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Message
re: Information for my fellow Real Estate Investors
Posted on 7/29/19 at 8:27 pm to Fat Bastard
Posted on 7/29/19 at 8:27 pm to Fat Bastard
I've read this whole thread. Very good information. I'm considering dipping my toes into the REI world but I'm still gathering information. If some of the more seasoned guys could answer my questions below I'd appreciate it. I'll preface this by saying I'm very green so some of these questions might be illogical.
Help me understand the leverage scenario some more. I buy a house using some type of credit. Rehab the home. Then refinance and take the money and pay off the original loan. Here is where I get lost. Say the house cost $50k. I put 15K of rehab into it. So total loan of $65K. Appraisal comes back at 100K. I have 35K equity in the house. You can only get 80% of the value when doing a cash out refinance. So I take 80K and pay off the 65K. Now I have 15K. Do you take that entire $15K and put that into your next property? How do you ever make a profit if you're always putting your refinanced amount into other properties? Also doesn't refinancing raise your mortgage cost which in turn hurts your profit from your renters? I'm sure I'm missing something here or perhaps I'm looking at it the wrong way. To me it just seems like you swapped a $65K loan for an $80K loan just so you could have an additional $15K liquid.
What would you say is the average start up capital needed? I've talked my wife into letting me take 15-20k and throw at this but I feel like that amount is too small.
Is there a such thing as a house too far gone to consider buying and rehabbing? Just looking at property last night on the MLS I found a 1000sqft selling for $20k that I could buy and fix up with around $35k. So a total all in of 55k and it'd could rent for 650 minimum all day long. But it needs all the major work done to it. Is it better to shy away from these and stick to the homes in the <10k rehab range?
How do you make money with this? At first glance you think, "he has 4 homes renting at $1000 each He's making $4000 a month!" but then you start to add in the mortgage price and insurance, maintenance, fees, etc and you only clear $200 a month per house. Seems like a lot of risk for that small amount each month. I can see where it could be profitable in the future when everything is paid off but what about short time?
I keep reading that you can have up to 10 home loans. Going off the info in the first question and refinancing to an 80k loan this means you could have up to 800k in outstanding loans? Is the bank giving you these loans off the premises that they are rented out and is a source of income? Is it not dangerous to have that many and that large of an amount outstanding at one time? Seems like the risk out weighs the rewards there.
Like I said I'm sure I'm missing something or looking at it a different way because this is obviously a successful venture. I just keep getting hung on some of the things above. Again thanks for the answer and help.
Help me understand the leverage scenario some more. I buy a house using some type of credit. Rehab the home. Then refinance and take the money and pay off the original loan. Here is where I get lost. Say the house cost $50k. I put 15K of rehab into it. So total loan of $65K. Appraisal comes back at 100K. I have 35K equity in the house. You can only get 80% of the value when doing a cash out refinance. So I take 80K and pay off the 65K. Now I have 15K. Do you take that entire $15K and put that into your next property? How do you ever make a profit if you're always putting your refinanced amount into other properties? Also doesn't refinancing raise your mortgage cost which in turn hurts your profit from your renters? I'm sure I'm missing something here or perhaps I'm looking at it the wrong way. To me it just seems like you swapped a $65K loan for an $80K loan just so you could have an additional $15K liquid.
What would you say is the average start up capital needed? I've talked my wife into letting me take 15-20k and throw at this but I feel like that amount is too small.
Is there a such thing as a house too far gone to consider buying and rehabbing? Just looking at property last night on the MLS I found a 1000sqft selling for $20k that I could buy and fix up with around $35k. So a total all in of 55k and it'd could rent for 650 minimum all day long. But it needs all the major work done to it. Is it better to shy away from these and stick to the homes in the <10k rehab range?
How do you make money with this? At first glance you think, "he has 4 homes renting at $1000 each He's making $4000 a month!" but then you start to add in the mortgage price and insurance, maintenance, fees, etc and you only clear $200 a month per house. Seems like a lot of risk for that small amount each month. I can see where it could be profitable in the future when everything is paid off but what about short time?
I keep reading that you can have up to 10 home loans. Going off the info in the first question and refinancing to an 80k loan this means you could have up to 800k in outstanding loans? Is the bank giving you these loans off the premises that they are rented out and is a source of income? Is it not dangerous to have that many and that large of an amount outstanding at one time? Seems like the risk out weighs the rewards there.
Like I said I'm sure I'm missing something or looking at it a different way because this is obviously a successful venture. I just keep getting hung on some of the things above. Again thanks for the answer and help.
3
Posted on 7/29/19 at 8:43 pm to GAFF
Cash out refinance, keep the house as a rental. Rinse repeat with the difference. Sure you will only make a couple to a few hundred bucks a month net but factor in depreciation and loan pay down as well. It’s not get rich quick, but do that for 20 years and you’ll have nice cash flow.
Posted on 7/30/19 at 11:56 am to GAFF
I will try to answer a few questions that could help you.
depends what you buy and where you buy. gonna finance with 20% down? buy n hold? gonna pay cash and then do a cash out refi?
you make money, making damn sure you have an acceptable PCF (positive cash flow) based on price you are paying for the property with all expenses included like PITI, possible PM and whatever metric you'd like to use for vacancies and maintenance. This is why RTV, (RENT TO VALUE) is so important if you want to do a buy n hold. or appreciation. Again, if you calculate everything short term should be no issue if you BUY RIGHT. Many investors never pay off their rentals. Why? because they consider it DEAD EQUITY. Use the checklist on first page to see if it is in an area you would deem profitable as well as whatever your risk tolerance is.
I would say yes, but it depends on acquisition price,ARV and other metrics. steventiger here is a master flipper and could help you on this better.
you can have 10 traditional mortgages backed by fannie mae in your personal name. now, there are ways around this.
1)You can put 10 in your name, then another 10 in your wife's name.
2) Or, own properties in entities like a LP, LLC,etc where your ownership is less than 25% since any property with financing only counts against the 10 rule if your ownership exceeds 25%.
3) own in a corporation where it is not in your personal name. You can put 10 in a S-corp. then wash, rinse repeat. These will not count towards the 10 rule. for example, 10 in a S-corp and 10 in your name and 10 in wife's name.
4) You can use commercial or portfolio lenders. Once you hit 10 they may let you go over the limit.
5) Some lenders will allow you to roll many mortgages into ONE mortgage. some do 2 into 1 and some much more. Thus only counting as 1 in the 10 rule in your personal name. this is liability optimization. Some lenders who do this mainly look at the income these properties are bringing in. This in itself is basically a cash out refinance consolidation loan.
6) you can also use a private lender. Some require a 50% down payment for a 10 year term. some are at 8% and 10%. it varies.
nope, not at all. The DTI is normally a wash when they look at debt service and income the properties provide. for traditional lenders usually as long as your PITI do not exceed 75% of your rents it is a wash. many lenders have different seasoning requirements.
more money down means more cash flow but of course a lower COC return. Using leverage is great just know how to use it. Do not overdo it with minimal DP's. usually it does not matter anyway because traditional lenders want 20 to 25% down on NOO(non owner occupied). Private lenders may want as much as 50% down.
RE can give you:
cash flow
appreciation
principal paydown
depreciation and other tax advantages/deductions.
good luck!
quote:
What would you say is the average start up capital needed? I've talked my wife into letting me take 15-20k and throw at this but I feel like that amount is too small.
depends what you buy and where you buy. gonna finance with 20% down? buy n hold? gonna pay cash and then do a cash out refi?
quote:
how do you make money with this? At first glance you think, "he has 4 homes renting at $1000 each He's making $4000 a month!" but then you start to add in the mortgage price and insurance, maintenance, fees, etc and you only clear $200 a month per house. Seems like a lot of risk for that small amount each month. I can see where it could be profitable in the future when everything is paid off but what about short time?
you make money, making damn sure you have an acceptable PCF (positive cash flow) based on price you are paying for the property with all expenses included like PITI, possible PM and whatever metric you'd like to use for vacancies and maintenance. This is why RTV, (RENT TO VALUE) is so important if you want to do a buy n hold. or appreciation. Again, if you calculate everything short term should be no issue if you BUY RIGHT. Many investors never pay off their rentals. Why? because they consider it DEAD EQUITY. Use the checklist on first page to see if it is in an area you would deem profitable as well as whatever your risk tolerance is.
quote:
s there a such thing as a house too far gone to consider buying and rehabbing?
I would say yes, but it depends on acquisition price,ARV and other metrics. steventiger here is a master flipper and could help you on this better.
quote:
I keep reading that you can have up to 10 home loans.
you can have 10 traditional mortgages backed by fannie mae in your personal name. now, there are ways around this.
1)You can put 10 in your name, then another 10 in your wife's name.
2) Or, own properties in entities like a LP, LLC,etc where your ownership is less than 25% since any property with financing only counts against the 10 rule if your ownership exceeds 25%.
3) own in a corporation where it is not in your personal name. You can put 10 in a S-corp. then wash, rinse repeat. These will not count towards the 10 rule. for example, 10 in a S-corp and 10 in your name and 10 in wife's name.
4) You can use commercial or portfolio lenders. Once you hit 10 they may let you go over the limit.
5) Some lenders will allow you to roll many mortgages into ONE mortgage. some do 2 into 1 and some much more. Thus only counting as 1 in the 10 rule in your personal name. this is liability optimization. Some lenders who do this mainly look at the income these properties are bringing in. This in itself is basically a cash out refinance consolidation loan.
6) you can also use a private lender. Some require a 50% down payment for a 10 year term. some are at 8% and 10%. it varies.
quote:
Is it not dangerous to have that many and that large of an amount outstanding at one time? Seems like the risk out weighs the rewards there.
nope, not at all. The DTI is normally a wash when they look at debt service and income the properties provide. for traditional lenders usually as long as your PITI do not exceed 75% of your rents it is a wash. many lenders have different seasoning requirements.
more money down means more cash flow but of course a lower COC return. Using leverage is great just know how to use it. Do not overdo it with minimal DP's. usually it does not matter anyway because traditional lenders want 20 to 25% down on NOO(non owner occupied). Private lenders may want as much as 50% down.
RE can give you:
cash flow
appreciation
principal paydown
depreciation and other tax advantages/deductions.
good luck!
This post was edited on 8/12/19 at 8:31 am
Posted on 8/1/19 at 12:33 pm to GAFF
quote:
how do you make money with this? At first glance you think, "he has 4 homes renting at $1000 each He's making $4000 a month!" but then you start to add in the mortgage price and insurance, maintenance, fees, etc and you only clear $200 a month per house. Seems like a lot of risk for that small amount each month. I can see where it could be profitable in the future when everything is paid off but what about short time?
Depends on your objective...income vs building wealth. Everytime you acquire a home and then pull out your 75 or 80% , the equity you are leaving in the property is increasing your net worth by that much. So, in the end if done correctly, you end up with a home with no deferred maintenance that can be depreciated, and someone else paying the note. The cash flow is the icing on the cake.
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