Re: Plugged toilets and 2am phone calls… - Posted by Chris in FL
Posted by Chris in FL on August 29, 2011 at 17:46:41:
That is really an afterthought for me…
My big concerns are, first, is it in my price range (amount my private lender has available, and will the rent cover a 7.5 year mortgage payment, taxes, insurance, vacancy, and repairs). Second, is it a house that I want to own (solid house, decent condition, functional layout, okay location - no war zones) - basically a house that decent people will want to live in. Third, can I buy it with minimal cash out of my pocket… How much I am willing to pay out of pocket depends more on how much I like the house than on my ROI, because, IMHO, the ROI on my deals is so slam dunk, that it doesn’t require my attention.
Let’s consider my aveage deal: $25K total invested, including repairs and closing costs; private loan for $20K, $300/month PI; taxes plus insurance total $100/month; rents for $600/month; 25% for vacancy and ongoing repairs is $150/month. $1,300 back for first month’s rent and security deposit, so my investment is down to $3,700… Positive cash flow $50/month, or $600/year. Sounds ho-hum, right - 6 years and 2 months to get my cash back… However, what does my $3,700 buy me??? A house with a $20K mortgage, that is worth about $35K the day I close (instant equity)… That I will own free and clear in 7.5 years, at which point my cash flow jumps an additional $300/month - nice retirement plan. I also get tax breaks (passive income that is taxes way less than earned income, house depreciation, 1031 exchange ability, can refinance later and pull cash out without a taxable event occuring). Plus, one day these houses will appreciate again - mark my words - the world is not ending (in spite of what Leo thinks) - real estate (and economies) are cyclical!
Total ROI on my $3,700:
$600/year positive cashflow.
$15K instant equity, turning into a $35K free and clear asset in 7.5 years, which will then cash flow at $4,200/year.
Numerous tax advantages, that are nearly impossible to calculate without a crystal ball and an accountant.
Eventually, appreciation in value, again.
When you got my ROI figured out, let me know… IMHO, good 'nuff!!!
Chris in FL