Posted by DanM(OR) on December 07, 1999 at 19:09:09:
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MOTIVATED BUYERS - Posted by Denny
Posted by Denny on December 05, 1999 at 08:56:14:
I own some rental property and I am also in the commercial construction business. I have found that I enjoy the construction side much more than I do the rental property side.
I know that many of us are in the hunt for the elusive “NO MONEY DOWN” deal. They are out there, I have a couple. But I guess you can say I am tired of being the hunter…instead I want to become the hunted. Instead of looking for the motivated sellers I will be looking for the motivated buyer.
What I have in mind is specializing in building small rental properties (Duplex, Triplex )that are easy to maintain and affordable. Then sell these properties to investors with low or no money down. This should allow me to get a good price for the property making this as Carleton would say a WIN/WIN deal.
Comments…suggestions…greatly appreciated !
Re: MOTIVATED BUYERS - Posted by danny
Posted by danny on December 05, 1999 at 09:21:07:
I am an investor. I buy repos and rehabs. I have learned over the years that the real money is in appreciation. Hold on to the property. Sure, do a flip from time to time, for the cash. Or, in your case build on spec. and sell. Really, if I still owned every property I ever bought, I would be far better off. I should have refinanced to pull out the equity…not sell.
I am thinking of doing a little building as well. What are the biggest problems in being a builder?
Holding…“where the real money is”??? - Posted by Tyler
Posted by Tyler on December 06, 1999 at 02:19:40:
Danny,
Although I think there can be truth to the statement “holding is where the real money is”, I think there are many variables to consider.
Current appreciation trends, market activity, and opportunity cost of capital, are just a few.
In my market, appreciation has been very soft in the last 2-3 years. I also see it staying that way for at least the near future.
So, for ME in MY market, that may not be the best way.
Let’s say, I buy a 100k house, for 70k fixed up. If my market stays the same for the next 3 years (speculation, of course), I’ll be lucky to see 5% appreciation. So now I have a 105k house. Or let’s say it picks up considerably, and I see 10% over the 3 years. Now I have 40k equity, instead of the 30k I did 3 years ago. I didn’t make much at all, if any, on the monthly cash flow for just being a rental. Let’s be optimistic and say 100/mo positive. So add another $3,600. We now made 13,600 in the 3 years (10k equity, 3,600 cash flow). Add in another 2,000 or so on the loan paydown (don’t have my calculator here). Now we’re at $15,600.
As an alternative, I sell the home immediately on, let’s say LO terms. I quickly find a buyer, and lease for over market rent. I’m now making $250/mo. I got 3k upfront. The option price is a modest $107k I make sure they’ll qualify within a year (barring unforseen circumstance) because I’m working avidly with a good mortgage broker. Within the first year I get cashed out, after my 100/mo rent credits, at 32,800 (107k-1,200 credits -3,000 option money). Plus the 250/mo cash flow (3,000), plus the upfront 3,000 brings me to 38,800 in the first year.
Let’s get obnoxious, and say we took that cash, and did 13 Lonnie deals (3k each). We’ll make them all short 24 month notes, to meet our 3 year deadline (competing with other scenario). Let’s be very modest and say, we only double our money on the Lonnies in the 2 years. (Can you imagine if we were doing a more typical Lonnie and turning 2k into 8k…or more??)
We now have close to 80k cash saved up from all the Lonnies we’ve been receiving payments on for the last 2 years…(keep in mind they’re not rentals, either…little or no “management”)
So, in that 3 years, we made $45,600 holding that “100k house” as a rental (equity, appreciation, and cash flow).
We made about $80k getting “creative”.
I suppose you could “refi” your rental and pull out that 10k below the 80%LTV mark, and put that to work for you as well (Lonnies, etc.). But that extra 20k sitting in the rental isn’t doing us much good unless appreciation is pretty darn high. As we’ve seen, there are other places we can put that capital to give us much better rates of return than the rental is.
Every market is different. So I guess that’s my point. Appreciation is only as good as the market allows it to be. Of course no one knows the future, but making an educated decision based on current trends, might not be a bad idea.
Just some thoughts.
NT
Re: MOTIVATED BUYERS - Posted by Denny
Posted by Denny on December 05, 1999 at 15:45:37:
Danny, I agree with you thats where the best money is…I have several myself and have refinaced and pulled equity out a couple of times. But…as I said I just enjoy the constuction side better.
Of course…this idea is sort of a work in progress so it is still evolving.
Building is not hard…just need to lean the ropes. I hope to have a couple of plans which I can build over and over, allowing me to move quickly and control my costs closely.
Then…I can sell for a profit…keep them for the cash flow, or pull cash out.
Thanks for you thoughts…I will keep them in mind !
Denny
Thanks for the tip. - Posted by Tony James
Posted by Tony James on December 05, 1999 at 09:34:45:
I only have 1 Duplex…I was gonna sell it, but I think I may hold on to it.