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STOP Paying Rent: Live For Free

mThree2K

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My interest is piqued, I have enough money saved up for this. But I want to make cash flow, and not just live for free. The thing is I don't know anything about real estate, if I printed this off and showed it to the broker, do you think he would be willing to help me out? Or would he try and screw me?
Nobody in this World will take your hand in money matters, so yeah, you are likely to get screwed over.

Learn it by doing it yourself (heck, 0P left lots of gold nuggets in his post and there are more throughout the whole thread), and you'll see how you won't need to look for people to help you.

Once the worthy people to work with "feel" your value oportunities will fly in magically.

Enviado desde mi LG-D855 mediante Tapatalk
 
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Olie Sins

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Nobody in this World will take your hand in money matters, so yeah, you are likely to get screwed over.

Learn it by doing it yourself (heck, 0P left lots of gold nuggets in his post and there are more throughout the whole thread), and you'll see how you won't need to look for people to help you.

Once the worthy people to work with "feel" your value oportunities will fly in magically.

Enviado desde mi LG-D855 mediante Tapatalk
Thanks for that gut check mthree.
 

HIPPYOWL

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G_Alexander

Thanks for the thread.
I'm working on this... going to take it one step at a time.

Edit: Just finished the first step and quickly found a good mortgage broker on Yelp. I filled out the application so I should be hearing from them tomorrow.. let's see.
 
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jnam

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i. Example (all made up): 3 unit, Seattle with all units having 2 beds 1 bath.
  • Rents in the area are $1,000 per unit on average (same size, quality, finishes, etc.)
3. Take the gross amount of rents and apply a safe buffer of 50% for expenses:

i. 3 units x $1,000 = $3,000 per month gross rents x 50% = $1,500 expenses
  • This means you keep $1,500 in your pocket (your “NOI” or Net Operating Income)
4. Figure out a buffer for your mortgage (and any possible cash flow)

i. If you paid $200,000 for this property @ 4.25% for 30-years and 3.5% down, your monthly payment would be ~$1,500. Voila, no mortgage
  • This doesn’t take into account that most months you will not hit 50% expenses. Some will be 0% (very cash positive), some will be 150% (cash drain) so be sure to keep reserves set aside from the good months for when the bad months come around
ii. You make your money when you BUY not when you sell​

G

The math is off. You forgot that YOU will be living in one of those units. So you WON'T be paying for rent. Therefore in your example, your gross revenue from rents would be $2000 for a 3-plex, not $3000(because your not paying your own rent).

This fact increases your expenses. The $2000 gross revenue has to make up for the expenses for the rent that is NOT being paid(which is from you). So in your example, the expenses is on average 50% of your gross rent per unit. But you aren't getting paid for the unit your living in. Therefore your gross revenue of $2000 has to make up for the costs of the unit YOU are living in.

This means that your expenses are really more like 75% of your gross revenue. Now your NOI is $500. Which isn't bad! But its three times less than what you stated.

Everyone who is thinking of applying this strategy, keep what I said in mind.
 

mThree2K

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The math is off. You forgot that YOU will be living in one of those units. So you WON'T be paying for rent. Therefore in your example, your gross revenue from rents would be $2000 for a 3-plex, not $3000(because your not paying your own rent).

This fact increases your expenses. The $2000 gross revenue has to make up for the expenses for the rent that is NOT being paid(which is from you). So in your example, the expenses is on average 50% of your gross rent per unit. But you aren't getting paid for the unit your living in. Therefore your gross revenue of $2000 has to make up for the costs of the unit YOU are living in.

This means that your expenses are really more like 75% of your gross revenue. Now your NOI is $500. Which isn't bad! But its three times less than what you stated.

Everyone who is thinking of applying this strategy, keep what I said in mind.
As what I understood he is not living there, in this example he is renting those 3 units out and using the remaining Cashflow to fund his own mortgage.

How is this possible? Well, you make your money when you buy.

Enviado desde mi Mi Note 2 mediante Tapatalk
 

G_Alexander

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The math is off. You forgot that YOU will be living in one of those units.

@jnam - Thanks, rookie. :bored:

You don't value an apartment building without tallying up market rent for all the units. If you had bothered to read the whole thread you would see that I stated in post #92 that it was a simple example for people to use. If you will hold the building into perpetuity, you don't value it as if you'll live there forever. Most apartment buildings (outside of this scenario) you never live in at all. I went back and grabbed post 92 for you.... read the whole thread next time.

The example in the first post used simple numbers to illustrate basic valuation.

If I were more specific (like using current actuals from my first 3-flat deal) the numbers would be:
$1,000 - Garden Unit rent
$550 - My Unit (market is $1,000 but I only receive $550 because I have a roommate and live in the other half of this unit)
$1,350 - Upstairs unit w/parking
$100 - Other parking space
$40 - Monthly Laundry income
$3,040 Total Monthly Gross

Manager = -$117 a month
Mortgage/taxes/insurance/interest = -$1,570 (although MIP for FHA is about to get slashed big time, which is great news)
Misc expenses = $-50 a month

Cash flow = $1,303

So here, it is much better than just free. It's possible to do better (like in my case) than the numbers I posted in the first example (which was just illustrative to help people understand), and it's possible to do worse. This method works 10x better for you than handing your rent money away to someone else each month though.
 
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jnam

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@jnam - Thanks, rookie. :bored:

You don't value an apartment building without tallying up market rent for all the units. If you had bothered to read the whole thread you would see that I stated in post #92 that it was a simple example for people to use. If you will hold the building into perpetuity, you don't value it as if you'll live there forever. Most apartment buildings (outside of this scenario) you never live in at all. I went back and grabbed post 92 for you.... read the whole thread next time.

Oh! Post #92, heh? Read the whole thread, heh? Well sir...

"NO BODY GOT TIME FOR THAT!"

I took this thread as a "live rent free" strategy. Not a "get rich" strategy. I know your average(or above average) investor doesn't live in their properties forever(or at all). I know it's not a forever deal.

I also know that your thread title is "STOP Paying Rent: Live For Free." I was replying to that idea. Not the idea of using real estate investing as a vehicle to gain wealth.
 

AgainstAllOdds

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Oh! Post #92, heh? Read the whole thread, heh? Well sir...

"NO BODY GOT TIME FOR THAT!"

I took this thread as a "live rent free" strategy. Not a "get rich" strategy. I know your average(or above average) investor doesn't live in their properties forever(or at all). I know it's not a forever deal.

I also know that your thread title is "STOP Paying Rent: Live For Free." I was replying to that idea. Not the idea of using real estate investing as a vehicle to gain wealth.

Stop being a dickhead.
 

G_Alexander

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"NO BODY GOT TIME FOR THAT!"

I took this thread as a "live rent free" strategy. Not a "get rich" strategy. I know your average(or above average) investor doesn't live in their properties forever(or at all). I know it's not a forever deal. I also know that your thread title is "STOP Paying Rent: Live For Free." I was replying to that idea. Not the idea of using real estate investing as a vehicle to gain wealth.
You will live for free and get richer if you have patience. If you don't have time to learn, and want everything summed up quickly for you in one post (let alone one thread) you are on the fast track to staying in the slow lane. Effort is required to succeed.

So you don't think that after moving out of the building... (like I did)... you're not still "living for free"? My 3-flat grosses $3,750 a month. It nets me $2,000+ per month in Free Cash Flow (after the mortgage has been paid). That is more than enough leftover to cover a second home mortgage and allow me to "live for free". My building also appraised for $500,000 last month... I only owe $186,000.

Go troll somewhere else, and don't try to confuse the good people reading this thread and trying to better themselves.
 
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jnam

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You will live for free and get richer if you have patience. If you don't have time to learn, and want everything summed up quickly for you in one post (let alone one thread) you are on the fast track to staying in the slow lane. Effort is required to succeed.

So you don't think that after moving out of the building... (like I did)... you're not still "living for free"? My 3-flat grosses $3,750 a month. It nets me $2,000+ per month in Free Cash Flow (after the mortgage has been paid). That is more than enough leftover to cover a second home mortgage and allow me to "live for free". My building also appraised for $500,000 last month... I only owe $186,000.

Go troll somewhere else, and don't try to confuse the good people reading this thread and trying to better themselves.

Woah, there! No need to get defensive. No trolling here. Just my honest opinion.

I have somewhat narrow thinking so I wasn't thinking of the "living rent free" part as using a side income from real estate to pay for rent or mortgage somewhere else. I sometimes takes things too literally. :/

Just out of curiosity, how long would one have to live in the complex for the loan? It seems like one can just spend a day in the complex and then move out, which would count as living in the complex. Maybe I'm thinking of it in the wrong way?

Again dude, no hard feelings.
 

HIPPYOWL

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G_Alexander

Thanks for the thread.
I'm working on this... going to take it one step at a time.

Edit: Just finished the first step and quickly found a good mortgage broker on Yelp. I filled out the application so I should be hearing from them tomorrow.. let's see.

I got in touch with a Mortgage Broker on Yelp and it looks like I may have to wait until I get my 2017 taxes completed.

In 2015 I really didn't have any income or anything. I had a hard time figured things out so I have nothing to show for it on my returns.
2016 I'm working on right now but I only did $70k in sales total. My 2017 sales may end up ~$350k. My broker said having 2016+2017 returns would be the best option.

After reading a bit more and talking to a broker I feel more comfortable with the process. If OP is cool with it I can update in here or create an another progress thread.
 
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ButGregSaid

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That's the secret sauce, boss :cool:



You get to depreciate the value of the building (non-inclusive of the land) over a 27.5 year period. Ask your tax guy (even if that means H&R block or whatever) how to treat the fact that you live in 1/3 or 1/4 of the building. You can't depreciate your own living space.

Disclaimer: I am not a tax pro.

Great post Alexander! I really appreciated reading this. I'm so glad I ran into this because I was thinking about buying my own place and had been thinking of doing the exact same thing as your first post suggested. Living in Michigan ATM not too far from Detroit which is in need of some major TLC as a whole... because of that, my guts are telling me that it's going to be a real hotbed for real estate development one day. Aside from the 'follow the hipsters' mantra you preached earlier, any tips on how one might catch the areas that are primed to turn before they turn? Or do I just wander around looking for the latest 20-something's coffee shop?
 

WJK

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No deal will ever be perfect. The timing will never be right. Pull the trigger now.
G
I'm a professional real estate investor who also lives off of my rentals. I have had some young people do the same program as you, with great success. My only advice to you is to pay off the principal on the mortgage as soon as possible. In the early years of the loan, almost no money goes to the principal. Rather than paying nothing yourself, make your "rent" payment as extra payments on your loan. Do your own work (lawns, repairs, etc) and add that saved money to your "rent" payment to make it bigger. Your real advantage will be when you have free and clear property to support you, when you get old like me.
 

glavinaveki

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If you live just to pay the rent you are not living my friend you are just surviving the next day or a month. You have to find your passion and when you do work on It, in the matter of months world will give you results in the terms of money, good relationship, expirience... Read this :)
75a65c69907f2d06032570026e8f7ac1.jpg
 
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Burning Desire

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Perhaps a stupid question, but do FHA mortgages allow you to rent out part of the property? In most European countries this is NOT allowed with a standard residential mortgage. A so-called "buy-to-let" mortgage is significantly more expensive.
 

DClaiborne

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i. Example (all made up): 3 unit, Seattle with all units having 2 beds 1 bath.
  • Rents in the area are $1,000 per unit on average (same size, quality, finishes, etc.)
3. Take the gross amount of rents and apply a safe buffer of 50% for expenses:

i. 3 units x $1,000 = $3,000 per month gross rents x 50% = $1,500 expenses
  • This means you keep $1,500 in your pocket (your “NOI” or Net Operating Income)
4. Figure out a buffer for your mortgage (and any possible cash flow)

i. If you paid $200,000 for this property @ 4.25% for 30-years and 3.5% down, your monthly payment would be ~$1,500. Voila, no mortgage
  • This doesn’t take into account that most months you will not hit 50% expenses. Some will be 0% (very cash positive), some will be 150% (cash drain) so be sure to keep reserves set aside from the good months for when the bad months come around
ii. You make your money when you BUY not when you sell​



This is a great post and something I've pondered for a while. But if I'm not mistaken your numbers are off here...

If I'm living at the property, I'm not paying rent there are still $1500 in expenses, but I'm only bringing in $2000 on the property. So my NOI is only $500 with a $1500 mortgage payment. So I'm getting a discounted mortgage, but like everything in life, nothing is actually free.​
 

G_Alexander

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This is a great post and something I've pondered for a while. But if I'm not mistaken your numbers are off here...

If I'm living at the property, I'm not paying rent there are still $1500 in expenses, but I'm only bringing in $2000 on the property. So my NOI is only $500 with a $1500 mortgage payment. So I'm getting a discounted mortgage, but like everything in life, nothing is actually free.​

STOP Paying Rent: Live For Free: Post #217

@DClaiborne You should really read the whole thread next time!
 
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FeaRxUnLeAsHeD

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You will live for free and get richer if you have patience. If you don't have time to learn, and want everything summed up quickly for you in one post (let alone one thread) you are on the fast track to staying in the slow lane. Effort is required to succeed.

So you don't think that after moving out of the building... (like I did)... you're not still "living for free"? My 3-flat grosses $3,750 a month. It nets me $2,000+ per month in Free Cash Flow (after the mortgage has been paid). That is more than enough leftover to cover a second home mortgage and allow me to "live for free". My building also appraised for $500,000 last month... I only owe $186,000.

Go troll somewhere else, and don't try to confuse the good people reading this thread and trying to better themselves.

How long until you can effectively move out of an FHA house? I believe the minimum is 2 years?

Also, I believe you can get a second FHA without having to front 20% down, or you can do a conventional loan at 5% down? I'm sure you covered it somewhere and I need to keep reading through, but from what I'm reading, it's VERY realistic to make hundreds of thousands of dollars in appreciation and free cash flow by doing this if you're patient - probably 1, maybe 2 purchases per year max, but then over 10 years you could have 10+ properties in your name netting you free cash flow.

I'm planning on doing my first FHA purchase in the next 6 months, and I'd like to follow with a second purchase in 2019 (income properties, exact things being discussed here).. I'm fairly certain FHA is the way to go for the first one, and then you either 'move' and pick up a second FHA, or you can get a conventional loan at 5% down.

Is this accurate?
 

Paul Thomas

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Looking to do something like this and close in 5-6 months time (possible?)

Knowing I might get hate with this question - is this method still 100% viable in 2018? :)

Thanks!!!
 
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stefan

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Looking to do something like this and close in 5-6 months time (possible?)

Knowing I might get hate with this question - is this method still 100% viable in 2018? :)

Thanks!!!

Yes. You can still purchase Freddie and Fannie foreclosures using an FHA mortgage. So this method definitely still works in 2018.

Even though the real estate market isn't ideal for buyers at the moment, billions of dollars worth of properties will still be purchased in America this year.

You just have to work a little bit harder if you want to find a good deal right now.

I too would love to hear from people who have "house hacked" in 2018! Anyone care to share their recent experience?
 

FeaRxUnLeAsHeD

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When you guys are calculating the mortgage, are you just calculating P+I, or are you factoring in taxes, hazard insurance, PMI, etc?

I'm working on purchasing a 12 BR 2-unit (might convert it to 3 eventually) and the numbers seem to work relatively well, however I'm not sure if I should call the mortgage the P+I and factor in taxes and insurance as part of the 50% expense buffer, or if I should include them into the mortgage #?
 

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When you guys are calculating the mortgage, are you just calculating P+I, or are you factoring in taxes, hazard insurance, PMI, etc?

I'm working on purchasing a 12 BR 2-unit (might convert it to 3 eventually) and the numbers seem to work relatively well, however I'm not sure if I should call the mortgage the P+I and factor in taxes and insurance as part of the 50% expense buffer, or if I should include them into the mortgage #?
Usually the taxes, fire insurance, PMI etc are included in the mortgage payements. They generally escrow them -- if you have a loan that sold on the secondary market. Larger commercial type loans, portfolio loans, generally don't have an escrow account included.

Your 50% factor is usually the overhead & operating expenses that don't include your mortgage payments. On multi-family appraisal forms, the mortgage payments and personal income taxes don't even have a line to enter them. Commonly, they aren't considered. The property taxes and fire insurance are line items.

This all depends on what point of view you are viewing your expenses from...
 
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FeaRxUnLeAsHeD

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Usually the taxes, fire insurance, PMI etc are included in the mortgage payements. They generally escrow them -- if you have a loan that sold on the secondary market. Larger commercial type loans, portfolio loans, generally don't have an escrow account included.

Your 50% factor is usually the overhead & operating expenses that don't include your mortgage payments. On multi-family appraisal forms, the mortgage payments and personal income taxes don't even have a line to enter them. Commonly, they aren't considered. The property taxes and fire insurance are line items.

This all depends on what point of view you are viewing your expenses from...

That 50% rule is aggressive with that in mind.

I've got vacancy (5%), capex (7%), repairs(10%), water(5%), and property management fees (10%) allocated for in here. If I include tax and insurance in the 'mortgage payment', it's almost impossible to make the numbers work with the 50% rule.. 30-40% rule works well.. I've run the numbers left, right, up, down, and sideways. I can't possibly see my monthly expenses being 50% of the income after i raise rents ($1700) on top of an $1850/mo P+I, tax, and insurance payment. I'd need to raise the rent almost a grand for the numbers to be attractive with that in mind.
 

WJK

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That 50% rule is aggressive with that in mind.

I've got vacancy (5%), capex (7%), repairs(10%), water(5%), and property management fees (10%) allocated for in here. If I include tax and insurance in the 'mortgage payment', it's almost impossible to make the numbers work with the 50% rule.. 30-40% rule works well.. I've run the numbers left, right, up, down, and sideways. I can't possibly see my monthly expenses being 50% of the income after i raise rents ($1700) on top of an $1850/mo P+I, tax, and insurance payment. I'd need to raise the rent almost a grand for the numbers to be attractive with that in mind.
From an appraisal form point of view, the taxes and hazard insurance are included in the operating expenses which would bump up your overall percentage some. Only the actual mortgage payments (including interest) and income taxes are not. There's also a sinking fund factor for short-lived items such as appliances, roofs, etc. -- is that your CapEx estimate? Your repair percentage looks a bit low to me. Where are you figuring in the costs to get-it-ready-to-rent-again? Does your water percentage include sewer and trash fees?
Do you have a savings account with some back up $? In my life, everything hits the fan at the same time. I like to have some mortgage payment money and some major repairs money on hand for those moments. That's where I put my vacancy factor, repair percentage and sinking fund factor monies to be ready for those the-sky-is-falling moments.
However you look at it, just make sure that you are in the black rather than the red! As long as you have everything covered, it doesn't matter where you list it on your balance sheet. Good luck!
www.wjkbusinessbuzz.com
 

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