Posted by tomas on December 27, 2004 at 12:07:10:
thanks again for the info. how did you decide to finance houses for 20 yrs? i guess it seems long to me becasue i am young and because i have read financial books by authors like dave ramsey who preach that debt is bad. i would be affraid to own several homes without actually owning anything but liability. i am sure that you have done a good job with your real estate, and i probably need to learn more before jumping in too deep. do you have any suggestions of resources to get started.
newbie advice - Posted by tomas
Posted by tomas on December 26, 2004 at 12:38:53:
i am looking for any help or advice that would help me to get on my way. I am a teacher/coach and my soon to be wife is a nurse. we curently make approx 75K per year. I own one house(gifted)appraised at about 70K. currently rented at 750/mo. purchased a fixer upper with my sister, paid 4K and put in 2K, it is rented for 350/mo and will be paid off by march-05. my father has rentals mostly low income housing that was fixed up. he has been much braver than i am about stretching his credit and creative financing. he helped me find the 4K house and says that there are other houses out there that can be purchased and fixed for 10-15K. help me with my plan, does this make any sence. thank you in advance.
- sell my house for the appaised 70K
- put 10k in mutual fund
- put 10k in money market (emergency/taxes/potential for next down payment)
- purchase 10 houses at 15k ea.
4a. put 5k down for each
4b. finance 10k for ea at 10% for 5yrs (212/mo/per unit)
- rent out units for approx $375/mo
- put monthly positive cash flow(approx $1600) into the money market acct.
I would never want to have more than 100K in debt without having at least 20% of the debt value in easily liquidable assets.
does this sound feasable? thanks again?
Re: newbie advice - Posted by Mike-OH
Posted by Mike-OH on December 27, 2004 at 09:14:45:
I think that you have a good plan. However, I might suggest that instead of selling your $70,000 house, you might do better by refinancing it. By doing so, you will have the money to invest and also the positive cash flow from the rental. In addition, since the refinance money is a loan from the bank, you can deduct the interest instead of paying tax on the income from the sale (depending on your situation).
Also, your math isn’t quite right (must be some of that new math). You won’t have $1,600 per month positive cash flow. You still need to deduct insurance and taxes. With 10 properties, taxes and insurance will probably run about $70 to $80 per property per month. You will also have some maintenance and a vacancy allowance. Finally, with these extremely low prices houses, you will have really terrible tenants unless you REALLY, REALLY screen them well. I’d plan on lots of repairs due to damage from these lower class tenants. You might do a little better buying slightly higher priced houses, because you’ll usually get a better tenant (but they all need extensive screening).
Re: newbie advice - Posted by tomas
Posted by tomas on December 27, 2004 at 11:27:06:
thanks for the reply. i guess it is the new math i would expect to have bad tenants because of the low costs. i have a couple more questions.
i have never done a refinance on a house. what all do i need to get together? or should i goto a bank and explain what i am trying to do and see what all they will need. Should i type up a bussiness plan before going to the bank for the first time?
also, how long is a “normal” length or time on loan? should i refinance for like 10 yrs or longer? what is normal? thanks for any input?
Re: newbie advice - Posted by mike-OH
Posted by mike-OH on December 27, 2004 at 11:57:47:
For the refinance, I would take a cover letter explaining who you are and what you want to do, a business plan, a cash flow analysis of your current rental property(s), a perfinancial financial statement (net worth), and the last two years tax returns for you and your wife. That should be most of what the bank is looking for. The more organized you appear to the bank, the better your chance of getting the loan.
I normally finance houses for 20 years, because I find that this term will cash flow easily.