH Better than the “Hooch Method”. The “Billy Method” says that you should buy low income rentals at rent X 10, minus repairs!!! It’s just silly! Obviously, you should buy as cheap as you can and the cheaper you buy, the better off you’ll be. Hardly an epiphany! The 2% Rule is nothing more than a screening tool to ensure that a property will have positive cash flow. You always need to do a cash flow analysis to determine that you’ve met your cash flow targets.
So you've been an investor for how long? And you have "45 rentals" and you like to get $100 per rental so it took you __ years to get to a point where you are making $54,000 a year.
LOL! I didn’t say that I owned only 45 rentals, Moveright said that he knew a couple that managed 45 rentals. Furthermore, if someone did own 45 rentals and had a cash flow of $100 per year, they would make $45,000 per year, not $54,000 per year.
That pays for your time but the bread and butter is in the sale of the property that the tenants paid off for you. You say on one hand that it won't even take 10-20 years to be a millionaire and on the other you tell people to take loans for 30 years. I've got news for you, holding millions in assets that are not paid off doesn't mean that you are a millionaire. THE BANK IS THE REAL OWNER, YOU ONLY OWN A PORTION OF IT.
Again, it’s clear to me that you don’t understand the business, although you certainly should, especially if you are buying using the “Hooch Method” (buying at a very big discount). As I recall, you correctly said in one of your posts that the widely publicized rule of thumb for rentals has historically been that you need to buy a rental that would have gross rents of 1% of the purchase price. You also correctly said that that does not work (and I agree). In fact, in my experience, most rentals sold at retail do have rents at about 1% of the purchase price. So, a typical $50,000 rental would have rents of $500 per month. Now, let’s assume that a person uses the “Hooch Method” and buys that $50,000 rental for $15,000 (30% of market value). At closing, the buyer has equity of $35,000! Now, if that person bought 45 of these rentals in 5 years, they would have a net worth of $1,575,000 JUST FROM THE EQUITY PICKED UP AT CLOSING (from buying at a discount). They would be a millionaire even without considering any principal paydown, appreciation, etc. They would have real estate holdings of $2,250,000 and a net worth of more than $1,575,000. So, I don’t know how you came up with it taking 10 to 20 years to become a millionaire, unless you’re saying that it takes that long to buy 29 rentals, which is the number it would take with the above example to become a millionaire with only the equity picked up at closing. If you are saying that it takes ten years to buy 29 units, then with over 200 units, you must be as old as Moses!
Again, I’m 100% in favor of using the “Hooch Method” or the “Billy Method” or any other Method that has the investor buying a property at an even bigger discount. However, the point of the 2% Rule is simply to be a screening tool to quickly identify properties that will have a reasonable CASH FLOW. The obvious problem with the Hooch Method or the Billy Method is that it gets increasingly difficult to find deals at ever larger disounts. If you use the 2% Rule and do a cash flow analysis (using the 50% Rule) and buy properties that will generate a cash flow of $100 per unit per month, then that will allow the investor to build a successful rental property business. Obtaining a cash flow of $100 per unit per month forces you to buy the property at a significant discount, therefore the rental property owner is picking up significant equity at closing. It also allows the rental property owner to have cash flow with which to eat and pay the bills if they are interested in quitting their day job.
Mike
If you understood the rental business and had 200 rentals as you claim, you should KNOW that SFHs generally have better tenants than that found in multis. You would also know that the vacancy rate is generally higher in multis than in SFHs.
Section 8 tenants are Section 8 tenants any way you look at it.
You are correct that a vacancy in a triplex brings in 2/3 of the rent - that’s not brain surgery but it also is totally irrelevant.
It is actually completely relevant when the conversation is about what is more “safe” relating to getting money to pay your mortgage. And that is not “brain surgery”.
Whether you own SFHs or multis, a vacancy rate of 10% in a SFH has absolutely no more effect on cash flow than a vacancy rate of 10% in a multi. You SHOULD understand this since you claim to have 200 units!
And a Multifamily that is 2/3rd’s rented has less of a monthly cash flow issue than a SFH that is 0% rented and you SHOULD understand this since you claim you have 45 units!!!
The “Hooch Method” is nothing more than telling people to buy at a bigger discount! I completely agree! In fact, I could invent the “Billy Method” which is MUCH Better than the “Hooch Method”. The “Billy Method” says that you should buy low income rentals at rent X 10, minus repairs!!!
WRONG AGAIN, the Hooch method falls within the realm of actually being able to make a deal. The “Billy Method” falls far BELOW what is obtainable within these low income areas. I have bought houses for $4,000 and under, but they needed thousands in work to bring them up to being livable. Now, you go ahead and give me examples of your “Billy Method” buys that needed no repairs.
The 2% Rule is nothing more than a screening tool to ensure that a property will have positive cash flow. You always need to do a cash flow analysis to determine that you’ve met your cash flow targets.
You’re a little “thick” to day. I already said that the Hooch Method is for giving a quick offer and with due diligence a cash flow analysis is required. But I take it much further than that and determine it’s capitalization rate as well. Something not needed for discussion among newbies.
Now, let’s assume that a person uses the “Hooch Method” and buys that $50,000 rental for $15,000 (30% of market value). At closing, the buyer has equity of $35,000! Now, if that person bought 45 of these rentals in 5 years, they would have a net worth of $1,575,000 JUST FROM THE EQUITY PICKED UP AT CLOSING (from buying at a discount).
I never said that you don’t become rich from buying right and amortization from your tenants. If you clearly read what I wrote you will see that I said that you don’t become rich from the cash flow. The statement you had a problem with was my statement that cash flow is not the bread and butter and that you don’t actually really see the real bread and butter until you sell. And if you own OVER 45 properties you should know that, unless you’re buying them with 30 year loans. Lets try to be a little more realistic here.
45 of these rentals in 5 years
Also, I am unable to find 9 Hooch Deals in a year. Starting out I paid much more than I do today, and was able to find many more properties obviously. Now I only buy using the Hooch Method and with lots of work, I can find 4-5 a year. But I would much rather have 4-5 a year of super profitable property than 20-30 a year of losers with 30 year loans to try to make them cash flow.
So, I don’t know how you came up with it taking 10 to 20 years to become a millionaire
Realized money VS unrealized money that is tied up in assets. In 10 to 20 years of buying with the Hooch Method you will have the ability to quit the job and live off the cash flow and at one point in time sell 20 properties to get a million cash in hand to buy the luxury house and car while the rest of them can continue to pay the bills. It is in my opinion a wise decision for someone to not cash out their houses and live on the “million” they made until the million turns to “0”. But to purchase the extravagances once you have a couple more million tied up in real estate to fund your lifestyle. But that’s just my personal preference. I lived like the average Joe with an average house and an average car for many years before I was able to cash in some property and still have enough to afford my lifestyle. Enough to keep building from. Enough property afterward so you can continuously put short therm loans on paid off houses to buy another for cash.
Again, I’m 100% in favor of using the “Hooch Method” or the “Billy Method”
I sure would like for you to tell me where these “Billy” properties are so I can go an buy them. Hooch properties are obtainable.
However, the point of the 2% Rule is simply to be a screening tool to quickly identify properties that will have a reasonable CASH FLOW.
And the Hooch method is a quick screening tool to quickly determine an INITIAL OFFER prior to due diligence with the confident understanding that NO MATTER WHAT, IT CASH FLOWS.
The obvious problem with the Hooch Method or the Billy Method is that it gets increasingly difficult to find deals at ever larger disounts.
That is correct, as I said, I look hard and find 4-5 Hooch houses a year. The Billy houses don’t exist as the Hooch houses are already at the lowest end of the spectrum.
If you use the 2% Rule and do a cash flow analysis (using the 50% Rule) and buy properties that will generate a cash flow of $100 per unit per month
Please stop telling the green horns that they should be getting 30 year loans when the bank likely won’t even give them one that long. You are personally setting them up for failure.
Obtaining a cash flow of $100 per unit per month forces you to buy the property at a significant discount, therefore the rental property owner is picking up significant equity at closing.
2% is fine for upper middle class areas but is completely unacceptable for the low income areas. I would buy a house in an upper middle class area using the 2% rule any day as long as repairs are subtracted as well. Those who buy junkers using the 2% rule are novice investors. Those who buy junkers using the more common 1% rule are complete idiots and will not likely be in the business for long. They would be the same dips**t landlords that I buy bundles of 10 or 20 shortsale houses from.
It also allows the rental property owner to have cash flow with which to eat and pay the bills if they are interested in quitting their day job.
Quitting the day job comes with time once you have a few paid for houses. It just comes quite a bit faster when using the Hooch Method as each and every house will pay off a 15 year loan in 5 with NO CASHFLOW.