Re: To clarify a point… - Posted by Kathie E.
Posted by Kathie E. on June 08, 2000 at 11:31:17:
Oh! and in following this formula (just an FYI), here’s what our situation results in:
$550 rent - $137.50 (25% expenses)=$412.50 base - $350 mortgage payment gives us a positive result of $62.50 for consideration in our D/I. Not MUCH, but something. The rent figure is estimated, also…could be a bit more in that neighborhood.
Thanks again,
Kathie E.
That is GREAT news! - Posted by Kathie E.
Posted by Kathie E. on June 08, 2000 at 11:17:55:
Thanks…I was so hoping that this formula was incorrect…it was a bit disheartening to learn that we may be hitting a brick wall soon when trying to leverage one home to buy the next and so on down the line. Appreciate the correction, JP!
Kathie E.
Re: Your overall strategy - Posted by Stacy (AZ)
Posted by Stacy (AZ) on June 07, 2000 at 15:21:11:
Kathie-
I, too, was not one to embrace being a landlord. I didn’t have good experiences, years ago, when I first tried it. However, I didn’t have any idea what I was doing, either. But, I’ve gradually come around to the fact that it’s a good idea to actually own income-producing assets. I’m not implying that the property you’re dealing with now should be turned into a rental. That’s up to you. But as you proceed and gain experience, it’s something you should consider, or else you’ll be continually having to find new deals to generate income. Buying and holding mortgage notes could also be considered, but even these get refied about every 5 to 7 years, and you have to go find more. Building assets is the name of the game, for me. If I didn’t find a deal for a month or more, I’d still be able to live off the cash-flow. That’s my goal, anyway.
Your understanding of how I use my credit lines is pretty accurate. In your case, If I wanted to L/O, wrap, or hold as a rental, I’d definately put a mortgage on the place and pay-down my credit line. The money will be cheaper to use with a mortgage, and I’d regain the use of the credit-line to make all cash offers.
If this is not a house you think would be a great long-term rental, selling it may be the way to go. If you sell it outright, the gains are taxable as income at your current tax rate (if you don’t have a separate corp).
Good going.
Stacy
Re: Your overall strategy - Posted by MDonovan
Posted by MDonovan on June 07, 2000 at 15:04:07:
You will have a hard time re-financing to pull out cash. Typically, lenders want you in a property for a year before they will re-finance based on appraisal.
They usually want to use the lower of the purchase price or appraisal.
If you find a way around this let me know.
That’s Exactly What I’m Saying… - Posted by JPiper
Posted by JPiper on June 09, 2000 at 24:16:03:
In your example…there is no net effect on the back end ratio. The income (after the 25% haircut) minus the debt payment is 0.
I can’t tell you why anyone would have calculated this differently…unless they calculated it incorrectly.
What I have seen at times is reluctance on the part of lenders to count rental income when the borrower has no history of collecting rent. Sometimes they want to see the rent collected for 12 months.
But as a general statement, figuring the debt ratio in the manner you originally suggested would rule everyone out with more than a few loans in short order. Then we would all have to get a job…and what kind of world would that be?
JPiper
Re: Your overall strategy - Posted by Kathie E.
Posted by Kathie E. on June 07, 2000 at 22:38:04:
Stacy,
As of this morning, the lawn guy didn’t show up to cut the field…I called another guy this afternoon who said he couldn’t do the job anytime SOON…BUT!: He has 3 guys that work for him that need a house to rent in the general vicinity of the house we just got. Meanwhile, the guy we spoke with yesterday who wants to BUY it, or at least RENT, called 10 minutes later to see if we had a good broker we worked with that he could talk to before meeting with us on Saturday. We went out to the house tonight to mow the !#%!@# field ourselves and had two driveby requests to rent it and one who wanted to buy it. LOL! There’s field debris everywhere and no sign in the yard and they are coming out of the woodwork today! Oh…and bad news: The pipes under both sinks and the hot water tank need replaced…can you say “flood” when we turned the main water valve on? Sat vacant for 2 years…we expected something like this. Do you find that a “handyman” is the best person to do all the work for you as a landlord, or should we limit the work to specialists at higher rates? My husband reminded me that everything we read and every brain we picked told us NOT to do the work ourselves in areas like this.
We’ve decided we are going to RENT it to the highest bidder. Any tips on doing thorough credit checks on these people? We have an RE attorney all lined up (one of our attorney’s partners) to go over everything with us. With all of your experience and your willingness to let me pick your brain this week (thank you!!), I thought I’d ask what you’ve learned NOT to do as a landlord and some basics for us to get started.
Thank you sooooo much. This board, once again, has been a real Godsend. 
Kathie E.
Re: Landlording - Posted by Stacy (AZ)
Posted by Stacy (AZ) on June 07, 2000 at 22:57:39:
Kathie, there is a lot to know about good landlording, and because I recently started back myself, I’m not the most experienced on this board, to say the least. I know that Jeff Taylor (Mr. Landlord) is the GURU of landlording. You’ll learn a ton from his materials, and his site at www.mrlandlord.com. Also, there are some very savvy landlords on this board to answer questions. If I had anything to say, it’s that the most important thing is to check-out your potential tenants. The one who will pay more per month may not be the best tenant. Look for someone that pays their rent on time, and will take care of the place.
Wow, I’m glad you’ve decided to keep that asset! Just think, a few years and you may own it free and clear, and be enjoying (almost) free cashflow.
Best of luck-
Stacy