What's wrong with doing it this way? - Posted by Fletch

Posted by Fletch on March 03, 2002 at 17:01:32:

I see your point! Maybe I am too excited to get my first property. I think I will take your advice and keep looking.

Thanks again,

What’s wrong with doing it this way? - Posted by Fletch

Posted by Fletch on March 03, 2002 at 15:50:06:

In all the books I have read on REI, everyone says look for the right seller not the right property. This makes good sense to me. After all, you make your money when you buy, not when you sell, right. Well, I have found a neighborhood in my community where there are plenty of 3bd/2ba homes with off street parking in the 55k-65k range. The rents in this area for a home like this are going for $500 to $700 depending on what part of the neighborhood you are in. I see the potential to make money here even with conventional financing. A 7%loan and 10%down would leave me with $200 to $300 monthly cash flow. This is not going to make me rich in 3 years but is a significant ROI. It seems safe to me. Is there a flaw in my thinking? I am very eager to hear what some of you think about this topic. I am sure this could be done all over the country. What do you think?

Numbers are wrong? - Posted by ken in sc

Posted by ken in sc on March 04, 2002 at 10:13:12:

You may be forgetting taxes, insurance, vacancy rent loss, and maintenance. For my rentals, these average 35% of rents. With your numbers these look like break even or maybe small ($50/month) actual cash flow deals.

Now, that said, there is nothing wrong with holding property long term. If, like you say, you put down 10% or say $6,000 - if your loan pays down $500 and the property goes up 3% ($1,800) and you make $50/month, then you have made $2,900 on a $6,000 investment. That is a 48% return, but almost no actual CASH FLOW. Also, you get great tax benefits. So I think the investment may be good looking at it that way. The question is - are they good houses in an area that you will go up in value? And are you willing to manage them? If so, I recommend long term holdings as a powerful way to create long term wealth. But the cash flow that you mentioned in your post is unrealistic in my opinion.


Personally… - Posted by David Alexander

Posted by David Alexander on March 03, 2002 at 16:42:14:

I dont think there is anything wrong with it… from a cashflow standpoint…

And If you favor buy and hold…

But, the bigger question “WHY” when you have the knowledge to buy wholesale would you pay retail…

But I do have to question your numbers… If you get a loan at 7% (56k, 60k purchase price…10% down) the payments are 372/month… plus taxes and insurance… at least 175/month in my areas… which leaves 153/month cashflow… wich gives a 30% cash on cash return not including maitenance…

And 6k buried… the fact that soon you may run into a ceiling of how many properties you can buy, Non owner occupied interest rates etc…

By that same property for even 80% of value and your numbers are like this…
48k purchase… 4800 down… 43,200 loan… and a payment of 287/month… leaving 238/month cashflow… Your cash on cash return goes up to just about double… 59% again not including maintenance…

For a few hundred in marketing you can get a dramatic increase in return…

Nothing Wrong - Posted by NCPaul

Posted by NCPaul on March 03, 2002 at 16:16:14:

There’s nothing wrong, you are basically talking about buying and holding. The way you have described what you want to do, you will be setting yourself up to realize the appreciation of the property as well as establishing a cashflow. The only down side I can see is the chance that the rents in the area take a header and leave you high and dry with payments to make. (This can be a really nasty problem in places like Fayetteville, NC where the rental market is heavily dependant on the military since the market can be deployed elsewhere any day!)

I met a couple of guys at last years convention who at the time had 80 houses. (Somewhere in that ballpark, not sure exactly.) They were buying, rehabbing, and renting these properties out for one heck of an impressive monthly cash-flow. If you are going to the convention, be sure to search out people like this as they are usually more than giving with helpful tips for a beginner. You are right, this is done all over the country.

Good Luck