Posted by Frank on April 06, 2002 at 12:57:53:
I’m agreeing with Tim here on this one. Susan be very careful in this strategy! I have been a buy and hold investor in Cleveland for only 4 years with 19 rental units (5 2-family and 3 3-family) doing similar deals to the ones you are doing but without the “program”. You are just paying a fee to borrow money. This program is not necessary. People have been inflating purchase prices for a long time and thinking of creative ways to get more BORROWED money. It simply makes you more leveraged, i.e. more risk. It seems like a gold mine on the surface, but you have to look at the numbers for what they really are. You could be upside down in a hurry as Ed Garcia would say. It seems on the surface that if you add all of those 15 property cash flows, together will have the money to cover any of the others. It simply doesn’t work like that unless you have solid safe numbers. If each deal suddenly spawns a negative cash flow per year, you have a large negative cash flow and possibly large expenditures which your cash flow will not cover. I don’t say this to kill you deals but to point these things out from someone who has moderate experience. I’m not Joe Kaiser, but I’m definately not a newbie. I had a talk with Ed Garcia and he pointed out the flaw in your (my previous) type of thinking. Granted I’ve done fine with what I have but I have a large reserve and I do literally all the work myself except steep or high roofs and furnace installation.
In your numbers, you have $82/month for taxes AND insurance on a 90k house. Is that a typo? If not, I’m moving to Florida. You don’t have any maintenance or repair on these properties either. Your not selling them on L/O or L/C are you? You have to figure these things. After you seller carryback is paid you might be fine but that’s 10 years down the road.
The guys who post on the site usually know what they are talking about. (I wish I knew about this site 3 years ago). Try to REALLY understand what they are saying. I don’t think anyone here is trying to not disclose there secrets, or kill deals, they really are speaking from experience to help.
Like myself, you have already sold yourself on the deals making sense, and they might if you have a large reserve and/or skills to do things at minimum cost, but if you don’t have either of these, be very careful.