Posted by tim derey on January 29, 2003 at 17:07:59:
Great feedback. Thank you everyone, I appreciate it.
Subject To + Buy and Hold? - Posted by tim derey (MI)
Posted by tim derey (MI) on January 29, 2003 at 07:16:44:
Hello everyone.
I have a buy and hold goal: Owning 10 homes free and clear, focusing on owning single family homes, while receiving positive monthly cash flow. I would like to direct my efforts toward nice neighborhoods (newer homes).
With this in mind, I?ve seen ?subject to? advocated on the purchase side followed by ?lease optioning? on the sell side of many successful investment strategies.
If I want to stick to my buy and hold strategy of nice homes in nice neighborhoods, while yielding positive cash flow, is it possible to receive a positive cash flow utilizing ?subject to? to buy, followed by renting the homes out? I wouldn?t think that I would be able to charge a premium rent without doing a LO.
I’d appreciate any feeback and/or additional suggestions or questions. Thank you.
Re: Subject To + Buy and Hold? - Posted by Jim Neubauer
Posted by Jim Neubauer on January 29, 2003 at 19:16:44:
Tim, I completely agree with this philosophy of buying to hold long term in the better neighborhoods. What most people fail to do is look at the total picture of cashflow “as well as” appreciation. The typical investor has been taught to buy in the low income neighborhoods and cashflow it to death regardless of whether it will appreciate or not. Cashflow is great but I “never” and I mean “never” use that cashflow to pay the bills. That gets hammered back into principle pay down while I create cash through rehabs, wholesaling, as well as foreclosures.
I Look for areas “in state” and “out of” which are either: close to or on water, anchored to housing starts, near solid schools systems or near where the boomers are migrating. It has not failed me yet and the appreciation more than makes up for a reduced cashflow. Good Investing,
Jim N
Buy & Hold… - Posted by David Krulac
Posted by David Krulac on January 29, 2003 at 16:10:55:
is a worthy strategy, which I subscribe to. However, the higher priced the lower the rent in porportion.
The market will only bear the rent that the market will bear. Tenants won’t pay $2,000 for a house that they can rent down the street for $1,200. You need to do a rent survey and find out what rents are being charged. Call rental ads from the paper, call on rental yard signs, do whatever you can to be an expert and the most knowledgable person of fair market rent in your area.
John Schaub, a re guru whowa at last years cre convention talks about currently having 20 rental houses in nice neighborhoods and having aoal fo 10 rental houses free and clear. If you can’t get extreme positive cash flow from a free and clear house somehting is drastically wrong.
David Krulac
Central Pennsylvania
Re: Subject To + Buy and Hold? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on January 29, 2003 at 14:09:58:
Time DeRey–(MI)------------
I am worried that you might believe Monique’s post and could get into trouble if you used her formula for “cash flow.”
One must subtract out not only the payment on the financing but any other expenses on the property: maintenace, reserve for capital expenditures, utilities, office expenses, advertising, perhaps city business tax, and a vacancy allowance. While none of these items might be very large in and of themselves, the total could be more than $200 a month an cause this buyer to be in “negative cash flow land” with the example you give.
Now, there may be some tax benefits for the investor so that the after-tax cash flow is positive. I think it is a good idea to look at the after-tax situation.
I have bought some houses subject to the first loans and rented them out for the long haul. Bought when there was not the due on sale issue and still own them.
The thing is to hide the sale from the lender your may have the loan called on you. Have owner deed into a trust which is recorded and reported to the lender. Then have the insurance put into the name of the trustee, again told to lender. After that, the owner assigns to you or a entity you control the beneficial interest in the trust.
What you propose may or may not work. The thing to do is figure out the cash flow issues with the types of properties you propose to buy. In many areas such purchases will not produce a positive cash flow. I understand that in the NW suburbs of Chicago rents are high enough that it can work.
Good InvestingRon Starr**
Just buy it right - Posted by MoniqueUSA
Posted by MoniqueUSA on January 29, 2003 at 12:57:15:
Tim,
If you buy a property at an attractive price, your payments should be low enough to rent the property for fair market rent and still make a reasonable cash flow.
So if you’re buying subject to an existing mortgage, then you look at not only the purchase price, but also the monthly payment.
For example, say fair market rent on a house worth $125,000 is $950/month in your market. Then, if you buy the property subject to a mortgage payment of $750/mo PITI, then you have created $200/mo of positive cash flow. A quick number crunch … a $93,942 mortgage at 7% has a monthly P&I payment of $625. If taxes and insurance run $125/mo on a house like this in your market, you found your $750 payment.
The key to focus on, of course, is finding motivated sellers. The numbers will then speak for themselves.
MoniqueUSA
Re: Subject To + Buy and Hold? - Posted by Terry (Houston)
Posted by Terry (Houston) on January 29, 2003 at 07:26:29:
Why not? Good house, good neighbrhoods? Charge the premium rent. I do. Use good marketing to get them rented and it works just fine.
I have 2 houses that are bringing me $700 a month each in positive cash flow.
Good luck.
Terry
Thanks for keeping my honest! - Posted by MoniqueUSA
Posted by MoniqueUSA on January 29, 2003 at 21:04:37:
Ron,
You’re absolutely right! Thanks for filling in the gap on expenses above and beyond PITI.
MoniqueUSA
Re: Subject To + Buy and Hold? - Posted by tim derey
Posted by tim derey on January 29, 2003 at 11:04:26:
Terry,
I should have been more specific. I’m referring to homes in 125 - 175k range which would require more than 700.00 a mth. thank you for your feedback, i appreciate it.
Re: Subject To + Buy and Hold? - Posted by Terry (Houston)
Posted by Terry (Houston) on January 29, 2003 at 16:34:18:
So was I and I answered the question you asked.
Notice I said “Positive” Cash Flow.
Terry
"If I want to stick to my buy and hold strategy of nice homes in nice neighborhoods, while yielding positive cash flow, is it possible to receive a positive cash flow utilizing ?subject to? to buy, followed by renting the homes out? I wouldn?t think that I would be able to charge a premium rent without doing a LO. "
Re: Subject To + Buy and Hold? - Posted by Jim FL
Posted by Jim FL on January 29, 2003 at 13:57:39:
Tim,
What Terry was saying was not what the monthly payment would be, but the CASH FLOW.
This is the difference between what you bring in, and what you pay out.
So,if a house costs you $1k per month to hold it, to get $700/month in cashflow, you’d need to collect $700 more per month than you pay out.
HTH,
Jim FL