Real Estate Help!!

[KingWing26]

Calling all Real Estate Fastlaners,

I recently came into an inherited real estate property down in Myrtle Beach, SC. I would owe $100,000 total (house is worth $180,000+) in order to be the sole owner but I have already made that decision to pay this with a HELOC (mortgage is paid for, just need to buy-out the other two people involved) and to rent it out on a yearly-lease basis. In addition to this real estate property, I am also inheriting some nice side cash which I immediately decided I want to use for an investment. There is a house down the street that is up for sale for a very reasonable price of $160,000 which I am interested in purchasing and also keeping to rent it out.

This decision would leave me pretty strapped for cash but my money would be in some good moneymakers for passive income. After all is said and done with this scenario, I would be netting roughly $1,000 - $1,500 per month from rent after all expenses have been paid for. (Mortgage, HELOC, management co., etc.)

What are your thoughts on my idea to purchase this second home? I am relatively new to real estate but it is something I have always wanted to pursue and it will definitely put me on the right track to the fast lane.

Thanks,
KW

 

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[KingWing26]

Does the $1000-1500/month take into account amortized future capex, turnover cost, amortized legal costs, vacancy, etc?

Too many new investors don't think about the future costs and don't factor the pro rated amounts of those costs into the monthly expense number. Then, 10 years down the road, they wonder why their return wasn't as good as they expected (or maybe not even positive).

Now, if the $1000-1500 is a real number, that means you're earning about $12-18K per year. If that's how much you're making on just the $160K property and you purchased it for cash, then you're earning between 7-11% cash on cash, which isn't bad.

Of course, if the $1000-1500/month is between both properties, you're return is very low. It's unclear from your post which you meant.

Unfortunately no, those numbers did not account for the future costs. Like I said, I'm new to real estate so that is something I did not consider but I'll take those back to the drawing board.

In addition, the $1,000-$1,5000/month was for both houses.

Is that still considered poor just acting as passive income? (the management co. takes care of most tasks)

 

[Niptuck MD]

Does the $1000-1500/month take into account amortized future capex, turnover cost, amortized legal costs, vacancy, etc?

Too many new investors don't think about the future costs and don't factor the pro rated amounts of those costs into the monthly expense number. Then, 10 years down the road, they wonder why their return wasn't as good as they expected (or maybe not even positive).

Now, if the $1000-1500 is a real number, that means you're earning about $12-18K per year. If that's how much you're making on just the $160K property and you purchased it for cash, then you're earning between 7-11% cash on cash, which isn't bad.

Of course, if the $1000-1500/month is between both properties, you're return is very low. It's unclear from your post which you meant.

wow excellent info. this helped me

 

[KingWing26]

Between the two houses, you'll have $260K invested and you'll be receiving $1000/month in income (after taking into account all expenses).

That's a cash-on-cash return of under 5%. Unless you don't believe you can find an investment that returns more than 5% -- and assuming you're willing to deal with the headaches of owning a rental (even with a management company) -- I think that's a horrible investment. No to mention, it sounds like you haven't done much research on how to analyze rental deals or what it takes to own them. I would suggest reading a few books before you jump in with a $260K investment...

If it were me, I wouldn't invest any significant cash in other property; perhaps you can sell your third of the first property to one of them?

Do you have any suggestions on valuable books to read for real estate and rentals?

 

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[SteveO]

@JScott has a couple of books as well. You will find them at bigger pockets site.

 

[Niptuck MD]

I appreciate that, Steve! For those who don't, SteveO deserves credit for my actually being successful in real estate -- he spent a tremendous amount of time contributing his knowledge both here on the forum, over email and in person when I was starting out...

That said, my books are for flipping houses...if you want a great book on rentals, check out what Brandon Turner has to offer...

Also, many years back, I put together a primer on the financial analysis of buy-and-hold real estate deals -- it's geared towards multi-unit, but is probably just as good for those interested in single family rentals. Here it is if anyone is interested:

http://www.982PeelCastle.com/DealAnalysis.pdf

thanky ou for this info. very useful and congrats

 

[KingWing26]

I appreciate that, Steve! For those who don't, SteveO deserves credit for my actually being successful in real estate -- he spent a tremendous amount of time contributing his knowledge both here on the forum, over email and in person when I was starting out...

That said, my books are for flipping houses...if you want a great book on rentals, check out what Brandon Turner has to offer...

Also, many years back, I put together a primer on the financial analysis of buy-and-hold real estate deals -- it's geared towards multi-unit, but is probably just as good for those interested in single family rentals. Here it is if anyone is interested:

http://www.982PeelCastle.com/DealAnalysis.pdf

Thank you both for the help, I need to gain more patience before venturing off into these investments and I need to study up for sure.

Thanks again!

 

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[vbr]

I appreciate that, Steve! For those who don't, SteveO deserves credit for my actually being successful in real estate -- he spent a tremendous amount of time contributing his knowledge both here on the forum, over email and in person when I was starting out...

That said, my books are for flipping houses...if you want a great book on rentals, check out what Brandon Turner has to offer...

Also, many years back, I put together a primer on the financial analysis of buy-and-hold real estate deals -- it's geared towards multi-unit, but is probably just as good for those interested in single family rentals. Here it is if anyone is interested:

http://www.982PeelCastle.com/DealAnalysis.pdf

Thank you @JScott for the detailed and easy to understand analysis. Right now I'm comfortable with single family rentals, working slowly to build up more capital. I've heard from friends that getting commercial real estate is way better than residential rentals. Can you steer me to more reading and guidance? Do you have more writing about flipping houses analysis? I tried many ways, but couldn't get how I could maximize profit.