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Real Estate newbie real estate investor looking for guidance

Discussion in 'Real Estate Investing' started by ^eagle^, Mar 17, 2008.

  1. ^eagle^
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    ^eagle^ Contributor Read Millionaire Fastlane

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    Hi

    I was over at RD's forum but the only guy that was helping me hangs out here so I'll post this thread here.

    I am currently seeking a fourplex preferable at a discount to live in. I have already sought out many properties in my immediate area and found some on the MLS tha will create cash flow but little if any appreciation. I have calculated prices per unit and have generated conservative cash flow estimates for several properties. I am currently talking with lenders to find the best finance deal. all the stats can be found here

    http://richdad.com/Forum/forum.aspx?g=posts&t=219492

    I want to find a good deal but then again I dont want to get paralysis by analysis.

    Just looking for mentors and suggestions. Thank you and I hope to be able to return the favor to the forum.:thankyousign:
     
  2. Runum
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    Runum Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    Welcome eagle. Glad you're here. I responded to your intro. Check it out. Where is your area?
     
  3. M&T
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    M&T New Contributor

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    Why will they not appreciate?Are they in a bad area?Any property that is well taken care of should go up in value. Unless it is in a bad section or a section that is going bad!What area do you live in?
     
  4. MrPink
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    MrPink Contributor

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    I tried to follow the link and reread all the posts. I think what would be the most helpful at this point is a break down of all the numbers. As a side note, you stated that you used to own a duplex that didn't work out. Would you mind flushing out what 'you learned' from the experience (maybe best in a different thread)?

    Mr. Pink
     
  5. M&T
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    M&T New Contributor

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    Side note. 401k=slow money.
    Real-estate=fastmoney
    The more real-estate the more money. Just my 2 cents.
     
  6. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    It seems you have found at least two very good people to help you with your plan. Both Runum and M&T have properties so that helps.

    As mentioned, why do you believe there is no appreciation possibilities at this time? Also, keep in mind that you can force appreciation by buying well below FMV (Fair Market Value) and in need of a few minor upgrades, thus increasing the property's value. Maybe the current owner is having problems managing the property? Maybe they are retiring? Maybe the place needs some painting and landscaping so you can get better rents?

    I suggest you pick one of those properties and post it here so people can analyze it with you, it is a great learning experience. For what I can tell, you need to go more into details in your numbers, so by posting the deal here you will probably get people "destroying" it so you can see what is missing from your analysis. Do not take personally, it is a great learning tool (been there, trust me ;))
     
  7. ^eagle^
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    ^eagle^ Contributor Read Millionaire Fastlane

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    http://prolistings.marketlinx.com/S...ba-e58c-4e37-abf2-93602f644e9d&AgentId=425919

    Ok here are the first poperties I looked at. I got them from the MLS so I don't see them budging too much on price. Quads are much easier to keep becaus eof the less potential of 100% vacancy. The two quads on silver spur drew my attention the most.

    The more expensive one had two vacancies. When i called posing as a potential tenant the owner told me he had one unit filled and was showing the other later in the week. They rent at 535 without water and garbage and 600 with.

    The neighboorhood has been in a steep decline in price. I own a SFH near here that has gone from 145000 in July 2006 to 107000 today. I don't think the market is at the bottom. More people are leaving florida than coming for the first time in decades.

    The neighboorhood itself is lower middleclass. Not a slum so that is not an issue.

    2/1's rent around six hundred. I live in a large 2/2 manufactured home for 625 in the same area.
     
  8. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    I agree, the 4-plexes look the best as you probably will get better financing (as owner occupied, not a commercial loan)

    Ask your agent to give you comps for that area, based on what has sold recently for fourplexes.
    You also need to play with a spreadsheet to see how the numbers work. Plug in there the current rents and the expenses, taxes, insurance, is there any HOA (home owners associations)?
     
  9. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    By the way, forgot to mention that this is great as now you know what is "expensive". After analyzing the numbers you will know what you are looking for.
    Also, nothing prevents you to make a low-ball offer. Nothing prevents you to offer $150K for the one built in 1986.
     
    Last edited: Aug 18, 2008
  10. MrPink
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  11. slim_jim
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  12. Runum
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    Runum Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    If you don't think the market has hit bottom then I sure wouldn't be caught paying asking price. Like Andviv said offer what makes sense to you. All they can do is say no. You may call them back in 2-3 months and make the same offer again and it may be accepted. You will have to get good at running the numbers to find out what will make a deal for you. You know rent rates, that's great. You know the neighborhood, great. What about insurance and property taxes? Also you mentioned some past credit problems, what interest are you expecting and what is your term on amortization you're shooting for? Are there a lot of quads in the area? Are there a lot of vacancies in the area? Those will have an effect on what you get for rents. If the neighborhood is trending in a downward direction your rents may trend in the same direction unless you keep your property better than the competition. Good luck.
     
  13. M&T
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    ^eagle^,
    Just because it is on the MLS and you are dealing with realtors does not mean you cannot wheel and deal.Like Runum said I would not offer full price in this market. When we bought 7 buildings in one year 3 years ago it was a seller's market. I had to offer full price-which I hate to do.Some I had to offer $1,000 over full price and NO contingences- is that how you spell that?Anyway you wouldn't get the property if you didn't offer at least full. Props were going up and the next day they were gone.I missed a great deal cause an agent inhouse bought it ! I was P*ss$d to say the least.But in this market esp.going owner occupied you can get a killer deal. remember Robert K. looks at 100 props. Puts an offer on maybe 10 of those and gets 1 prop. 1 out of 100 is alot of work but he says it's going to be a killer deal! Lowball offer. Look for the seller that HAS to sell.That's where the deal is. Yes make sure the numbers work but find the guy that is in a hurry to get out!
    M&T...
     
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  14. Runum
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    Runum Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    :iagree:M&T has good points. +++ speed.
     
  15. ^eagle^
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    ^eagle^ Contributor Read Millionaire Fastlane

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    I talked with a mortgage broker today. The first one that I talked to and actually seems to know what he's selling. He said that freddie mac and fannie mae on fourplexes are a minimum of twenty percent down even if owner occupied because of risk, However Duplexes can be financed through FHA as as owner occupied with only three [percent down.

    The FHA requires a debt ratio under 40%. In order for that to happen I have to quit claim the deed of my house to my X wife and let her assume the new motgage. He further suggested that i use my equity to pay down my truck to ten months that way the truck payment would not be a factor in the debt ratio. He said I was right at the forty percent mark with the truck payment.


    I'm on a month to month at my current residence so leasing is not an issue.

    Here's my strategy...

    1. Quit claim the deed and let X wife assume the mortgage after refi.
    1.5 PAy off credit card AND truck 100% to immediately start saving for next purchase.
    2. Find small duplex in (in REO?) or MLS and finance through FHA as owner occupied.
    3. Ask seller to pay all closing costs in exchange for asking price (Assuming positive cash flow with BOTH units having tenants $200+) FHA allows owner to pay for 6% of sales price in closing costs.
    4. Move in through the front door and out the back. Rent out the other unit and repeat the process for a nicer duplex.
    5. Continue until I am denied or I have moved into top quality duplex then switch to SFH.

    From here I would spring board into commrcial or multi family 10+ units

    Any thoughts?
     
  16. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    Call your credit card company and ask them for a credit limit increase. If your limit is $10K and you owe them $4k your ratio is 40%.
    If they increase the limit to $11K and you still owe them the same $4k your ratio is now 36%, below the 40% they need.
     
  17. ^eagle^
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    ^eagle^ Contributor Read Millionaire Fastlane

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    I'm right below forty percent total with the payments. What i guess I'm asking is should I continue to carry the debt or eliminate it. I'm prone to be a bad debt nazi so I am leaning towrds elimanting it. If i pay it down slowly like over six months they usually auotmatically give you an increase in credit limits. I make good money at my day job and could quickly save up thousands without the burden of the debt. The truck is relatively new 03 Nissan frontier.

    That is the same situation I was in last time except now I make double what i do then. I HAD to pay off my car back then to get the duplex or the deal would have fallen through. Now I don't have to but I WANT to. But I could be clouded by my emotions on being a debt nazi so I'm posting here.
     
  18. JScott
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    JScott Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Andviv --

    Perhaps I'm confused, but isn't "debt ratio" the same as "debt to income" ratio? Meaning total debt compared to total income, not total debt compared to credit lines.

    Thanks for any clarification!
     
  19. ^eagle^
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    ^eagle^ Contributor Read Millionaire Fastlane

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    Exactly. Maybe I should have said debt to income. FHA looks at everything. Mortgages truck payments, rents. Evreything except utillities.

    Sorry if I was unclear
     
  20. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    hmmm yeah, probably I am wrong and I am thinking from the perspective of your credit report. In your credit report they don't have your income, just your loans and the revolving accounts have a big impact on your score. What I mentioned is a way to increase your ratio in order to increase your score. My bad.
     
  21. ^eagle^
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    ^eagle^ Contributor Read Millionaire Fastlane

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    I just got off the phone with my refi company. Bastards!

    They made the decision for me. I have to pay off my truck and cards to get the refi. Now I'm only going to net about 4000 after eveyones been paid. But at least I'll have zero debt except fo the mortgage.

    So now my question is should I quit claim or not. I pay the mortgage for child support. So the plus is I can write that off on my taxes. the negative side is if I take another loan it increases my debt to income ratio and I may not qualify. On paper i use the property as a rental with zero income. I write off ITI. So If I quit claim the property and let my X assume the mortgage I lose that but my debt ratio would be zero. I would pay 100 dollars less for child support because I would only pay what the state makes me pay. The X would have to maker up the difference in the mortgage herself. this would be the least emotionally draining of the two options because I wiould not have to go asking my X for money to pay the differnece in the mortgage if I continued to hold it.
     
  22. rcardin
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    If you are still on good terms with your ex you could ask her to sign a lease on the house. the mortgage company might see things differently. When I moved to my new house I had to show a 1 year lease on my old property in order to qualify for the new prop. I intended on keeping the property in the first place so this was no big deal.

    just thinking outside the box here
     

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