Re: Strategies for buying over 10 homes - Posted by Mike-OH
Posted by Mike-OH on May 09, 2006 at 06:35:24:
I’m going to try one more time.
“Blanket mortgages generally want around 65% of FMV.”
That is correct. I have several blanket mortgages and the bank will normally want the borrower to have about 30% equity. The reason is that the bank wants to loan a max of 70% LTV (loan to value) is that they want security. They know that loaning 90% LTV on multiple investment properties is not a good business decision for a variety of reasons. First of all, they know that the vast majority of newbies fail and those that pay 90% of market value for rentals will almost certainly fail. (Hint) Banks know what the actual costs of running a rental business are. Throughout the United States, operating expenses (including capital improvements) run 45% to 50% of gross rents. The gurus don’t teach this although this is universally true and the banks know it. Most newbies are in denial about the actual expenses. Banks know that it is nearly impossible to pay retail (or close to it) for a house and then make a profit renting it out. So, when you attempt to borrow 90% of the value of multiple properties, the banks know that you are going to fail and they aren’t going to make the loan.
“The reason I wrote in my intial post, not to tell me that I should never buy at 90% is bad is because I knew everyone would.”
I wonder why everyone would tell you that you should not buy at 90%? (Hint)
“If you could buy 10 houses that threw off $500 cash flow a month, you would go out of business?? In my mind, making 5K a month doing very little seems like I’m doing alright, not great, but alright.”
That sounds great - doesn’t it? Make $5,000 a month doing very little. You don’t even have to look for a good deal - just pay retail. I would say that this is guru nonsense, but not even the gurus recommend paying retail for their houses. (Hint)
“Or say my business model was to make money on quick deals and buy brand new homes to rent out with the money I made on the quick deals.”
So, let’s see if I understand this. You’d run a successful wholesaling business (or whatever quick deals means) and then blow the profit on a business that loses money. So, you run one business to support another. Why not just run one successful business and eliminate the losing business? (Hint)
“Do you see where I’m going here Mike?”
Yes - broke! (which is exactly where every other newbie with a terrible plan ends up) (Hint)