new to investing, a little advice please?

General Real Estate Investing
41
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!!!

I’m finding it extremely difficult to believe that someone who claims to have 200 units doesn’t understand the vacancy issue! I’m sure that almost every newbie understands it and yet you still don’t seem to comprehend. If a SFH has a 10% vacancy rate and a triplex has a 10% vacancy rate and another person with 200 units has a 10% vacancy rate, they have ALL lost the same percentage of money each year due to vacancy expense. It’s just not that complicated. In addition, the vacancy loss in all these cases doesn’t come out of their pocket, it comes out of the income they receive that year (if they understood the cash flow issue and are running their business correctly). C’mon, you’re not really claiming that you don’t understand this - are you?

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.

Again, your assertions strain credibility. There is nothing magic about the rent X 30 Hooch Method that says that you can find properties at that point, but not below. That’s just silly. You can find properties at all discount levels and they are progessively harder to find as the discount grows larger. In the real world example I showed in the earlier post, I showed that the Hooch Method might require buying at 30% of market value. I have bought many of mine at 50% to 70% of market value and my best deal was at 13% (I posted the details on many of these purchases as I did them). So, my experience shows that you can indeed buy at far below the “Hooch Method”, although I’m certainly not advocating waiting for deals at 13% of market value, nor am I advocating waiting for deals at 30% of market value. My entire portfolio averages a little over 50% of market value and that provides a cash flow averaging $100 per unit per month. If I were doing the “Hooch Method”, I would have less than half the portfolio that I have now and I would have to get a JOB to support myself. In fact, if I were using the “Hooch Method” and putting all the cash flow toward principal, then I wouldn’t be making any money at all from my rentals.

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.

You’re tripping yourself up again. If you have 200 rentals and you’re doing 4-5 per year, then it has taken you 50 years to acquire your 200 rentals! It would take you over 11 years just to buy the 45 rentals you seem so fixated on.

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.

So, if you have 200 rentals that you’ve obtained over 50 years, why don’t you sell since the bread and butter only occurs when you sell? You’re not following your own advice!!!

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.

Oops! You’re contradicting yourself again! Your very first post on this thread advises the poster to buy at rent X 30-50. Here’s what you said:

Relating to your section 8 question. 1. purchase an investment multifamily (rent x 30-50 minus repairs is a good place to start)(Repairs include splitting the utilities up if necessary and make sure you can with the zoning) 2. Fix it up so it will pass section 8. Ask your questions you want to know here.

So, is it ok to buy a rental at rent X 50 or isn’t it? The Hooch method seems to be changing before our very eyes. You’re not claiming that Section 8 housing is upper middle class - are you?

42

[b]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!!!

I’m finding it extremely difficult to believe that someone who claims to have 200 units doesn’t understand the vacancy issue! I’m sure that almost every newbie understands it and yet you still don’t seem to comprehend. If a SFH has a 10% vacancy rate and a triplex has a 10% vacancy rate and another person with 200 units has a 10% vacancy rate, they have ALL lost the same percentage of money each year due to vacancy expense. It’s just not that complicated. In addition, the vacancy loss in all these cases doesn’t come out of their pocket, it comes out of the income they receive that year (if they understood the cash flow issue and are running their business correctly). C’mon, you’re not really claiming that you don’t understand this - are you?[/b]

You have got to be kidding me. Do you actually think I don’t realize that a 10% vacancy is a 10% whether it is a multifamily or a single family? Someone who claims to have upward of 45 units should know that when a new investor gets involved in real estate one of their concerns is if THEY will end up having to pay the mortgage if the property becomes unexpectedly vacant. In a single family they WILL, in a multifamily they WON’T if purchased correctly. Therefore, a multifamily is “safer” than a single family pertaining to this. Don’t bother with anymore of your BACKWARDS LOGIC because you are doing nothing more than confusing the newbies by making these irrelevant points that have absolutely nothing to do with what we were talking about. If you don’t understand this than there is not a clearer way to explain it so I suggest you go on and continue to think the exact same way that you are as I don’t have the patience to explain it to someone who claims to know what they are doing.

[b]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.

Again, your assertions strain credibility. There is nothing magic about the rent X 30 Hooch Method that says that you can find properties at that point, but not below…My entire portfolio averages a little over 50% of market value
[/b]

Again, my assertions don’ t strain credibility. I will assume that most of your property is not in the low income areas but possibly the low to moderate blue collar or higher. If I am incorrect about this than you are overpaying by your statement of your 50% average. 30% of market value is what low income investors search for. 50% of market value is NOT a deal in the low income areas. So if you are going around NOT finding deals everyone should STOP listening to anything you say as it would obviously lack all credibility. BUT I am assuming that you just don’t have any idea what a person should pay in a low income area.

Newbies need some guidelines to get kicked off on. Guidelines are not the same in a low income area as they are in a middle class area. I would think you would know this since again, you claim to have 45+ units. If you told a newbie to go out an pay 50% of market value in an area suffering from blight, you would be telling them to overpay for the house. If you told them to use the 10% thing you were talking about they also will not find a house. Possibly 1 in a lifetime. If you told them 20% they may be able to rip someone off that bad but 99.9999% of the deals the seller will tell them to take a hike. 30% is a different story. I have explained portions of my sales method and I am fully capable of convincing a seller that 30% is justified due to many circumstances while convincing them that they are in fact the one who is twisting MY arm to pay more. Then I offer 35% and it is a done deal. One day I will write a book and teach you my sales method.

There is nothing magic about the rent X 30 Hooch Method

Who said there was some sort of MAGIC? I am very curious who said that. The Hooch Method is a great number to start at that won’t ALWAYS lead to you getting turned down in low income areas. You can pretty much always expect to get turned down using it in middle class areas which I suggest to use the 2% rule or rent X 50.

and my best deal was at 13%

I find it fascinating that MR NEVER TELL A WHITE LIE TO THE BUYER has the ability to RIP A SELLER OFF GIVING THEM 13% OF THE VALUE OF THE HOUSE. Man who speaks out of both sides of his mouth, huh?

If I were doing the “Hooch Method”, I would have less than half the portfolio that I have now and I would have to get a JOB to support myself. In fact, if I were using the “Hooch Method” and putting all the cash flow toward principal, then I wouldn’t be making any money at all from my rentals.

That’s no problem because if I had half of what you have (a bunch of 30 year loans) using the Hooch method it will outperform it 24/7. Each and every property I have is on a 15 year. And I personally choose to pay them all of in 5 years so I have no cash flow, BUT IF I NEEDED IT I WOULD DEFIANTLY HAVE IT as my typical debt coverage ratio is 2.5%. I choose to use up my cash flow on extra payments, but don’t HAVE to do so. Another thing that makes me question the 45+ properties is the fact that you act like you don’t know this. Making double payments is not part of the Hooch method which is only for low income property valuation. But one who wishes wealth quickly can use this added benefit to their advantage. An added benefit that does not accompany the 2% rule.

Quote
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.

You’re tripping yourself up again. If you have 200 rentals and you’re doing 4-5 per year, then it has taken you 50 years to acquire your 200 rentals! It would take you over 11 years just to buy the 45 rentals you seem so fixated on.

Do you have reading comprehension problems?
Read it again with the assisted help of italics and bold. Maybe that will help. Also read my other quote here. It is your mind that is doing the "tripping.’

They would be the same dips**t landlords that I buy bundles of 10 or 20 shortsale houses from.

[b]Quote
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.

So, if you have 200 rentals that you’ve obtained over 50 years, why don’t you sell since the bread and butter only occurs when you sell? You’re not following your own advice!!![/b]

OHH, sorry, did you think that I have been building up to that over the years and have never sold anything? When did I say that?

Why don’t you read this quote from me clearly from my last post. Are we having another reading comprehension problem?

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.

[b]Quote
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.

Oops! You’re contradicting yourself again! Your very first post on this thread advises the poster to buy at rent X 30-50. Here’s what you said:[/b]

READ THE THREAD BEFORE MAKING STUPID COMMENTS. At first I told him 30-50 without explaining any details. I then got asked the same question in many different threads so I decided to write it up in more of a detailed manor. Here it is so you can learn from it. I later told him to go and check out this link for more detailed information. READ the thread thoroughly because YOU KEEP sticking your foot in your mouth. I’m sorry I have had to call you out but the simple fact is that if you READ the entire thread prior to making these off the wall comments than you wouldn’t have made them in the first place.

http://www.reiclub.com/forums/index.php/topic,43281.0.html

So, is it ok to buy a rental at rent X 50 or isn’t it? The Hooch method seems to be changing before our very eyes.

The Hooch Method only “magically” changes before ones eyes who has trouble with reading comprehension. AND RENT X 50 IS THE EXACT SAME THING AS THE 2% RULE. So I quickly told him a general guideline to start at, the Hooch Method and not to ever go over the 2% rule which coincides with all of your property knowing that he WON’T LOOSE HIS A** on the 2% rule. I then decided due to all of the valuation questions to completely clarify the variations between pricing and neighborhoods so the newbies have something very specific to go by.

43

Look, you two, you are splitting hairs, but sounds like you’re having fun doing it. What’s interesting is that you are getting to the same point in life–real estate wealth–on different pathways. What works in Ohio may not work as well in Hoochville, and vice-versa.

It’s like that old joke of a bunch of blind guys examining an elephant: “It’s like a tree!” The next guy grabs the trunk: “It’s like a snake!” Grabbing the tail: “No, it’s like a rope!”.

Furnishedowner

44

LOL, Yes, I am having fun and I’m totally confident that propertymanager is as well. I don’t blame him though, it’s challenging debating with the big boys. :biggrin

All I’m trying to do is give the newbies a good guideline to start from. They will modify it and change it as time goes on and they get some experience under the belt. They do have to have something good to start from though, that won’t get them into any kind of trouble. They will be safe with the 2% rule but if buying in low income areas they won’t be making that great of an investment. There are some great benefits of junker property and they are fully exposed when buying with the Hooch Method. It is really a nice feeling to buy a property and pay it off in 5 years. Especially when you have to deal with the drama that is associated with low income property. It makes it all worth while once that house becomes either a cash cow with no loan or a place to put a modest loan on to buy another house free and clear.

45

No, I am not having fun - I am trying to make sure new investors aren’t misled with bad information. As I said in an earlier post, I find it astounding that someone would come on a forum and espouse lying to buyers! That says volumes to me!

I also find it incredible that someone that asserts they have 200 rentals, doesn’t understand a simple concept like vacancies. That also strains credibility.

Again, my assertions don' t strain credibility. I will assume that most of your property is not in the low income areas but possibly the low to moderate blue collar or higher. If I am incorrect about this than you are overpaying by your statement of your 50% average. 30% of market value is what low income investors search for. 50% of market value is NOT a deal in the low income areas. So if you are going around NOT finding deals everyone should STOP listening to anything you say as it would obviously lack all credibility. BUT I am assuming that you just don't have any idea what a person should pay in a low income area.

I already proved with a real world example in an earlier post that a house at 50% of market value will cash flow. You simply don’t know what you’re talking about. However, since you admit to lying to buyers, maybe you’re lying about everything else too. It’s hard to tell, because you make big claims and yet you don’t have basic knowledge that even a novice would have.

Possibly 1 in a lifetime. If you told them 20% they may be able to rip someone off that bad but 99.9999% of the deals the seller will tell them to take a hike. 30% is a different story. I have explained portions of my sales method and I am fully capable of convincing a seller that 30% is justified due to many circumstances while convincing them that they are in fact the one who is twisting MY arm to pay more. Then I offer 35% and it is a done deal. One day I will write a book and teach you my sales method.

So, if you pay 30%, that’s a good deal. If you pay 20%, that’s ripping someone off? And then you go on to say that you offer 35% and it’s a done deal when you’ve been insisting that 30% was the right number? If you do write a book, at least try to get your story straight.

So, let me summarize the Hooch Method. 50% is too much. 20% is ripping someone off. 30% is what you recommend and is what experienced low income investors use, but then you say you pay 35%. Finally, you are more than happy to lie to people you do business with. Is that about right?

I find it fascinating that MR NEVER TELL A WHITE LIE TO THE BUYER has the ability to RIP A SELLER OFF GIVING THEM 13% OF THE VALUE OF THE HOUSE. Man who speaks out of both sides of his mouth, huh?

I’m not surprised that someone who admits lying to his customers doesn’t understand doing business in an honest manner. I NEVER lie to the people I do business with and there is absolutely no reason for doing so. Buying a property at a mutually agreed upon price is NOT ripping someone off. The sellers always know that I am an investor and that I will make money off their property. I don’t try to justify a price or play games with people. I give them the price I will pay and they take it or leave it.

P.S. I don’t consider lying to a buyer about the expenses to be a “white lie”. It’s a lie - plain and simple. I would encourage to start conducting your business with honesty and integrity!

Mike

46

OHHH, touchy. I hit the spot by exposing you for who you really are. Don’t get your panties in a bundle. Chill out Mr. Nasty. You’re wrong and I didn’t gently baby you through it. Deal with it.

I find it fascinating that MR NEVER TELL A WHITE LIE TO THE BUYER has the ability to RIP A SELLER OFF GIVING THEM 13% OF THE VALUE OF THE HOUSE. Man who speaks out of both sides of his mouth, huh?

It’s different because they agreed for you to screw them with no lube. LOL. :deal

I need not explain any more because anyone, without reading comprehension problems, reading this thread can clearly see what they need to do as you have done yourself in with no assistance on my part. You’re getting desperate now and it’s going to only get worse for you.

A wise man once said, Don’t Go Down With A Sinking Ship. :biggrin

47

We’re finally getting down to the truth. You admit and advocate lying to the people you do business with. I don’t lie to people and I think anyone that does is a poor excuse for a business person.

Mike

48

Again:

[b]I find it fascinating that MR NEVER TELL A WHITE LIE TO THE BUYER has the ability to RIP A SELLER OFF GIVING THEM 13% OF THE VALUE OF THE HOUSE. Man who speaks out of both sides of his mouth, huh?

It’s different because they agreed for you to screw them with no lube. LOL. deal[/b]

49

So, exactly what are your parameters Hooch? Buying at 50% is too high according to you (although I proved that it wasn’t). Then you claimed that experienced investors would buy low income properties at 30%, but contradicted yourself when you said that you would then offer 35% and seal the deal. In another post, you said that it was pretty obvious that you would buy it at 25%. Now we learn that buying at 13% is screwing the seller. So what exactly are your parameters? Why is buying at 13% screwing the seller, but buying at 25% or 30% is not? At what discount is it permissable to buy without screwing the seller? How did you come up with that number? You advocate lying to buyers and make fun of me for conducting my business in an honest manner, but when I buy a property in an honest manner with everything disclosed, that is screwing the seller. It appears to me that you can’t get your story straight.

Mike

50

More lies due to your desperation.

Buying at 50% is too high according to you (although I proved that it wasn’t).

Buying at 50% is not too high in a middle class neighborhood. And you proved nothing more than that buying with the 2% rule will cash flow at $30 a month on a 15 year loan. Drop your 30 year crap. I don’t want to hear that out of your mouth again in reference to what a newbie should do.

And stop with all of this 50% or 35% stuff. Buying at rent X 30 or 50 or whatever does not equal any particular percent of the ARV. That’s a bunch of crap that I let you get away with so you could feel like you contributed a little to the conversation. I am now calling you on it because you continue to spread false information.

Then you claimed that experienced investors would buy low income properties at 30%, but contradicted yourself when you said that you would then offer 35% and seal the deal.

I don’t have a problem going up to rent X 35 if necessary. It is still a good deal. But I will always start and rent X 30 and try to justify that first. People walk away after giving them a good screwing with a big smile on their face when they feel that they were the ones that were twisting YOUR arm.

In another post, you said that it was pretty obvious that you would buy it at 25%.

I would like to see the quote from me on this and what it was in reference to.

Now we learn that buying at 13% is screwing the seller.

YES, YOU SCREWED THAT SELLER ROYALLY. YOU GAVE IT WITHOUT LUBE. However, I don’t look down upon you for doing so. I commend you for doing so. If I could find someone stupid enough to hammer at Rent X 13 I would do it in a heartbeat. I just haven’t run across any deals like that. Sure, I buy houses at 4K or less, but they may have 10 to 30K or more in rehab. A house in perfect condition, rented for $600 and bought for $7,800, you’re good! And that is my point you are as slick as they come and I don’t want to hear one more “Honest Abe” comment out of you as it will be nothing more than a bold faced lie.

At what discount is it permissable to buy without screwing the seller?

I never had a problem with screwing the seller. My point is that it is clear that you don’t either so you should shut the trap with all of this do gooder nonsense as you don’t practice what you preach.

and make fun of me for conducting my business in an honest manner, but when I buy a property in an honest manner with everything disclosed, that is screwing the seller.

Look, I’m not making fun of you man. I’m just pointing out that you should practice what you preach. You make your bold statements that basically I am a piece of crap because I will fudge the books just like every other seller does while you are on your high horse and would never do such a thing. In the mean time you are blasting some poor guy who is in some serious financial hardship and needs cash right away not having the ability to hold off for 1 or 2 days and let it go for half of it’s value to a wholesaler. Even giving a person the value of rent X 30 has the possibility of being overturned by a judge. I have never had it to me but know people who have. The judge deemed it predatory. In the eyes of a judge, you have bought houses under predatory conditions. Shame, Shame, Shame.

One more word about you not being a predator and you will be requested the entire details of the Rent X 13 transaction that you made, and I will tear it apart piece by piece. You could lie and there still would be no getting out of it. UNDER NO CIRCUMSTANCE, NO MATTER WHAT. buying a house for that price is outstanding investing and shows your skills but in NO WAY WOULD IT BE LOOKED AT BY ANY JUDGE AS NOT BEING PREDATORY.

51

I’m done arguing with someone that clearly doesn’t understand the business at even a newbie level; someone that is constantly changing his story; and someone that admits to lying to customers.

Here is what I would suggest to newbies. Use the 2% Rule to screen deals including low income deals. If the deal looks good with the 2% Rule (monthly rent X 50), then do a cash flow analysis using the 50% Rule. If the cash flow is at least $100 per unit per month, then it is a good deal provided the rest of the due diligence is acceptable (rental demand, not in a war zone, clear title, no zoning issues, etc, etc, etc). Contrary to the assertions otherwise, you can CERTAINLY get 30 year financing on rentals, especially when you’re starting. Many people on this forum have done EXACTLY that! I would NOT lie to buyers, sellers, or anyone else. That is EXTREMELY unprofessional, immoral, and could easily lead to a lawsuit. It doesn’t matter if everyone else seems to be doing it (they are not) - you should do the right thing. Finally, always buy the property at the biggest discount you can get. You are NOT limited to buying at some percentage of anything. Be honest; fully disclose what you’re doing; NEVER LIE; and buy at the deepest discount possible!

Mike

52

I’m done arguing with someone that clearly doesn’t understand the business at even a newbie level; someone that is constantly changing his story; and someone that admits to lying to customers.

That’s a great idea because you just made a complete fool of yourself and showed every single person reading this thread that you not only have reading comprehension problems but you don’t have the experience that you “claim” to have.

My suggestion to newbies on real estate valuation is:

http://www.reiclub.com/forums/index.php/topic,43281.0.html

53

There are lots of things to consider when entering in the real estate investing business. Here are some advise

1.Finding Properties in Foreclosure

The biggest bargains can be found in areas where there’s a large concentration of distressed properties. The banks with the most exposure to these areas are typically the most motivated to cut a deal since they don’t want to get stuck with a glut of real estate they can’t unload. But before you snap up the cheapest home you can find, make sure to do some research. Find out if the property is located in a decent neighborhood with good schools and healthy employment rates. (Local real estate web sites are a great place to start your research.) If you buy in an area that’s losing jobs and is riddled with crime, home values are likely to take a lot longer to recover.

  1. Avoid Auctions

While there are a number of safe ways to buy a foreclosed property, bidding on one at a court auction isn’t one of them. That’s because you’re buying a home sight unseen and without an inspection. You’ll have no idea whether the home needs repairs and how much they might cost. Some of these properties also owe back taxes, a headache that’s transferred to the new owner. And finally, in most cases, you’ll need to pay cash for the home.

The least risky way to buy a foreclosed home is to wait until the bank has put it back onto the real estate market. These properties are called bank-owned or real estate-owned (REO). Before a bank hangs a “For Sale” sign, it pays off all the existing debts and taxes, and in many cases, repairs the home to bring it up to the standards of the neighborhood. Best of all, you should be able to buy a bank-owned property with a traditional mortgage.

  1. Research Home Values

Just because a home is being sold by the bank, doesn’t necessarily mean it’s a bargain. Home prices have fallen dramatically from their peaks in 2006, a time when loose-lending practices allowed people of all credit ranks to easily obtain mortgages. Now, many homeowners going through the foreclosure process owe more on the mortgage than their property is actually worth. To make sure you aren’t assuming an overpriced loan, research home values in the area. That way, you’ll be better able to identify potential deals.

If you fall in love with a home in preforeclosure that’s overpriced, then you can see if the bank will allow a short sale. This is when the bank accepts less for the home than the amount owed on the mortgage. While not an ideal scenario, accepting a lower price is often in the bank’s best interest. Banks typically spend $25,000 to $50,000 during the foreclosure process. On top of that, they typically end up reducing a home’s asking price to match current market values.

  1. Line Up Financing First

While it’s always a good idea to get preapproved for a mortgage before you start shopping for a home, it’s even more critical when you’re shopping for foreclosed properties. Even if you have stellar credit, some lenders won’t make a loan on a distressed property. Other lenders will only offer a mortgage if the house is in decent condition.

If your loan officer is willing to make a loan on a foreclosed property, find out what criteria the home needs to meet in order to qualify for a mortgage. You can expect the lender to allow cosmetic repairs, but be unforgiving of termites and other serious fixes.

  1. Get It Inspected

Even if a home is brand new you want to get it inspected. But inspections are especially important when you’re dealing with homes in foreclosure. When people have trouble paying their bills, they typically put off the regular maintenance on their homes. Once a home is seized by a bank, it then sits vacant and falls even further into disrepair. In a worst-case scenario, a homeowner could be so angry he lost his home that he actively destroys a property before he moves out. Without an inspection, you won’t be able to estimate the cost for repairs or be able to report the home’s true condition to your lender.

There are other sources of information that you can get from. The internet is a good way to start.

I hope this information will help you in a lot of ways. Good Luck in your future real estate investing business

54

My mentor also does section 8 rentals as well. He usually buys 3 bedroom houses and in Savannah Ga he is owed 940 a month from the government every month. He said since the tennant does not pay anything for the house, they are more likely to stay there longer. Which equals a good investment. Avg rental to the same tennant is in the 8-12 yrs. if the tennant trashes the place section 8 reimburses you an amount and removes the tennant from the section 8 list. I plan on going to the office and finding out more about this program before i start renting out to thier recipients. The only thing i would prefer to go my own way is buying houses through the probate court, where he buys pre-foreclosures. I think it would be much harder and more competition. I wouldn’t put it past myself but at this point I will take an easier route while I am learning.

55

I don’t know where you are but Section 8 doesn’t normally pay a dime for a trashed house. Also, even if they don’t trash anything they are very hard on a house. Think of someone spending 24 hours a day on wear and tear on the house vs the average Joe who works and only has 3 or 4 waking hours a day in a house.

I do Section 8 rentals. There are a few benefits but disadvantages as well that must be taken into consideration.

56

It seems to me you could use education to make some very important decisions.
I only know one place for that.
Shoot me an e-mail and I’ll share it with you.

Talk soon.

57

Moveright,

Where are you with your plans?

If your real estate agent is not familiar with the $8,000 free down payment government money, GET ANOTHER AGENT! Your agent should be educating you, and guiding you into something that can actually close AND work for you.

Furnishedowner

58

Hooch,

The financing term does not seem to make much difference if you are putting all your cash flow towards principal reduction.

If you have a $50K property and the 30 year loan generates $100 per month in cash flow, but only $30 per month with a 15 year loan, both loans will be paid off in the same amount of time if you are applying all of your cash flow to the loan balance.

A fully amortizing $50K loan at 6% fixed, is paid off in 5 years with a monthly payment of $966.64 per month. Does not matter whether the loan was a 15 year or a 30 year loan, it will still be paid off in five years.

I always advise the beginning investor to take 30 year loans for the lower required debt service. They can always choose to apply excess cash flow to principal reduction to shorten the loan term, but they are not locked in to a higher loan payment that may not be affordable during vacancy periods.

I agree with you that the cash flow is less severly affected by a single vacancy in a multi-unit property than in a SFR. The SFR investor mitigates this affect by buying more SFRs. A single vacancy in a three-plex still leaves two units generating rental income. A single vacancy in a portfolio of 3 SFR will also leave two properties generating rental income.

Since you seem to invest in low income housing, maybe you do get some Section 8 tenants who are perpetually unemployed. I only invest in middle income housing and my Section 8 tenants generally have jobs and work the same number of hours as my mainstream tenants. The difference with Section 8 is that the Section 8 housing authority will pay the full rent each month if the Section 8 tenant loses his job. If my mainstream tenant loses a job, I usually end up with a vacancy. As far as wear and tear goes, in my experience it is about the same on average for a Section 8 tenant as for a mainstream tenant. I get higher wear and tear from tenants with kids than I do from tenants without kids, regardless of whether Section 8 is paying the rent.

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The financing term does not seem to make much difference if you are putting all your cash flow towards principal reduction.

You are correct. “IF you put the cash flow towards principal.” With exception of slightly higher interest rates on the 30yr.

I always advise the beginning investor to take 30 year loans for the lower required debt service. They can always choose to apply excess cash flow to principal reduction to shorten the loan term, but they are not locked in to a higher loan payment that may not be affordable during vacancy periods.

Ok, I understand where you are coming from. I suggest 15 yr and buying so it can be paid off in 5 simply due to the fact that most people tend to not be very disciplined. I see MANY investors go under because they live off the excess cash flow. Then get refi’s at full market value and live off that loan, etc. If you buy to pay it off in 5, 15 yr will give you plenty of cash flow for those vacant periods. If you are buying to pay it off in 15 or more than you would definitely need to do the 30. I would love to see the newbies take NO cashflow and get it paid off quickly. Quick wealth requires doing just that.

I agree with you that the cash flow is less severly affected by a single vacancy in a multi-unit property than in a SFR. The SFR investor mitigates this affect by buying more SFRs. A single vacancy in a three-plex still leaves two units generating rental income. A single vacancy in a portfolio of 3 SFR will also leave two properties generating rental income.

Yes, multiple single families would definitely minimize risk. To minimize it right off the bat a newbie can buy a multifamily.

Since you seem to invest in low income housing, maybe you do get some Section 8 tenants who are perpetually unemployed.

Yes, my Section 8 people are deadbeats.


I only invest in middle income housing and my Section 8 tenants generally have jobs and work the same number of hours as my mainstream tenants.

Section 8 around here is not a middle income thing. The program here serves deadbeats. Here they have very strict requirements on how much they make. They don’t have to make that much before they are paying the entire rent. Some do work low income jobs but most don’t around here. Most often, if they work, they are working part time as they will have too much for the program otherwise. They would be paying the full amount on rent, still having to go by all of the program requirements, etc, so they just get off the program. That is how it is in Roanoke VA. I understand it is different depending on who is managing it and where you are.

And I agree, if they have kids the wear and tear is excessive regardless of who is paying the rent.