How much debt? - Posted by greg

Posted by BillW. on July 18, 2001 at 22:05:53:

Greg,
Two things come to mind.

  1. We are supposed to be buying from motivated sellers at a discount. That’s one way we build our net worth. You haven’t mentioned the actual numbers, but this sounds like a retail deal. This cash flow is really minimal. If you were only paying 70 percent of actual value as a total, however, the cash flow should look better, unless you’re living in one of those areas where prices are way out of whack with rents.
  2. Speaking for myself, this isn’t enough cash flow to make me interested. If you have a large reserve or a large monthly income and can afford the neg. cash flow if there are any problems (and there will be), then maybe it might be OK, but only if you’re in a rapidly appreciating area.
    I’d try to hammer the bank for a lower price.
    Good luck,
    BillW.

How much debt? - Posted by greg

Posted by greg on July 18, 2001 at 21:50:00:

I have an opportunity to purchase a 4 plex with a 70% LTV loan from the bank and using equity in my house and a duplex I own for the rest of the purchase price. Essentially this would be a no money out of my pocket deal.
Does this make sense or am I wiser to avoid too much debt leverage? The numbers I have run on the 4 plex would yield a small positive cash flow or at worst a break even cash flow or possibly a little bit of negative cash flow. My best estimate is about $40/month positive cash flow even after I pad the numbers for management and maintenance. I hate debt. However, the more I get into this real estate investing stuff the less it bothers me. Does it make sense to be leveraged to the teeth or should I look at more creative things so that my butt is not on the line?
Any advice from those who have been there would be appreciated.

Re: How much debt? - Posted by Bill (NYC)

Posted by Bill (NYC) on July 23, 2001 at 01:52:42:

Hey, if your going to risk your personal residence for a property that doesn’t yield much of a return then forget it. It doesn’t make sense. The only time I would get the equity out of my home to buy another property is if it was a “deal” and a “money maker”… Walk away from this one.

How many can i afford like this? - Posted by Larry(MO)

Posted by Larry(MO) on July 19, 2001 at 24:24:42:

I believe it was the "Rich Dads Guide to Investing"
by Kiyosaki where he is asked the question by "Rich Dad"
How many of these(condos) can you afford to do with a neg cashflow? answer is not very many

Then assuming an 80.00 a month POS cashflow he asks
again how many can you afford to do?

The answer is obvious. As many as i can find.

There are too many great properties with cash flow to dip into your equity to buy a non performing unit.

I have 12 single family properties that crank 100 a month each cashflow after expenses. Thats the only way i will buy. The numbers have to work

my first goal is 50 properties. When i get there i will look at another goal.

Motivated Sellers and Negotiating skills can create instant cashflow.

just my 2 cents from a backwoods MO hillbilly.
Best of everything to you and Great success

Re: How much debt? - Posted by JD

Posted by JD on July 18, 2001 at 23:16:46:

This is not a no money down deal. Based upon the details you gave it seems like a very small return on investment.