Ok so I had all plans on driving to CT to check out the homes that are available up there when I had a revalation. If I am borrowing 100% of the money anyways, why does price matter? The only thing that should matter now would be POSITIVE CASH FLOW. So now my new mentality is that any location works, as long as you find the deals.
Getting 100% financing is no big deal. In fact, whether you do or not, I teach the you SHOULD act like it is so that you can pay yourself back the downpayment.
Price still matters, however. Believe it or not, it is possible to pay 100% of retail and still cashflow in some situations. So if cashflow is king, what’s wrong with that?
Well, for starters, if you look for discount properties then you’ve just increased your cashflow. But, more important, by never buying a property for more than 80% of FMV (and thus, never financing more than that), you create a hedge for yourself from both deflation and the possibility of having to sale.
Deflation speaks for itselfs. Most markets won’t drop 20% in value, so you’re pretty safe.
But if you ever needed to sale, a standard sale can eat up 20% in “equity,” so 80% of FMV is the highest you can go and still be safe.
I normally agree almost 100% with both Keith and Raj, but in this case I’d have to side with Raj. For rental properties, cash flow is absolutely king as Keith said, but if you don’t have some significant equity in the deal, you can easily be in trouble. This is especially important for your first few properties, because bad things do happen and people change their minds. If you pay retail and then either need or want to sell in a down market, you’ll be out of luck. I think the consensus is that you can quickly sell most properties at about 80% to 85% of retail. If the market is down, this may be 70% to 80% of the market price when you bought. Therefore, it is only good business to have some built-in equity, even if you INTEND to hold the property forever.
Additionally, by purchasing at retail you are throwing away the equity that you could have had and EQUITY IS MONEY. You can’t eat it, but you can borrow against it and you can sell the property, turning it into cash.
i think to say price isn’t important is very dangerous. although i just got started in actually owning rentals, i have looked at hundreds of deals over the past five years in preparation for getting started, and, at least in my market, there are VERY FEW situations where you can buy at above 90% of the value and still have cash flow. i try to buy at 80% or less, and with a decent cash flow (SFH’s only so far). price, in my opinion, is a close second to cash flow for the reasons the old pros mentioned.
Yea saw my first couple homes the other day and started calculating cash flow with the sheets guides. Like I said tho, the only problem I have with accuratley guaging the Cash Flow is how much insurance will cost me, and the rental price for that specific home.
yeah, that can be tricky i think. i have been pretty lucky on a couple of my deals, since i was buying through a private owner and not agents, i was able to get them to allow me to show the property and try to rent it prior to closing. the advantage is, you can start high early and lower rent if you don’t get your high number. luckily, i was able to get rents near the high range. the other thing to do is, talk to the neigbors. i’ve found that most of them will either tell you what the rents are in the area, or they will tell you you’re crazy to be asking the amount you are.
Getting an insurance quote is pretty easy. Just call up an agent, and if they do investment properties, they can usually provide a quote over the phone.
So I guess what your saying is the best way for insruance is calls, are there sites like geico that give you instant quotes for homes on the spot via the web. Cause Im gonna run a lot of properties and the rates will be different for each home. Im lookin to cut down the time wasted with the logistics, in the end I need to get as many homes rated and reviewed as possible to be a good investor.
Rents, I dont see a lot of websites that give accurate rent information. Are there any other ways of finding rents without going door to door, cause the neighboorhoods i am looking in I feel are primarily owned homes.
Well I live on long island, just graduated from Quinnipiac University, in Hamden CT. Now I know that the market is cheaper then NY real estate. That combined with my knowledge having lived there may allow that town to be a good spot for me to invest.
This essentially is the reason I ask the question. I am trying to figure out if the price I pay in NY is more expensive then the homes in CT, does that effect my result. Cause I am trying to find if its worth doing real estate out of state. If I can get the same results in NY I would love to do that.
Do you not like talking to other people? If not, then I’d suggest that you (by you, I mean any newbie) forget this silly notion of being a RE investor because talking to people is what you do. If you can’t do it over the phone, then it won’t get any easier when you have to do it in person.
The absolute best way to get insurance quotes is by calling an insurance agent. In fact, you need to call several. The best ones to call are insurance brokers (ie NOT Nationwide, Allstate, etc.). While the big names may have a better rate (doubtful), then lack the ability to fine tune your request to the right insurance.
The same goes for finding out rents in a particular area. The best way to do that is to call several property management companies and do one of the following: a) tell them that you are a landlord and have a 3/2 (or whatever it is) in area “A” and was interested in having them manage it, what would it bring monthly? or b) that you are a tenant looking for a 3/2 in area “A” what is the rent for that area?
i agree. if you don’t think of yourself as a social person or you don’t have some sales ability or the desire and skills to network, this probably isn’t the business for you.
there are reasons why not everybody can do certain things. i can’t play NBA basketball because i’m a non-athletic white kid with no leaping ability. if you don’t like talking to people, it will make it hard for you to be successful in many careers, not just this one.
Umm I don’t know what made you think that. Im just a very logical person who likes to minimize wasted time. If there was a website that i could put the sq footage, area, bed/bath and amenitites to give me an estimate that could cut down the time that it would take to research and allow me to invest more frequently.