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Anyone Have Rental Properties?

Lineskicat,

Why do a FHA loan? I wouldn't offer that miserable product to my worst enemy. Save a little more if you can and put 5% down for conventional financing. A duplex might require a larger down payment as well. You can also find some conventional financing w/ only 3% down and not the BS add-ons of a FHA loan.
 
Lineskicat,

Why do a FHA loan? I wouldn't offer that miserable product to my worst enemy. Save a little more if you can and put 5% down for conventional financing. A duplex might require a larger down payment as well. You can also find some conventional financing w/ only 3% down and not the BS add-ons of a FHA loan.

Interesting. I was always under the impression that a conventional loan needed to be 10-20%. I'm fairly young at 28, so I don't have much saved up for a DP. I always assumed FHA was the only realistic option I had. I tried to buy a house using some parental help about 5 years ago and I guess the FHA loans back then had tons more criteria and BS attached to it.
 
Interesting. I was always under the impression that a conventional loan needed to be 10-20%. I'm fairly young at 28, so I don't have much saved up for a DP. I always assumed FHA was the only realistic option I had. I tried to buy a house using some parental help about 5 years ago and I guess the FHA loans back then had tons more criteria and BS attached to it.

Conventional you need 5% of your own funds. The rest can be gifted or you could ask sellers to pay a portion of the closing costs/prepaids. FHA recently changed some guidelines and the mortgage insurance (PMI) never falls off now. On for the life of the loan. At least on conventional financing, the PMI will fall of once you get to 78%LTV.

Double check w/ your bank to see if they would require more DP since it is a duplex. Great idea to start out that way. Just worked w/ a guy that bought his first home and rents out the other unit. Almost covers total monthly payment. Can't beat it.
 
The 2% rule is very feasible to those that are in the business, and know where to look. I haven't bought a rental property in years that didn't satisfy the 2% rule. Every serious, successful investor I know, and I know a bunch, don't touch anything that doesn't at least satisfy that.
My last two deals, 1. A vacant fourplex, I paid $10,000, and put $17,000 in it, that's $27,000 total investment, I get $2,100 a month in rent.
Deal #2. A 28 unit apartment complex, 17 of the 28 were inhabitable. I paid $245,000 for it, rehabbed the 11 apartments that were uninhabitable, at a cost of about $3000 a unit, and my gross rent collected is over $14,000 a month. That's just my last two. Ive had several put to me in the last two weeks that I couldn't do, simply because I'm too busy with what I have going on right now.
And like banker cat said, don't even consider FHA.
 
The 2% rule is very feasible to those that are in the business, and know where to look. I haven't bought a rental property in years that didn't satisfy the 2% rule. Every serious, successful investor I know, and I know a bunch, don't touch anything that doesn't at least satisfy that.
My last two deals, 1. A vacant fourplex, I paid $10,000, and put $17,000 in it, that's $27,000 total investment, I get $2,100 a month in rent.
Deal #2. A 28 unit apartment complex, 17 of the 28 were inhabitable. I paid $245,000 for it, rehabbed the 11 apartments that were uninhabitable, at a cost of about $3000 a unit, and my gross rent collected is over $14,000 a month. That's just my last two. Ive had several put to me in the last two weeks that I couldn't do, simply because I'm too busy with what I have going on right now.
And like banker cat said, don't even consider FHA.
OK, you're thigh deep in the muck and obviously know what you're doing, but most here aren't looking to become (excuse the expression) slum lords. I mean, finding those kinds of deals, and then dealing with people that can only afford a $400-500 rental on a month to month basis is a MOA in which i think most here would be out of our league. I am curious about your method of finding these investment opportunities, if you wish to divulge.
 
I have several methods. I have two Realtors that work exclusively in the area of multi family real estate, they put any deals to me before anyone else. I also do foreclosure auctions, looking for blue collar areas with units that aren't turn key. Most people pay a premium for units that are updated and have current renters. I like properties that need a little work, with no renters.
You also have to realize there are numerous goals in real estate, not everybody's is the same. Most rental property can be done for cash flow OR appreciation, usually not both.
Banker cat talked about his rentals, its an expensive part of town to buy rentals, you aren't going to cash flow, but the area has great, guaranteed appreciation. High class renters, etc. He will get renters to pay his mortgage over the years, and eventually have millions of dollars in real estate free and clear. That's a long term strategy. Cash flow is a short term strategy.
Both are fine, and I have both, you just need to decide which one you want to start with. I was talking about cash flow properties simply because someone mentioned it.
Also, if you are looking on the MLS for deals, you aren't going to get a deal.
To anyone considering real estate, I'll say this, 90% of millionaires are from real estate. Its the ONLY investment where you can use other peoples money to make yourself money.
Its not without issue, I've got bazillions of horror stories, I just had a unit burn down a couple weeks ago because a renter was cooking hot dogs and forgot about them and went to bed. Its part of the deal. But I'll say this, its much easier having 86 units than it was having my first three. So don't stop!
 
^^^ Good stuff - I have some cash and am looking for "a deal". I would settle for the 1% rule with property appreciation guaranteed.
 
Lots of good info out there, but it sure as hell isn't on this thread. Lots of poor information given.

Just curious, what information previously stated doesn't add value and what alternative advice would you suggest?
 
Just curious, what information previously stated doesn't add value and what alternative advice would you suggest?

For starters, the amount quoted per $100k is poor advice. Going FHA isn't a good choice, and I wouldn't suggest anybody getting started use a property management co. If you can't handle your first property on your own, its probably not the best business for you.
 
I own 86 units, in several different cities, started 17 years ago.
You mention in the other comment about not going with FHA, and, 86 units in 17 years across multiple cities is a lot. Did you start from scratch on your own and, if so, how did you build equity so fast to pull off the loans? Thankfully, I stepped into a family situation so loan history/equity was already in place.

What I've learned is that managing internal family "business" is just as important, if not more so than, dealing with the banks and third party property management firms. (Those are pretty easy to manipulate.)
 
In the Albany, NY area, there are some great neighborhoods with duplexes and two-family flats. The rent from one unit will come very close to covering mortgage+taxes, but in some scenarios you might MAKE money from the rent. So essentially you are building equity and your living expenses are null. The key though is to throw all that money into some savings account. Keep it on hand for any repairs like the hot water heater or roofing issues.

Upper Pine Hill FTW...I own three duplexs on the same street and it's been great. One set of tenants were terrible, but that happens.

Never considered using a rental agency...couldn't imagine giving someone 10%. If someone doesn't pay, you use your lawyer to take care of things. Small fixes, my dad or I can easily fix...larger items, my cousins are contractors.

Great cash flow and highly recommended...
 
Ha, that's the area. Moving back to PH this month and hopefully during my year lease I can buy a house in the same area. Just not down by Hamilton and Ontario. Student ghetto is a damn nightmare. More of the uptown portion of PH, between 85 junction and Allen.

I know it's crazy, but I don't mind the prospect of renting to late college/early adults IF you can't find that perfect 50 year old widower who will rent for the next 10 years. Mid-20's will certainly do some wear-n-tear on a house, but they also don't understand leases, agreements, and are usually afraid of eviction. Some people might shy away from owning a house near a college, but it guarantees renters year after year, and I feel like they always pay.

It's the damn trash you have to worry about.. and there isn't a shortage of that in the 518.
 
I started as soon as I got out of college. I bought a house to live in, then within a year I bought a duplex. When I got married, I kept the first house as a rental. I went for years with just the two rentals, because my debt to income prevented me from borrowing anymore money.
They don't like lending a 25 year old more than $500k, so I was stuck. Not to mention I paid too much for the duplex. I wasted several years because I couldn't get additional financing.
That's when I met several seasoned investors in a real estate marketing group. I learned that the deals weren't on the market, you had to be more creative. And you sure as hell can make your money work better for you than spending $200,000 on a duplex that pays you $2,000 in gross rent. That was my first deal, I still have it. My second mistake was putting it on a 30 yr mortgage.
I've made every mistake possible. Trust me when I say take other peoples advice who have been through it.
 
Owning rental property may not be the "best" investment, but when something a. Covers the basic need of housing for yourself and b. Still net you money AFTER your housing expenses.. All the while working towards owning a real asset.. That's a pretty sweet deal, that most people can get into, at any age, with little prior knowledge. Because at worst case, you're providing a roof over your head.
 
I have several methods. I have two Realtors that work exclusively in the area of multi family real estate, they put any deals to me before anyone else. I also do foreclosure auctions, looking for blue collar areas with units that aren't turn key. Most people pay a premium for units that are updated and have current renters. I like properties that need a little work, with no renters.
You also have to realize there are numerous goals in real estate, not everybody's is the same. Most rental property can be done for cash flow OR appreciation, usually not both.
Banker cat talked about his rentals, its an expensive part of town to buy rentals, you aren't going to cash flow, but the area has great, guaranteed appreciation. High class renters, etc. He will get renters to pay his mortgage over the years, and eventually have millions of dollars in real estate free and clear. That's a long term strategy. Cash flow is a short term strategy.
Both are fine, and I have both, you just need to decide which one you want to start with. I was talking about cash flow properties simply because someone mentioned it.
Also, if you are looking on the MLS for deals, you aren't going to get a deal.
To anyone considering real estate, I'll say this, 90% of millionaires are from real estate. Its the ONLY investment where you can use other peoples money to make yourself money.
Its not without issue, I've got bazillions of horror stories, I just had a unit burn down a couple weeks ago because a renter was cooking hot dogs and forgot about them and went to bed. Its part of the deal. But I'll say this, its much easier having 86 units than it was having my first three. So don't stop!

If you don't know any realtors to bring you deals why is the MLS a bad idea and why was the 30yr mortgage a bad idea?
 
You want a real estate agent that is working the tax records, has experience representing clients that have bought multi-family properties, etc. They will find you deals outside the MLS that have less competetion and bigger margins. As a Realtor, the best advice I can give is to deal with a good agent. Don't use a cousin, friend of a friend etc, unless they can negotiate/read people.

When you find one that actually represents your best interests use them.
 
I've been in construction and real estate my whole life, and left a full time paying job about a year and a half ago to start a new business. My partner and I now have about 50 units we own and manage, along with doing maintenance management for about another 200 units and we also run a contracting business.

The one key to being profitable in real estate is to make your money up front. You never sell above value, you can only buy below and add value to it. The majority of our properties were not listed, most were not even for sale. We turn a lot of rocks and contact people with properties that are undermanaged, we have a realtor that is a bulldog when it comes to those types of transactions.

I found as we were starting that managing one or two properties (6-8 units, we focus on multi-family) was easy and we could turn a profit. As we started to grow it got harder to keep profit margins stable while increasing ownership until we got to about 25 units. So my personal experience indicates that the bell curve increases sharply as you get more than a couple of locations but after you get a couple of dozen, the difficulty starts decreasing again.
 
It's interesting that both of you say it got easier with more units why do you think that is? Learning curve or getting you're support people in place? If I find a property on the MLS that would meet the 2% rule and is more turn key should I pass it up? Wouldn't something that is more turn key be better to get started with for a noob.
 
Interesting thread, for sure.

My parents own three properties and I'm definitely encouraging them to buy more. :)

My dad's a CPA for a large construction company who grew up roofing and restoring houses, and my little brother is a construction manager. Current plan to wealth is helping bankroll (in a few years) their property management company.
 
If you don't know any realtors to bring you deals why is the MLS a bad idea and why was the 30yr mortgage a bad idea?

Most good agents have lots of guys like Rob that they flip their good deals too before they hit the market because that means a quick profit for the agent with minimal hassle. Most agents work under another broker, and that broker is probably the guy talking to Rob- so there might be 15 agents' deals being sent to Rob and similar companies before they hit the MLS. If the sharks don't want it, there isn't money to be made.

I am also curious about why the 30 yr is a bad idea though, especially right now? You increase cash flow that way, and at 4-5% rates, you should be able to make money better elsewhere than through building equity. On the flip side, if you have an exit strategy that is shorter term, then yeah, you want that equity I guess. The other issue is that its tough to get a rental loan that long.

I work in commercial property development, so we are much more interested in maximizing cash flow (while keeping adequate equity - you don't want to finance a rental at 90% for 30 years, you'll end up bankrupt). On the side, I am involved with a small residential development company that remodels really dilapidated houses in really nice areas for high-end residential rental (in Northern KY, theres a lot of urban areas with $400k houses next to really trashed old homes, a 10 minute walk to downtown Cincinnati), basically following the value-added strategy 80 Proof outlined above.
 
[Not to get off subject because this has been a very productive thread]

I borrow money. Buy a house with that money. I use money people pay me to use my property to pay back that loan.

I borrow money. Buy a manufacturing company with that loan. I use money people pay me to buy the property I create to pay back that loan.

Regardless, someone else is giving me money to pay for my initial investment.
 
If you don't know any realtors to bring you deals why is the MLS a bad idea and why was the 30yr mortgage a bad idea?

By the time a deal hits the MLS its been picked over by dozens of investors. If those seasoned investors have all passed, it's not a great deal.
I should clarify my dislike for the 30 yr mortgage. After 10 years, my first deal still had 90% of the original purchase price left. The amount of interest you pay over the life of the loan is staggering. If you have to go 30 yr, that's better than not doing the deal at all. But if you can, I like shortening the loan term.
As an example of how prevelant deals are, lex had a very nice foreclosure auction this weekend. Lorilord lofts was forced by the bank to sell the remaining 25 units. These units have sold for up to $225,000. They went from $7,000-$125,000, most in the $33,000--$67,000 range. Almost all have current renters in the $1,000-$1,2000 range.
Very nice lofts, low maintenance since the floors are concrete. I was out of town and couldn't make it, but have several friends who picked up units. One for $33,000, that has $1000 a month renters, and another picked up two, one for $65,000 and one for $67,000.
 
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[Not to get off subject because this has been a very productive thread]

I borrow money. Buy a house with that money. I use money people pay me to use my property to pay back that loan.

I borrow money. Buy a manufacturing company with that loan. I use money people pay me to buy the property I create to pay back that loan.

Regardless, someone else is giving me money to pay for my initial investment.

I have never paid a penny out of my pocket for any of my properties. If you started a manufacturing company and didn't have to pay ANY money out of your pocket, it would be the first in history.
 
I have never paid a penny out of my pocket for any of my properties. If you started a manufacturing company and didn't have to pay ANY money out of your pocket, it would be the first in history.

You are able to get 0% down still? And you focus on value-add low income rentals?

Or are you saying someone else brought the equity?
 
It's interesting that both of you say it got easier with more units why do you think that is? Learning curve or getting you're support people in place? If I find a property on the MLS that would meet the 2% rule and is more turn key should I pass it up? Wouldn't something that is more turn key be better to get started with for a noob.
Both. You definitely have a learning curve, so that's part of it. But even more important is that once I got enough units, I had the money to be set up better. When I had just three units, I did a lot of maintenance myself. Once I got 20,30, plus, I couldn't do it all myself, and I got a direct guy or two, instead of painting an apartment myself, its just a phone call now.
Yeah, if you're not wanting to do any rehab, turn key might be better for you. Like I said, you pay a premium for that though. And you can occasionally find deals on the MLS, there are just better places to look.
 
By the time a deal hits the MLS its been picked over by dozens of investors. If those seasoned investors have all passed, it's not a great deal.
I should clarify my dislike for the 30 yr mortgage. After 10 years, my first deal still had 90% of the original purchase price left. The amount of interest you pay over the life of the loan is staggering. If you have to go 30 yr, that's better than not doing the deal at all. But if you can, I like shortening the loan term.
As an example of how prevelant deals are, lex had a very nice foreclosure auction this weekend. Lorilord lofts was forced by the bank to sell the remaining 25 units. These units have sold for up to $225,000. They went from $7,000-$125,000, most in the $33,000--$67,000 range. Almost all have current renters in the $1,000-$1,2000 range.
Very nice lofts, low maintenance since the floors are concrete. I was out of town and couldn't make it, but have several friends who picked up units. One for $33,000, that has $1000 a month renters, and another picked up two, one for $65,000 and one for $67,000.

Have a buddy who does the same thing with Kimball House Square. They are more expensive, but thats an infinitely better location not on railroad tracks. Not a bad model if you are going for equity.
 
::rolleyes::

You bought a house to live in and a duplex to start, and never paid out of pocket? That's nice.

And I guess we'll just assume all the financing you've ever gotten was completely nonrecourse. If not, economically it's the same as you borrowing the money yourself and using it to buy a property.


Edit: wtf. Typing r-o-l-l-e-y-e-s brings up that gay emoticon.
 
No I haven't been able to get 0% for years, but I used to. My first deal was 0% down, and owner occupied, despite the fact I told them I had no intention of ever living there.
Lending practices definitely make it tougher.
 
And I guess we'll just assume all the financing you've ever gotten was completely non recourse.

Non-recourse is coming back on the commercial side, fyi. As long as China's tanking RE market doesn't crash the rest of the world's markets, it should spread down to smaller multifamily in time.
 
By the time a deal hits the MLS its been picked over by dozens of investors. If those seasoned investors have all passed, it's not a great deal.
I should clarify my dislike for the 30 yr mortgage. After 10 years, my first deal still had 90% of the original purchase price left. The amount of interest you pay over the life of the loan is staggering. If you have to go 30 yr, that's better than not doing the deal at all. But if you can, I like shortening the loan term.
As an example of how prevelant deals are, lex had a very nice foreclosure auction this weekend. Lorilord lofts was forced by the bank to sell the remaining 25 units. These units have sold for up to $225,000. They went from $7,000-$125,000, most in the $33,000--$67,000 range. Almost all have current renters in the $1,000-$1,2000 range.
Very nice lofts, low maintenance since the floors are concrete. I was out of town and couldn't make it, but have several friends who picked up units. One for $33,000, that has $1000 a month renters, and another picked up two, one for $65,000 and one for $67,000.

Agree on the 30. All interest is paid upfront...it's depressing.

I had a closing last week for a purchase of $360k. We first talked about $45k down and at the last second wanted to put $50k. I misread his email and kept loan amount at 315 and not 310. Do the math...he is better off w/ my oversight and putting that $5k towards principal w/ his first payment. Shorten loan by 10 months and saves him a decent amount. Monthly payment is $23 more each month but that principal payment help tremendously instead of bringing to closin. Thought that was interesting.
 
My wife has been wanting to get a bigger house for a little while now, but I hate the thought of trying to sell one house while buying another. So I have been thinking about renting out our current house as a possibility. Anyone Have any tips for starting out if that is the direction we go?

Be better to look around for another wife.
 
UK Rob I get what your talking about, and I understand what your getting at. I'm talking about a legit single family unit. There is no chance a renter would pay more than that at all, and 2K a month is just stupid!

A typical 3BR 1BTH 1200sq ft house is anywhere from 115K to 135K and would rent for 850-1000 at best.

While your looking at a profit now a lot of people that want to rent out a house is doing so for the long haul to have it as a 401K per se.only the tenant is paying for it.

Who do you use for your repairs etc? Id almost gurantee my material prices are better.
 
I agree with you on rent being more than mortgage. For example my current house, nothing special 3BR 1BTH 1250 sq ft and my mortgage is 687 a month. I know three people right now who want to rent it for 850 a month and have no issue with $1000 deposit I would ask for.

Problem is $687 is really nice and Id like more of a house but man I'm a jew and just can't get past how cheap I can live. With 2 kids about to go to school it's very beneficial for me right now.
 
I agree with you on rent being more than mortgage. For example my current house, nothing special 3BR 1BTH 1250 sq ft and my mortgage is 687 a month. I know three people right now who want to rent it for 850 a month and have no issue with $1000 deposit I would ask for.

Problem is $687 is really nice and Id like more of a house but man I'm a jew and just can't get past how cheap I can live. With 2 kids about to go to school it's very beneficial for me right now.
How long have you owned the house? If you've owned it a few years then it's worth more now than when you purchased it. If you bought it today your mortgage would be more - maybe more than you could rent it for.
 
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