Posted by Wayne-NC on March 10, 2007 at 18:17:05:
That’s what I meant when I said, “A larger loan will have more than just a higher rate. It will have higher closing costs as well.”
That is all taken into consideration. Boy, there is a lot to know!
buy & Hold, 20% down of FMV is it possible? - Posted by luap
Posted by luap on March 09, 2007 at 12:15:22:
I have read all the books, I have even thrown away some money on a late night TV “bootcamp” series.
I have a good job, but eventually want to be my own boss. I live in the Bay Area in California where you have to put 50% to get cash flow (yes I know someone will post how they are doing it in the bay area with zero down and doing very well, I don’t believe you). I own two SFH rentals in the central valley in CA. So I know what its like to be an out of area owner (yes I know, lots of people say its a bad idea, but it can work, I know cause I’m doing it.) But prices have risen to high there for what I want to do.
I’m not interested in Lease Options, Sub2’s, Rehabs, flips, wholesale, pre-foreclosure, foreclosure, auctions.
I want to buy & hold . I want to buy decent multi-family (2-4plex) in decent neighborhoods, put 20% down of the FMV (I’m not interested in putting in hundreds of low ball offers) and after my mortgage and 40% for other cost and maintenance I have a small cash flow. I have time on my side so as long as I’m not losing money I am happy.
I can not do this in the Bay Area, actually I’m not sure this can be done anywhere in California (again see my criteria).
My question is this, are there markets in which a person can buy a duplex for FMV, put 20% down, and have a cash flow (using the 40% rule.)
Is that so? - Posted by Wayne-NC
Posted by Wayne-NC on March 10, 2007 at 07:25:20:
Please show me how a big down payment will guarantee positive cashflow. Will a 100% down payment do it? What is your personal “cost of funds” for that down payment? If it is buried in the backyard or under the mattress, your cost is $0 and it may work. If not, it is probably invested somewhere that you will loose income on to produce other income. Do the math on any investment and be sure that there is a net gain before you use all those funds. Whether it is 20%,40% or even 100% down payment, your cash investment has to be worth the risk.
Re: buy & Hold, 20% down of - Posted by Pete CA
Posted by Pete CA on March 09, 2007 at 16:27:36:
You are taking a very conservative and SUCCESSFUL approach to real estate investing. I am in So. Cal and I find properties that break even or cash flow with 20% down all the time. Duplex, Triplex, Fourplex, etc.
I have found that if you get into commercial property 5 units and up it is much easier to cashflow with 20% down.
Try San Bernardino and Riverside counties, both are down here in So Cal but there are lots of good deals with the criteria that you are looking for.
If you would like me to send you some properties to look at feel free to email me.
Pete CA
YES, of course… - Posted by David Krulac
Posted by David Krulac on March 09, 2007 at 16:06:31:
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Is one of the books you read BUY AND HOLD by David Schumacher? If not you should, he did it in SoCal.
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I’m selling some places that rent for $900 for $140K. To me they are not great investments, but they will positive cashflow with 20% down and 30 year fixed financing.
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Another place that I’m selling is a duplex for $100k and rent of $1,100.
Yes, it is - Posted by VA
Posted by VA on March 09, 2007 at 12:33:26:
I have a 4 plex in Durham NC and got it pretty cheap. Good cashflow in that area. Check out Craigslist, you might find somthing that works.
Re: buy & Hold, 20% down of FMV is it po - Posted by Gene
Posted by Gene on March 09, 2007 at 12:32:29:
>>>>>>>>I’m not interested in Lease Options, Sub2’s, Rehabs, flips, wholesale, pre-foreclosure, foreclosure, auctions.>>>>>>>>>>
You have to adapt to the market. If you are unwilling to change yourself to find the deals…then your are limiting your opportunities.
Re: Is that so? - Posted by luap
Posted by luap on March 10, 2007 at 10:20:54:
I’m not saying that a big down payment will guarantee a positive cash flow, I’m not even sure where you got that from.
What I said is that is has to cash flow with 20% down. Does that mean that it is guaranteed to? No of course not, but there are no guarantees in life. The best I can do is do my homework and make sure I have accounted for all the cost and that the income (rents) are accurate. And then make an informed decisions on the facts that I have.
Why 20%? Because I’m going to buy and hold and I want to have the best choice of loans.
I’m not saying that this can’t be done with 0%, or 10% or down? I’m sure it can but it can also be done with 20% down.
As for the cost of money… Its the same cost if its 1% or 100% right? So what is your point? I would not be even talking about real estate if I had come to the conclusion that I could generate the same amount of ROI some place else. Again, I’m sure someone will post how they bought PCU at $25 and rode it up to $100 then it split, and now its at $68.
I have my investment strategy, I’m just looking for some leads on area’s where others have and are successful with a similar strategy. I’m not saying others strategies won’t work, but this is the one I’m working with.
Re: buy & Hold, 20% down of - Posted by GL(ON)
Posted by GL(ON) on March 09, 2007 at 20:05:01:
A while back there were some posts on this subject. One person from upstate New York gave examples of rentals in Buffalo that had strong positive cash flow with 0 down. In depressed areas positive cash flow is easy. I am in the process of buying a 12 plex with 0 down that will have about $1000 a month pos cash flow.
Re: YES, of course… - Posted by Edwin
Posted by Edwin on March 11, 2007 at 03:08:32:
I’ve read David Schumacher’s book, and think people need to be
reminded that the author made his fat profits in the highly appreciated
So. Cal RE market. He was certainly blessed with good timing and a
good location, but it would be a big mistake to assume that all a
person has to to is buy and hold. That will not work in many areas of
the country
Re: buy & Hold, 20% down of FMV is it po - Posted by luap
Posted by luap on March 09, 2007 at 12:45:45:
I agree, and I am adapting, I going to where these deals are. There is more then one way to adapt, some adapt their strategy to their environment and some adapt their environment for their strategy, I’m choosing the latter. Does not mean I’m not adapting.
I understand - Posted by Wayne-NC
Posted by Wayne-NC on March 10, 2007 at 11:33:08:
I am just trying to address the misconception that a larger down payment will be the difference a between postive and negative cashflow. The cost of money can make or break a deal.
“As for the cost of money… Its the same cost if its 1% or 100% right? So what is your point”?
No it’s not. I would rather have a 1% interest loan than a 100% interest loan if that is what you are refering to. That is a cost, one substancially more than the other in your statement. Another way of looking at it is I would rather use a loan costing 6% for the down payment/purchase rather than using my personal funds currently earning 12%. If you had a choice such as this for a 100% down payment (cash offer), which would you choose? I would use the 6% money as my payment (monthly cost) will be half as much. That is what may be the difference between a positive and negative cashflow. Wouldn’t you agree? Anyway, I hope that there is no misunderstanding here. So, go put 20% down but again, where does that money come from? Does it cost 6% or 12% hypothetically speaking of course. Then you do your debt structure analysis accordingly. I’ve done it this way for years and suggest it as a “cost of purchase” analysis. All the other numbers will justify my purchase even more.
Re: buy & Hold, 20% down of - Posted by luap
Posted by luap on March 10, 2007 at 10:30:32:
What area are you buying the 12 plex in?
Re: YES, of course… - Posted by RJB(MA)
Posted by RJB(MA) on March 11, 2007 at 15:15:18:
BUT… it WILL work in many areas of the country. Over the last 30 years, it worked very well almost anywhere on either the East or West coast.
IMHO, CA is not dead… - Posted by David Krulac
Posted by David Krulac on March 11, 2007 at 13:29:33:
as long as:
- there is population growth in Ca.
- there is job growth in Ca.
- there id immigrant migration in Ca.
- there is nice weather in Ca.
- there are people who want to go to Ca.
Ca. housing market will grow long term. Maybe not today and maybe not tommorrow, but CA will be growing.
One of the points of David Schumacher is that for B&H you should be picking areas that you expect that there will be long term growth, that you will buy in areas that 20 years from now will be even more desirable than today. He invested in Hermosa Beach and Orange County, but his story is not that those are the only place to invest. And while you might not have the exact same success that he had, the formula applies all over the country. You want to be investing in the most desirable locations that will continue to be the most desirable locations, whether that is due to being near the beach, or in a great school district, or being in an area where there is job and population growth.
Re: buy & Hold, 20% down of FMV is it po - Posted by DCO
Posted by DCO on March 10, 2007 at 09:48:12:
Cash flow is relatively straightforward in Rochester, New York, with 20% down. If you find a “good deal” on a duplex you will cash flow positive on no money down. My advice is do your market research to make sure you are buying in stable working-class neighborhoods on the front end.
Re: buy & Hold, 20% down of FMV is it po - Posted by DavidB (NJ)
Posted by DavidB (NJ) on March 09, 2007 at 13:41:03:
I totally agree with you. Many people on this board do all of the sub2s,
flips, preforeclosure, etc. But what isn’t discussed is how much TIME is
really required to make those deals work. I’m in the same boat you are
and I prefer to invest for the longer term. So I think you’re right to be
looking in other areas and I believe that is adapting just fine.
David
Re: I understand - Posted by luap
Posted by luap on March 10, 2007 at 13:19:41:
"“As for the cost of money… Its the same cost if its 1% or 100% right? So what is your point”?
No it’s not. I would rather have a 1% interest loan than a 100% interest loan if that is what you are refering to."
Yeah I wasn’t very clear on that. What I meant was if in my current investment, for example sake lets say its some investment in which I’m getting 6% return. If I use 1% of that or 100% of that, its still cost me the same. I understand your post about cost. first of all, if I’m making a guaranteed 12% with little risk, I’ll probably leave it there. But that is a topic that could derail us all in a lengthy debate. Anyway I understand your post, and I think its pretty much common sense, well at least for me.
My points on using 20%, is that I’m going to be able to get better terms on financing and I’m going to spend less time getting financing then say trying to do zero down deals. Again my point was, for some people zero down deals are great, but its just not my cup of tea. Does that make me destined to be unsuccessful cause I’m not doing zero down. No, lots of people are successful investing and putting 20% down, if I find a deal where 10% down is an option, then great I’ll consider it. But I’m not interested in seeking out zero or low down deals.
Anyway. Point taken on your post, I understand what you are saying and I agree with you.
Re: buy & Hold, 20% down of - Posted by GL(ON)
Posted by GL(ON) on March 13, 2007 at 18:03:19:
A small town in southern Ontario Canada.
I prefer not to say too much until the deal closes.
It’s $529000 for a 25 year old 12 unit building with a gross income of $106000 per year. I mean to get a high ratio mortgage, and remortgage another rental property to get the down payment. The rent will cover all expenses, make the mortgage payments and leave me around $1000 a month pos cash flow.
Re: YES, of course… - Posted by Edwin
Posted by Edwin on March 11, 2007 at 16:04:36:
Simple appreciation over time is not enough. It has to be high enough
to make investing in RE a better alternative for your money than other
investments. I’ll bet many areas of the country that appreciated in the
last five years didn’t do much in the preceding 25 years. You have to
admit the last five years were an unusual occurence, and not likely to
happen again soon. Thanks largely to unusually low interest rates, and
banks offering loans to many who were really unqualifed, demand for
housing was stimulated and prices rose beyond reason in many places.
If you owned property and benefitted from that appreciation–and
were “smart” enough to sell at the right time, thank your lucky stars.
That kind of fast appreciation is not normal nor a good thing to count
on.