Thanks for the info…more - Posted by Steve
Posted by Steve on December 20, 2000 at 19:36:55:
Thanks for the timely response Steve & Anthony. In my case, I make a good wage and have some decent savings so I could pay for vacancies if I had to. If I had enough units, it would be worth it to do so (make payments) on a sporadic basis. I own one rental unit and I’ve got a formula that works well for me (i.e., slightly upscale unit, check tenants carefully, etc.) The unit is in the right area, so it always rents. In fact, last time I put out the sign I averaged a call a day while I screened my tenants. In the town I live in (Tallahassee), demand is high for the kind of property I like working with.
That being said, I believe that I could easily rent out more units without great risk (at least in the short term). My credit is good and I will seriously consider that No Doc loan that Steve was talking about.
My viewpoint is that there is less risk in having 10 units with a 90% occupancy rate than having one unit with a 90% occupancy rate provided that each unit makes at least 11% profit on average. Is that correct?
I mean, if you had 10 units, with a 90% occupancy ratio, theoretically, you’d make enough to cover that one missing (out of pocket) payment every month on average with that small profit. Is this true or false?
I could get that 11% just by adding another dependent on my W-4 form (from my day job) every time I get a new unit. I figure the depreciation of the building and the tax break of a dependent are about the same, so I could “have it now” with respect to my profit through tax savings.
I know of a couple of Real Estate agents (a married couple) who own at least 13 units which they’ve aquired over the last 15 years or so. How in the heck do they do that? It seems to me, that if you went to a bank, even with stellar credit, they’d turn you down flat when you applied for the 4th unit, right? Do you think they are using the “no doc” loan to get around that? Or is it possible that they aquire the property, then sign it over to a corporation, or something like that?
Mathematically, if you started a corporation and purchased a condo with a $1000 payment and a $1000 rent, then the debt to revenue ratio for the corporation would be 1:1 or 100%, so that wouldn’t work.
I own a corporation (a surveying and engineering company) and even a credit card held by the corporation shows up under my credit report. I don’t see how I could use one to hide assets anyway. Maybe I’m barking up the wrong tree.
Perhaps I’m thinking too much on this problem. Anthony’s advice is good, but I don’t want to sell anything because most of my debt is my own house and the typical odds & ends. I need leverage! The bank does set up those debt to revenue ratios to protect me, but they only look at cash flow, and not assets (ie. my bank account). I feel I can do more than the bank would consider “safe”.
More ideas, thoughts, tricks or testimonials?