Posted by mike8675 on March 20, 1999 at 11:20:13:
I’m fairly new to REI and that’s why I asked. I wanted experienced opinions and I got it. Thanks.
Mike8675
How do I get my money back out? - Posted by Mike8675
Posted by Mike8675 on March 20, 1999 at 08:47:21:
If I purchase an apartment for $175,000 (FMV is $190,000) using a conventional lender and I put $18,000 down to get financing, how can I get that money back out of the property to use it on my next without creating a note and having it discounted by a note broker? The last thing I want is that money tied up for a long period!
Thanks,
Mike8675
Re: How do I get my money back out? - Posted by Nancy-NC
Posted by Nancy-NC on March 20, 1999 at 12:45:00:
Before buying a rental building. Be sure you want to be a landlord. I am one and I like it. But you have to be a little bit of a control freak.
You MUST have positive cash flow. That means some money left over after ALL expenses. And you have to be in the landlording market for the long haul, it is not a way to get rich quick. Rental properties build you net worth. They are the foundation of your wealth and a way to park money for growth and to create an income stream.
I would not advise a multiple family unit for a beginner. Way too many things can go wrong and the seller can hide all types of expenses that would eat up your positive cash flow if you had any?
NEVER, NEVER, buy something that loses money each month. No matter how good it looks or how good the location looks.
HAVE FUN AND REMEMBER TO KEEP A POSITIVE MENTAL ATTITUDE.
GOOD LUCK!!!
Good Question… - Posted by JPiper
Posted by JPiper on March 20, 1999 at 09:41:01:
Based on the information you gave…you don’t. But if you get it figured out, make sure to let me know.
If you bought the property at a significant discount to FMV…then perhaps you can refinance depending on the numbers…but you didn’t.
If you bought the property where the rents are under market, you raise the rents (thus creating value), and then refinance…but you didn’t.
If you had outstanding terms so that you could flip in some manner…but you didn’t.
Based on the little info you gave there is no way to pull your cash at this moment. Where’s the deal?
JPiper
Re: Thanks - Posted by Mike8675
Posted by Mike8675 on March 20, 1999 at 15:43:25:
Even though I don’t like the answers, I do respect your
experience and will take heed. Thank you…isn’t this why this board exists?!
Mike8675
Re: Good Question… - Posted by Mike8675
Posted by Mike8675 on March 20, 1999 at 10:11:31:
I haven’t purchased it yet. The deal is that it’s a rental property. It has six units in good shape that all rent for $425 per month which equals $2,550/month.
It’s in a good neighborhood and rental rates as well as home values continue to escalate. I thought it would be a good deal…isn’t it? I’m not looking to flip it. I also said that the FMV is $190K…that was wrong, that’s what the owner is asking for the property. Based on the rental rates and the NOI, I’m positive the value has to be higher, but I’m still waiting on the schedule E.
Mike8675
Re: Good Question… - Posted by Carol
Posted by Carol on March 20, 1999 at 10:01:01:
I love your incisive analyses and responses, Jim.
If you reviewed my deals before I did them I KNOW I’d never do a bad / heck, marginal one!
But, it’s all made going in, isn’t it?
Carol
Re: Good Question… - Posted by JPiper
Posted by JPiper on March 20, 1999 at 10:52:39:
If your definition of a “good deal” is one where it’s “in a good neighborhood and rental rates as well as home values continue to escalate” then I don’t have much input to give here. That doesn’t happen to be my definition of a good deal.
Looking at the numbers you have given I’m not particularly impressed either. You’re looking to buy this building at a 10 cap rate…give or take…not a special deal in my view. This is widely available anywhere.
When I work the numbers, what I get is a cashflow (assuming 8% financing and 45% vacancy/expenses) of about $250 per month. Based on your down payment of $18,000 that’s about a 16% return…not very exciting either.
Would the building be worth even more than this based on an examination of a schedule E? The schedule E may verify the gross income. It may shed some light on expenses. It won’t shed light on deferred maintenance. And…most importantly…it won’t tell you the value of the property. This is ONLY determined through comps…either comps based on income or comps based on comparative analysis.
But your original question had to do with your down payment. If one of the elements of a good deal is to be able to get your cash back out of the deal, this deal doesn’t meet that. Unless the rents are way under market I see no prospect for getting your cash out any time in the near future.
JPiper