I have been working with a financial advisor who is also a very active real estate investor. Last year I seperate some of the equity in my home and also opened a HELOC loan. A tthe time I was to nervous to purchase another property but that was the essentail idea. So after sitting on it for a year I am feeling closer to going for something.
Anyway a deal has come up that I am curious about. I am kind of interestd in purchasing but wanted to know if I am missing any of the details or due diligance that should be done.
At any rate since it is my first deal if you have any ideas or suggestions please let me know. I am purchasing for apperciation and planning to hold the property. It is not the highest apperciateing area but it look like even with 7% appercaitiong I would be doing well in the deal. HEre are the details I ahve so far. Anything else I should ask about orfind out?
"he properties in Texas are single family homes in a new Houston suburb the subdivision is called Shady Oaks. The homes are 1300-1400 sq. feet on 1.5 acres and the price is $130K. There is a Choice Homes community about two miles away selling the same size homes on 0.5 acre lots for $132K (so it’s a great value considering the amount of land). The builder is requiring a $5,000 earnest money deposit which will be credited towards closing costs and the down payment. We are projecting the properties will break even with 5% down using interest only loans. The following is a loan scenario and as a general rule of thumb a property should rent for 1% of purchase price. According to the property manager these home should rent for $1,200-$1,300/mo
Total Financed = $123,500
80% 1st Mortgage @ 7% → $98,800 @ 7% = $576.33/mo.
15% 2nd Mortgage @ 11.25% → $24,700 @ 11.25% = $231.56
Est. Taxes $245/mo
Est. Ins. $80/mo
Prop. Manager $100/mo
Total = $1,232.89"
Anyway any thoughts from those active and experienced investors out there would be appercaited. I am very nervous to invest and would rather hold my money under my matress. But the time has come to start investing.
its is hard to only count on appreciation, because it frequently changes. It would be nice to have a cashflow, because while you break even, does that account for vacancies. 7% appreciation is good and follows the national average, homes will double in price every 10.2 years. But keep in mind that is a national average(some areas do better than others) and, I forget who the quote is from, “the past does not equal the future.”
A friend of mine from the Houston area runs an awesome website that gives loads of data on values, and is subdivision specific. Check it out www.voxproperty.com
this is alligator that will consume cash every month. Appreciation on any property is difficult to predict and in the rental business is the icing on the cake (not the cake itself).
Sure you will be fine once you get it rented (carry cost while its empty?) and after the first tenants hammer the place and you have $1000 in turnover cost and will have no reserves to cover it. Also, what about repairs, yard maintenance, HOA fees, advertising/marketing, etc
Also, IMHO, brand new houses make poor rental as tenants do nothing but wear the place down. Ever heard the phase when some one is driving a rental car and they dig the door and scrap the bump “don’t worry, it’s a rental”. Tenants will have the attitude towards your new house as well. It never ceases to amaze me what tenats will do. Heck, my lastest purchase was HUD foreclosure that hammered inside by the previosu owners who only lived there for 15 mo.(holes kicked in the walls and interior doors of EVERY room, light fixtures pulled out of the ceiling). It’s taken $7k to get back in the right condition. Sure that’s an extreme case, but rental business is not about happy tenants who never do any damage and always pay the rent on time.
Okay for an already scared investor I might just swear it off before starting. Not sure I stated this before in my email or not. I have seperated the equity in my current home (live in SO cal) and my personal residance has incresed tremendously. So I refi with a cash out and took out enough to start investing in real estate. I did this about a year ago and have been to worried to make a move. The whole thing scares me but I need to do something. My monthly income will never meet my goals.
I think the comments posted abou thte property in Texas are good and feedback wellt aken. Hoever that leaves me with what to do next. Where would you all start for a first deal?
I know of one other property source that is not yet avliable but will be in the next month or soon. They are cash flow properties in Southbend Indiana. About 5 minutes away from Notre Dame. They run between 50 to 70K and with my credit scores I could get 100% financing which would leave a good chunk of change for me to do repairs between renters etc. With 0% down the expected cashflow is between 20 to 100 a month and with 5 to 10% down it would be 100 to 300 a month. However, this is not as prime an area for apperciation.
My fear with the Indiana properties is that it is close to a college which means college renters. That kind of makes me worried.
The property in Texas seems more primed to appercaite well. Of course nothing can determine apperciation performance in the future if that was the case I would be a millionaire already as many of you would. However there are many big chain stores like Starbucks, Home Depot and other big companies going in around the area seems like a good indicator that the area is primed to raise. I have the money to cover any vacanies in tanancy and repairs if needed. However as nervous as I am about the whole ting I can see paying out a 1,000 a month over and over would probably make me pull out.
I have read a good deal on different stratgies. Some say invest with cash flow properties only because apperciation can be difficult to judge. Then I also read that apperciate witha buy and hold stratgey is much better in the long run. I am still relativly young and plan on holding the properties for a while.
So I am not sure where to start but I have this extra moneyburning a hole. Should I just keep in in the savings account I have that earns a sae and steady 4.5% or so? Or should I make a move and go for something and if so what?
if you like the Houston market then continue to look for deal there; don’t hop around to the market “du jour” becuase you got a flyer at some REI seminar.
the top two points (IMHO) is
know your market inside and out–area by area; even street by street if necessary; this way you can buy and sell at the right price (not lead by your nose by some realtor trying to close a deal and make commission)
know how to figure your cost correctly for rental; this has been beaten to death over the rehab/landlording forum…check t out