- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
1
Posted on 2/25/15 at 9:46 am to I Love Bama
On the flip side while in debt with nothing down on many properties that can be come risky can't it? If murphy's law were to hit and you needed cash repairs on several at the same time and a few were empty that could be a problem?
My theory was buy the property outright yes money is tied up, but you are putting money straight into your pocket, a revenue stream for retirement, buying more properties, etc...
I haven't read much on the subject so by no means trying to argue just trying to learn more. After two years I have almost enough to buy my second property outright, seems like once I have 3-4 bought I could likely buy another one each year or so and then profits go up exponentially. Which is the same with borrowed money except I am not paying interest and everything goes straight to me after taxes and upkeep. Is this thinking flawed?
My theory was buy the property outright yes money is tied up, but you are putting money straight into your pocket, a revenue stream for retirement, buying more properties, etc...
I haven't read much on the subject so by no means trying to argue just trying to learn more. After two years I have almost enough to buy my second property outright, seems like once I have 3-4 bought I could likely buy another one each year or so and then profits go up exponentially. Which is the same with borrowed money except I am not paying interest and everything goes straight to me after taxes and upkeep. Is this thinking flawed?
Posted on 2/25/15 at 9:55 am to Da Hammer
There isn't anything wrong with your strategy but you aren't maximizing potential.
Simplified example:
Let's say you have $100,000 to invest and you want to invest in a $100,000 house that will rent for $1,000 per month.
In your scenario, you are grossing $1,000 per month.
If you buy 5 houses with $20,000 down, you are now grossing $5,000 per month but subtracting mortgage, taxes, etc.
So now you have mortgages totaling $400,000. Lets say the interest rate is 5% at 15 year locked.Payment is about $2,150 per month.
So in my example, you're left with $2,180 per month with the same out of pocket investment. That is the beauty of leverage. But wait, it gets better.
That $100,000 house you bought is paid off and generating $1,000 per month for you. When my debt service is paid off, mine is generating $5,000 per month. We both invested the same amount of money.
This is extremely simplified but you get the overall premise.
Simplified example:
Let's say you have $100,000 to invest and you want to invest in a $100,000 house that will rent for $1,000 per month.
In your scenario, you are grossing $1,000 per month.
If you buy 5 houses with $20,000 down, you are now grossing $5,000 per month but subtracting mortgage, taxes, etc.
So now you have mortgages totaling $400,000. Lets say the interest rate is 5% at 15 year locked.Payment is about $2,150 per month.
So in my example, you're left with $2,180 per month with the same out of pocket investment. That is the beauty of leverage. But wait, it gets better.
That $100,000 house you bought is paid off and generating $1,000 per month for you. When my debt service is paid off, mine is generating $5,000 per month. We both invested the same amount of money.
This is extremely simplified but you get the overall premise.
Posted on 2/25/15 at 9:58 am to I Love Bama
In a strong housing market rents are generally depressed. With respect to risk of leverage above, one needs to be able to let property go vacant as quality of tenants decreases significantly in a stronger market.
It's location specific. In Lake Geneva I never saw this. I did see it in Pompano Beach, and certainly saw it when anyone could qualify for mortgage in Iowa. Best thing I did was not let substandard tenants in during the boom.
It's location specific. In Lake Geneva I never saw this. I did see it in Pompano Beach, and certainly saw it when anyone could qualify for mortgage in Iowa. Best thing I did was not let substandard tenants in during the boom.
Posted on 2/25/15 at 1:22 pm to GoldenD
quote:
For example, one can take of up to 10 or so loans from Fannie. If each of these loans is able to generate $300-400 per month of excess cash flow, you now have $3000-4000 coming in each month without having to wait until you have enough cash to buy each property outright.
plenty start like this..........use all the leverage you can...............then once your annual cash flow from properties COMBINED with your earned income from a job or other means can equal the amount it would take to do a cash buy annually then you are in business. now, no more mortgages, no more private lenders with high down payments, high interest rates with short terms, you can now just do cash buys every year.
then as you build up these cash buys the real estate cash flow ITSELF WILL begin to pay for your cash buys with no other form of income needed.
Posted on 2/25/15 at 3:14 pm to Fat Bastard
I had 58k in it. It appraised for 80k after 1 year. I took out 80% of the appraised value. So 60k-closing costs which coincidentally cut me a check for 58k. Ergo I have none of my cash in deal. I have equity that I created by remodeling the property but not my cash.
Posted on 2/25/15 at 3:37 pm to bobaftt1212
quote:
I had 58k in it. It appraised for 80k after 1 year. I took out 80% of the appraised value. So 60k-closing costs which coincidentally cut me a check for 58k. Ergo I have none of my cash in deal. I have equity that I created by remodeling the property but not my cash.
and that's how its done.
Posted on 2/25/15 at 6:05 pm to bobaftt1212
quote:
I had 58k in it. It appraised for 80k after 1 year. I took out 80% of the appraised value. So 60k-closing costs which coincidentally cut me a check for 58k. Ergo I have none of my cash in deal. I have equity that I created by remodeling the property but not my cash.
so almost kinda like when getting a loan based on ARV?
Posted on 2/25/15 at 6:59 pm to Fat Bastard
no because I had to use my money on the front end. 
My banker told me they don't do ARV loans anymore. I am open to finding another banker if you know something I don't! I did not like tying the money up for a year
My banker told me they don't do ARV loans anymore. I am open to finding another banker if you know something I don't! I did not like tying the money up for a yearPosted on 2/25/15 at 7:02 pm to bobaftt1212
If you can pay cash for a property, fix it, rent it and then do a cash out refi I think that is the way to go.
Works much better on the low end stuff that I do. Banks hate loaning 30k for a house and the closing costs are stupid expensive at that price point relative to what i a spending.
Works much better on the low end stuff that I do. Banks hate loaning 30k for a house and the closing costs are stupid expensive at that price point relative to what i a spending.
Posted on 2/25/15 at 7:09 pm to I Love Bama
quote:
and the closing costs are stupid expensive at that price point relative to what i a spending.
yeah tell me about it.
Posted on 2/26/15 at 12:19 pm to bobaftt1212
Have you looked at any hard money lenders??
Posted on 2/26/15 at 4:12 pm to Fat Bastard
I haven't. I'm skeered. that's more leverage than I think I can sell to the accountant
Posted on 2/26/15 at 10:14 pm to bobaftt1212
Took a day or so to get back to this thread but what you are saying makes sense. I appreciate the insight.
Page 5 of 5
Back to top
Follow TigerDroppings for LSU Football News