Posted by rm on July 28, 2003 at 18:40:30:
why not get both?
Pro’s out there… Can you please advice?? - Posted by jorge
Posted by jorge on July 28, 2003 at 13:33:22:
I have a seller that has listed his house with a realtor for 71000. He owes $54,00. He wants to walk away from this with 5k to move to Michigan to be close to his Mom. So he doesn’t care what the sales price is as long as he gets his 5k.
The Realtor has agreed to lower his commission to only 3% and hold a note for that 3% payable in a year. (havent discussed interest yet.) Rents in the area are about $700. I can live with $100 cash flow after PI and maint of $50 mgmt of $50 Taxes of $58 and insurance of $20. Water/sewer (if I end up paying for it) of about $50.
Does this seem like a decent deal?
I have a credit score of about 650 mid fico.
Any suggestions? Oh yea… I live in Albuquerque NM.
The house is about 20 yrs old.
Still learning,
Jorge
Re: Pro’s out there… Can you please advice?? - Posted by Marcos
Posted by Marcos on July 28, 2003 at 14:15:11:
Ok Jorge, you and I have talked before. And I’m really looking to help you out, but you have to realize the uniqueness of your situation. Your market basically stinks, let’s be honest. Albuquerque hasn’t seen appreciation in the last 10 years. It has flat to negative appreciation really. So, this isn’t something you can bank on. So, I have to ask what do you want to do with this property? What are you trying to do with it?
If I invested in Albuquerque, I wouldn’t touch a property unless I was getting it at 60% or below. I know that seems unrealistic to you. But, I’m just being realistic. You’re looking to buy this thing at 90% of market value. (FMV = $70k. 1st of $54k, $5k to owner, 1.8k realtor, 2k closing costs and fees = $62.8k or 90%) I’m sorry it just doesn’t look to be a deal. In San Francisco, buying at 90% may make sense, but not in Albuquerque and not in my market either.
Your $100/month disappears rapidly. It turns into negative cash flow with a quickness. You have to evict a tenant, rehab the place and get it rented again. It takes two months to do that, plus $1k to repair, $200 to advertise, $100 to evict, etc. Hmmm… $2700. Well, there goes your profit for the next two and a half years. Typically any rental that I will consider will net me a realistic $200-300/month after all expenses. For instance a rental I just picked up that costs me $375/mo in PITI, and I rent it for $750/month. Another one where I pay $525/month, and it’s rented for $1,195/month.
I know this isn’t what you want to hear. But Jorge it’s worth it to be patient to find the right deal. Otherwise, you won’t be an investor for long. I’d much rather see your name on the success stories.
While we’re on the subject, I much prefer the idea of you generating cash first before you jump into any rentals. I could go on for ever of why this is preferable. But, the first step for any investor should be to develop a cash reserve, not look for cash flow. $100/month won’t help you if the air conditioner breaks. But having a cushion of $25-50-100k would assure you that the first bump in your investing career won’t break you.
Hope this helps,
Marcos
Re: Pro’s out there… Can you please advice?? - Posted by jorge
Posted by jorge on July 28, 2003 at 15:03:59:
Very Good point. And if I don’t do this deal (which I probably won’t) Atleast I got some experience on negotiating with a realtor and his client. Heck I didn’t think Carlton Sheets Idea of getting the realtor to take a note for his commision would work…and it did. So now I have acquired a bit more experience.
So basically I should keep searching until I find a really motivated seller that just wants out of the house that owes nothing or up to 60% of the value and will settle for me just paying off his mortgage. Or maybe doing a subject 2 deal.?
What about looking for vacant properties and finding the owners?
As far as appreciation. How does one get those figures. YOu say there has been no appreciation in 10yrs… If one hasn’t lived here for 10 yrs is there a place I would be able to find out what the appreciation rate has been. I have talked to a few people in the RE world and they say there has been about a 5% appreciation. I just would like to know where you looked to get that info. Not that I am doubting you, by no means, I just like to be able to know where to do that specific research.
And as far as building reserves are you talking about maybe doing to wholesaling of properties? Or something else? Because if I wait until I have a reserve of 25k just with my job… I would be waiting about 25 yrs…
So thanks for the advice.
Still learning,
jorge
Re: Pro’s out there… Can you please advice?? - Posted by Arthur
Posted by Arthur on July 28, 2003 at 14:56:06:
Marcos talks alot of sense, listen to the guy.
Also, when looking at income and outcome, you should calculate minimum 25% to cover vacancies and repairs. Some companies go as high as 40-50%.
Keep looking for a decent property, don’t overpay just to get on board the REI train. Drive around, check out some FSBO properties, and good luck.
Re: Pro’s out there… Can you please advice?? - Posted by yshNJ
Posted by yshNJ on July 29, 2003 at 11:35:46:
Hi Arthur,
>>Also, when looking at income and outcome, you should calculate minimum 25% to cover vacancies and repairs. Some companies go as high as 40-50%.
I’m a little confused on what you are saying here. Generally I hear of 5-10 percent vacancy rates and maybe the same for repair, probably less. Are you saying when analyzing for cash flow you should reduce the factor in .50 to .75 times rent (accounting for your percentages) then subtract the PITI? Am I understanding you correctly or not? Thanks.
Re: Pro’s out there… Can you please advice?? - Posted by Linda
Posted by Linda on July 28, 2003 at 15:47:12:
Here is a place that offers neiborhood figures and appreciation numbers: I put in Scottsdale AZ, as that is where I am, you can put in Your zip code. Hope this helps.
http://www.bestplaces.net/zipr/nhood1.asp?qryZip=85260&cname=Scottsdale,%20AZ
Linda
Re: Pro’s out there… Can you please advice?? - Posted by jorge
Posted by jorge on July 28, 2003 at 15:08:50:
I think what confuses me and I am sure other newbies, is that alot of “gurus” say if you have to pay full retail get great terms . And I think that is what I was shooting for here. Is if I pay asking price but get good terms then I would be ok. Especially if it cash flowed.
So really the question was more… what would be GREAT terms on this deal.
Still learning,
Jorge
Re: Pro’s out there… Can you please advice?? - Posted by Arthur
Posted by Arthur on July 29, 2003 at 12:47:46:
I based that comment on what i read in “Secrets of a millionaire Landlord”, by Robert Shemin. As i understand it, if rent is $500 a month, you should allow $125 a month to cover vacancies and repairs, which is $1500 a year to allow for the vacant months, general repairs, and big repairs that come maybe once every 10 years, like maybe a new roof etc.
Whatever rate you decide to go with, that will be your judgement on your market. Robert Shemin, claims that when he has budgeted 5-10% at the begining of his landlord career, we was always way off budget.
The book costs about $15 from Amazon…if your new to the landlord business, its worth picking up. Its given me a few ideas on how best to run my U.S properties (and UK ones if i decide to rent privately).