Laure,etal/What's your TRICK! - Posted by Kathy

Posted by Laure on November 02, 1998 at 22:43:38:

I haven’t done much selling. The three total properties I have sold so far I have had as rentals for about 5 years. I know the rental part much better and am new to re-habbing

Laure,etal/What’s your TRICK! - Posted by Kathy

Posted by Kathy on November 01, 1998 at 17:09:17:

I received CS course Oct. 8 and have done nothing but study, listen, watch and learn! There is some valuable information in the materials, but the “NO Money Down” part isn’t panning out. I’ve called on about 30 properties. I’ve found a couple that own free and clear, or are willing to finance a second, but even if they were willing to carry 100% contract, who’ll go for 30 years so that you see a positive cash flow? 10 years don’t cut it!

If you “obtain a mtg to pay off existing and contract with seller for remainder” you’ve got 2 mtgs. If you’re lucky you come up with $25-100 positive cash flow–which is too risky if something major happens or you can’t rent it out for a couple months-- and that’s in it for one 30 year and a second for 10-30 years.! I have a hard time understanding how you people can have a $3,000 monthly cash flow within 1-10 years. The only way I can foresee that happening to me is in 30 years when I own it free and clear!

Am I missing something here?
Can you clue me in to how you’re going about this?
Do banks typically loan you up to 70% of the property value and let you contract with the seller for 30%, with basically nothing out of your pocket, or say, only %5,000 out of pocket?

just one comment… - Posted by Rob FL

Posted by Rob FL on November 01, 1998 at 17:32:13:

If you want to lower your monthly mtg payment, amortize the loan over 30 years but have it balloon in 10 or 15.

If you want to raise your rent collected and lower your repair expenses, resell the property on a lease option. You can get higher rent (and give a credit towards the down payment in return) and you can require the tenant to do all repairs on the property.

Re: just one comment… - Posted by Eduardo (OR)

Posted by Eduardo (OR) on November 01, 1998 at 19:23:06:

One and all–

I agree, lease options have some good aspects such as you mentioned, but your belief that a buyer should “ask” for a balloon payment (and 30 year amortization) instead of a shorter amortization period is some of the worst advice that could be given. Those of us who have been investing for many years back beyond the latest string of good economic years and easy money know that balloon payments are “the kiss of death.” When times get rough and people get in financial binds and money is tight, they can’t pay the balloons and they can’t refinance or sell the property easily. I have seen many investors lose everything by buying property with balloon payments on the financing due in 7, 10 years. One of my cardinal rules is never, ever buy anything with a balloon payment and I’ve lasted 25 years without having to worry about them. There are lots of ways to work out financing at the time of purchase without having to take a balloon, including ways to lower the monthly payment. To ask for one is sheer lunacy. My emotional diatribe for today, sorry one and all. --Eduardo

Re: just one comment… - Posted by Rob FL

Posted by Rob FL on November 01, 1998 at 20:55:52:

I will say that you definitely have some vaild points. If I wanted to keep a rental property for 25 years, I probably wouldn’t have a balloon in 15. However being totally closed-minded to the idea is also not good, becuase people do it and make money all the time. I have rehabbed property with investor money where their mortgage had a 2 year balloon my intent was to buy,fix,sell. No problem 2 years was plenty of time in all cases, and I don’t think the hard-money lender would let me amortize 30K-50K over 15 yrs. In fact almost every mtg of this type has a balloon on it and most of them are interest only mortgages.

Another scenario: I am working on a SFH right now. Buying below market with 90% seller financing. 30 yr. mtg with a 15 yr. balloon. The seller wanted a 15 yr. max term on the loan. However that would barely have me breakeven. I chose the 15 year balloon. My mtg payment will be about $140/month less. I will immediately L/O the property with 5% down and expect about $200/month cash flow. The seller financing is ANQ and it also allows me a right of first refusal if the seller wants to sell the mortgage. With terms like those, you don’t think that sometime in the next FIFTEEN years that I will be able to refinance or sell the property, give me a break. The house is in a great neighborhood.

Although I agree that there are some dangerous situations with balloons, (My next door neighbor got foreclosed 2 years ago because of a balloon), you cannot write off the idea 100% of the time. I still can’t figure that guy out, he wouldn’t talk to anyone and lost about 25K in equity when mtg rates were 8% or so. I have used balloons several times with no problem. This is a game of calculated risks. If I do a balloon I weigh things in my favor in other ways like ANQ mortgages and right of first refusal and low interest rates.

Re: just one comment… - Posted by Kathy

Posted by Kathy on November 01, 1998 at 19:50:56:

Thought maybe balloon WAS the way after all until reading Rob’s message–sounds like a answer to the immediate delemma. You deflated my baloon within minutes. I never considered a balloon because I figured I’d have to save ALL the cash flow I got to pay off the balloon (which would be better than seeing nothing for 30 years), or hope for refinancing, which had costs involved, too. I can understand your “kiss of death” statement; I have a feeling the banks aren’t going to like my having so many (future) transactions to begin with, and don’t want to count on them in a pinch. But, Eduardo, can you give me some idea of an alternative that has worked for you? I’d much appreciates (anyones) advice!

What’s an ANQ? - Posted by Ken(MO)

Posted by Ken(MO) on November 02, 1998 at 07:12:02:

Dumb question; what’s an ANQ mortgage?

Re: just one comment… - Posted by Laure

Posted by Laure on November 01, 1998 at 20:22:20:

I got my first 7 or 8 homes with 10-20% down. My (ex) husband and I were both working and we took my paycheck and invested it in real estate. I started with only $100/month cash flow per property, sometimes that’s all I still get on the new ones, but as time passes, rents go up and then you get more cash. I have been mixing my “Nice” homes with some “Junkers” The junkers have GREAT cash flow because just about any 3 bdrm rents for 650/ month here. The nice homes with great schools only get 695 if I am at the right time of year. So, it all balances for me. I have some homes for cash flow, and some homes for good appreciation. I also ONLY amortize over 15 years. I don’t want to do this just for my health and pride of ownership… I want to quit work. I’ve even accelerated some payments and have 6 houses free and clear. You really have to hunt, and hunt and the ads in the paper are far and few between here. I do a LOT of driving around neighborhoods looking at homes to see what catches my eye. Curb appeal is important if you don’t want vacancies. I am a lot different than most landlords I know. I am in for the long haul and am not as interested in cash now. I want it in 5 more years… and LOTS of it !!! My gross rents are 13,000 per month. Taxes are 2,000 per month and insurance is 200 per month… I can’t wait !!

I would also not recommend multi family. I have made money when I sold them, but they are a nightmare to manage. I have found that people prefer a home and stay longer/ fewer vacancies.

Look in your local paper and see how many apartments there are for rent compared to houses. Where I live there are over 100 apartments and only 13 -3 bdrm homes… and most of them are in crummy locations.

Just my thoughts. Have a great day !

Laure :slight_smile:

Re: What’s an ANQ? - Posted by Richelle

Posted by Richelle on November 02, 1998 at 09:31:54:

Assumable without qualifying (sp).

Re: just one comment… - Posted by Kathy

Posted by Kathy on November 01, 1998 at 20:51:27:

Thanks for sharing with me. I agree with the 15 year TOPS! I want in for the short of it as well as long haul! So I understand that you have mostly, or all, single family homes? I started out looking at single family homes, but they are the ones I find the most hard to find positive cash flow. Average homes sell for $60-70,000. I can’t see getting much more than $600 from one family, plus their paying all heat and utilities. Then too, if you have a vacancy–you’re really hurting. The duplexes, on the other hand, are going for the same amount, and the rents usually will be over $600, however, I’m finding most are owner paid utilities. It seems 6 of one and 1/2 dozen of the other.

Re: just one comment… - Posted by Laure

Posted by Laure on November 01, 1998 at 20:30:17:

One more thing… I look for a home in a neighborhood of 55-65,000 homes. I want to pay no more than 35,000 and put no more than 3-4,000 fixing it up. When I am done, it will appraise for 55-60,000. Then I have gone back to the bank and borrowed on the appraisal for more homes. By the way, I have been painting all weekend and have a head full of paint !! LOL Anyway, I figured I get 52% return on my investment when you figure over a 6 year peroid. CASH FLOW + APPRECIATION + DEBT REDUCTION = Around 27,000 on the above scenario. I sometimes put all my cash flow back into improvements… new kitchens, new bathrooms, but I also get more rent from those too! It’s in my blood, I just love real estate !

Laure :slight_smile:

Re: What’s an ANQ? - Posted by Ken(MO)

Posted by Ken(MO) on November 02, 1998 at 11:22:26:


Re: just one comment… - Posted by Laure

Posted by Laure on November 01, 1998 at 21:10:52:

AGAIN…check your paper and see what folks are asking for rents. You are lucky if you can find a duplex that cheap. They are well over 100,000 here unless they are an old house ready to fall down. by the way… NEVER, NEVER, NEVER buy a building where you pay the utilities. Just speaking from experience.
I had 2 buildings with 8 apartments down by our University. Those tenants would have the heat on and the windows all open (for fresh air, of course) ALL WINTER LONG !! I put lock boxes on the thermostats, and they broke them open. It was a losing battle. I did manage to make 20K when I sold the property tho, and I only owned it for 5 years. Not too good a return on my money, if you ask me.

Laure :frowning:

Re: just one comment… - Posted by Nathan Lyell

Posted by Nathan Lyell on November 02, 1998 at 10:27:01:

I have enjoyed all the posts I have read here. I have a question for Laure or anyone that can answer it: I am about to graduate college in May and when I graduate I want to start buying houses and restoring them to re sell. I have good credit but with no job or steady income how can I get a loan or loans to start doing this. I would like to start doing this and make enough money not to have to get a 9 to 5 job. Any thoughts are appreciated.

Thanks, Nathan

Re: Let me get this straight… - Posted by Kathy

Posted by Kathy on November 01, 1998 at 20:57:17:

You look in the $50-60,000 range and pay only $35,000, or look for a $35,000 home AMONG $50-60,000 ones? How do you know they’ll appraise at double the price by putting so little into rehab., or cosmetics?

Re: just one comment… - Posted by Rob FL

Posted by Rob FL on November 02, 1998 at 19:04:07:

In the deal I mentioned above on the SFH, I got seller financing with no credit or income check. I built some raport with the seller and put 10% down.

Unless you already have cash available, I would suggest that even if you don’t have a 9-5 job, to at least get a job or income from somewhere. At least you will have some money available to help you with your deals.

Re: Let me get this straight… - Posted by Laure

Posted by Laure on November 01, 1998 at 21:23:45:

I look for a home that is dirty, needs paint and carpet. Maybe I paint the cabinets white and put all new hinges and knobs on them. I might hang a new medicine cabinet with a light bar in the bath, and they almost all need a new tub surround. Usually all new faucets. One I bought recently, needed siding and roof on the garage … that only cost me $1300. plus carpet and paint. I paid 39,000 for that one and think I have an offer coming in for 59,000. Problem is that it is through a realtor, and I will give him a bunch on the deal.

So, yes, I look for a home that “SHOULD” be worth 55-60k if it didn’t stink ! Also, the sellers that own those are more motivated because people are basically lazy and don’t want to fix them up themselves.

Another one I closed on last Thursday for 49,000 two homes a couple doors down are up for sale for 79, and 89,000. The seller of my home just didn’t realize it’s value. His wife is ill and he is tired of landlording. I am painting it now. It will get new carpet and a new tub surround. I hung a white ceiling fan in the kitchen and I will wall paper the top half of the kitchen walls. The bottom half is dark paneling yuk that I have painted that with white enamel paint. I think it will really look good. But the bottom line is that this house was real dark. I am brightening it up and giving it life.

Did I answer your question?

Laure :slight_smile:

Re: Let me get this straight… - Posted by Valerie (TX)

Posted by Valerie (TX) on November 02, 1998 at 09:04:00:

Laure–The 49,000 that you closed on last Thursday, did you find that through a realtor, by driving the neighborhoods or otherwise?

Re:YES! Sell or rent out? - Posted by Kathy

Posted by Kathy on November 01, 1998 at 21:28:29:

Good plan. I’ll try that route. So you generally re-sell them then, rather than rent them out, or a mix of both?

Re: Let me get this straight… - Posted by Laure

Posted by Laure on November 02, 1998 at 22:42:06:

I know a realtor who, while still with the seller, called me about it. He listed and sold it within an hour ! I have done a few deals with him. He gets a double commission when he lists and sells.