Posted by michaela-CA on July 12, 2008 at 16:45:02:
In your original post you have some wrong calculations:
45K profit, but 75K equity (you don’t have a mortgage)
30K profit, but 60K equity (65K mortgage)
in this post you calculate appreciation only on today’s value. But in reality it would be compounded on the new value each year. 1% is low, but better safe than sorry.
A lot of it will depend on the direction the neighborhood is moving in.
Michaela
$30,000 to invest - Posted by Deano
Posted by Deano on July 12, 2008 at 13:12:33:
07/11/2008 6:50 AM Quote Reply Alert
I need advice on the best use of $30,000.
Her are my 2 available options:
#1
Purchase price(Incl.rehab): $30,000 (cash)
Retail value: $75,000
Monthly rent: $550.00
Taxes & Ins. $100.00
Cash flow $450.00
Equity $45,000
#2
Purchase (Inc.rehab) $95,000
Retail value $125,000
Monthly rent $1085.00
Down payment $30,000
Loan amount $65,000
Int. rate 7%
15 yr. loan pay`t $585.00
Tames& Ins. $100.00
Mo. debt load $685.00
Cash flow $400.00
Equity $60,000
Property #1 38 yr. old brick house, new central heat/air and new roof, 4 br 1ba out in the country on 3/4 of an acre, 20 minutes from a major hospital.
Property #2 Built in 2006, vinyl siding, located in a new subdivision with lots of foreclosures, in town, both houses have the same square footage.
What would you do with $30,000 that is sitting in a money market account earning a pitiful 2.5%
Deano Vulcano
550 mo is low rent for 75K prop - Posted by JT-IN
Posted by JT-IN on July 13, 2008 at 08:59:55:
Why so low…?
If you take the 550 mo, or 6600 annual rent, it equates to 8.8% of FMV. While comparing the other property, the 1085 mo, or 13020 annual rent equates to 10.4% of FMV.
Usually the higher the FMV the lower the percentage of rent you are able to pull, but in your hypo it is reversed from the norm. Could you have some of your nubmers off by a bit…?
IF you could massage the rent number higher on the 75K property, and bring it to 600 mo, or higher, then I would consider doing option # 1… the only difference is I would do option # 1, at least 10 times… Buy one, fix it, rent it, mtg it, recoup your 30K, or maybe 40K back out of the property… (10K for liquid profit)… Then do it over again. If things panned out, and with the higher rent percentage of 10% rent of FMV, (again, not great buy tolerable), you should be able to have a decent pos c/f on each property, about 250 per mo each, or 2500 in total, have 100K in pocket profits (in additiona to your original 30K start-up), and be in a position to look at other things… If you are so inclined to deal with 10 props… If not, do one, but utilize the leverage to do the deal…
JT-IN
Re: $30,000 to invest - Posted by Deano
Posted by Deano on July 12, 2008 at 15:14:44:
Thanks for your comments Michaela.
Hereâ??s a 15 yr. snapshot on the two properties assuming a perfect world with no vacancies or repairs.
Property #1
Worth $75,000
$450/mo.cash flow x 15 yrs.= $81,000
1% appreciation/yr. x 15 yrs.= $11,250
Property worth after 15 yrs - $86,250
Property #2
Worth $125,000
Cash flow/mo.x 15 yrs.(note will be paid off)
$400.00/mo. x 15 yrs.= $72,000
From now on my monthly cash flow is $1085/mo.
1% appreciation x 15 yrs.= $18,750
The property is now worth $143,750
What will a $30,000 investment bring me in 15 years.
Property #1 Property #2
Total cash flow $81,000 $72,000
Property value $86,250 $143,750
Mo. rent after 15 yrs. $550 $1,085
Does anyone see anything wrong with this?
I think I might have answered my own question.
Does anyone know what the ROI is?
Re: $30,000 to invest - Posted by michaela-CA
Posted by michaela-CA on July 12, 2008 at 13:25:54:
I’m not a buy-and-hold investor, so keep that in mind.
Just some thoughts off the top of my head:
Taxes and insurance should be higher on the 2nd one. Maybe they’re the same now, because the owner has owned it for a long time, but taxes and ins. should definitely rise once you’ve bought at a higher price.
you did not consider vacancies as potential
Property one would allow you to buy cash, put a tenant in and potentially refinance and do the same thing again. In house 2 your money is pretty much tied up the way it looks.
neighborhood of #1 may be very different from 2. Harder to collect rent? Harder to keep rented?
brick isn’t as difficult to keep up as frame, so less potential for termite damage etc.
personally, I would think 1 is the better option, provided it’s not a warzone and difficult to rent and keep.
Michaela
Michaela