Posted by Brent_IL on August 26, 2003 at 23:48:27:
Expenses are homeboys, they are never unexpected; it’s just that they decided to come to the party a little earlier than we thought they would arrive.
When your down payment is larger than the minimum required the underlying loans necessary to buy the place are smaller. Smaller loans equals smaller payments, so, if you don’t spend it, there is more cash available for back up.
Prior than about two years ago when rates plummeted, for two decades it was highly improbable that you would find a random “good” deal on the MLS even if you put down 20%. Guys that bought from the listings had specific qualifications and were selective.
The MLS has value, but not for most fledgling RE investors. Use the MLS as a study tool. Notice the information that is missing as well as what is in the listing sheet. To understand creative real estate investing you first have to get the hang of real estate investing.
Posted by Jim (NY) on August 21, 2003 at 12:11:03:
I’m looking at a few houses thru a realtor to buy and hold L/T. I’ve done some analysis on one, and here’s what I came up with:
House 1: 3BR, 1 Bath
List: 182,500
FMV Rent: 1,700/month
Expenses: ~430/month
Debt (thru bank, 5% down): 1,082/month
Comps: 140k - 175k
If I offer ~155k, I could get a positive of about $110/month.
I don’t know if it needs any repairs or not. I’m trying to figure out if it’s even worth looking at. I’m new, and I’m having trouble determining if this would be a good deal or not. Thanks!
Posted by Jim (NY) on August 23, 2003 at 06:52:33:
Thanks, Brent. What you’re saying makes sense. I’ll keep looking!
P.S. Would you ever put 20 - 30% down? I can do that, I just didn’t want to tie up that much cash. What are the benefits of doing so? Thanks for all of the help!
Posted by Brent_IL on August 22, 2003 at 20:14:32:
So what you are saying is that if the seller, whose property is 20% overvalued, doesn’t counter, and if the expenses are accurate to the penny and never increase, and nothing ever needs repair, and if the house is ready to move in right now, if it takes a month to find a tenant, you’ve wiped out a year’s cash flow? Is that about it?
What you are thinking about doing is O.K. if you put 20% to 30% down, not 5%.
As it stands, this is not a “deal.” You don’t want to make your first one your last one.
The one bath for three bedrooms isn’t so hot, either.
Posted by Brent_IL on August 23, 2003 at 14:45:18:
When I negotiate a purchase, I’m looking at the synergism of the deal. I also keep in mind the current deal’s place in the overall scheme. The only time I deal with banks is to send them subject-to payments. Focusing on one aspect of the offer doesn’t give a true picture because the agreement with the seller is controlling.
20% or 30% down sounds like a lot of cash, but what if it isn’t your money? Personal assets are not to be used for down payments. If that is what you really what to do, you’d need to find a Non-CREonline. Perhaps, REALTORS.com. O.K., enough editorializing, you get the point.
I talk a lot about the value of using a substitution-of-collateral clause to free up equity in the property so it can be converted to cash to give the seller. It is essential to have a seller loan on the property so we can use the substitution-of-collateral clause to free the collateral that gets the cash that buys the house that Mr. Seller built.
What if the seller will carry 70% with deferred payments and no interest if you give him 30% down? What if you had a SOC going with that same seller?
Financing strategies just aren’t thay clear-cut. The answer to your question is that I will happily put down 20% to 30% in cash if the present value of the property?s acquisition costs is well below market value. The cash almost never comes from me. That’s why I pay 12% to passive partners. They?re happy; I?m happy.
Posted by Jim (NY) on August 26, 2003 at 08:43:07:
Brent,
Thanks so much for all of your input. I’m still very new at this, and I am trying to learn as much as I can from people like yourself. I just had a question regarding the above:
Is the reason for putting 20% to 30% down better because it will give me ncreased cash flow and give me more room to cover any “unexpected” expenses? Thanks!