PLease Offer Your Insights

Hey everyone
I have about $60,000 to put to work; I am investment savvy with 5 years in institutional finance but my Real Estate knowledge is more limited.

So my goals are to generate some positive cash flow by renting and to have investment(s) that will appreciate greatly, over the next 3-5 years. I'm in a really hot area right now.

Here are my Questions. You’ll have read the page to understand the context of these questions. I really appreciate anyone who can offer me some insights on these questions. I am very knowledgeable in many other area such as Finance, Sales and Engineering. If I can return the favor in any way for your insights, I will.

Again these question will make sense when you read the rest of the page.
If I do that what is the smartest way to go???????
Is 20% on 2? (Principal and interest) or (interest only)??
Do a 10 % 10% 90% loan on 3 (Interest only)??
What should I do?
Can I do interest only loans on none primary residents?
This being May / June and as hot as the market has been here , should I try to buy as soon as possible or wait till the Fall when home buying settles down?

What is the annual home buying cycle (is it usual the hottest in June)?
Finally as I consider the buying cycle and purchasing home(s), I need to factor in the potential interest hike.
So with all these factors when should buy?? ???
And which strategy should I employee??????


I'm in a really hot area right now.

So my initial thoughts were to buy 1 to 3 houses.

Recently I have been leaning toward two or three houses.

If I do that what is the smartest way to go???????
Is 20% on 2? (Principal and interest) or (interest only)
Do a 10 % 10% 90% loan on 3 (Interest only)
What should I do?

Can I do interest only loans on none primary residents?

I live in a place where rental won't be problem.

Last question the market is really hot now. It's near a college, ocean and river.
It a hot sellers market, house are going off the market in days. Additionally people have made 60% to 80% on some their purchases from a year ago. My question is: This being May / June and as hot as the market has been should I try to buy as soon as possible? Or wait till the fall when home buying settles down? What is the annual home buying cycle (is it usual the hottest in June)? Finally as I consider the buying cycle and purchasing home(s), I need to factor in the potential interest hike. So with all these factors when should buy?? ???
And which strategy should I employee??????

Comments(9)

  • active_re_investor1st June, 2004

    It is a little hard to offer constructive advice given the way you have presented the questions.

    My view.

    1. The property has to cash flow. That includes allowing for all maintenance, management and vacancies.

    2. The market could cool off quickly. Hence you need to be able to hold for a while so you do not end up running a fire sale.

    3. Once the two above are addressed I like to minimize the cash in a deal so that I can keep my cash working. For better or worse, I do not mind leaving my profits in a property to make the deal easy to manage on a cash flow basis. I hate leaving my original cash tied up.

    If the market is that hot you might have missed the opportunity. At the same it might keep going. It is very likely the rents are not keeping up so the cash flow will be poor or worse.

    John
    [addsig]

  • powpow641st June, 2004

    Thank you so much for your time and efforts John. Would it OK to ask you some follow up questions later?

  • davmille2nd June, 2004

    I love Wilmington. We are down there all the time. You are right, it is a hot market. Unfortunately, the hottest markets are usually not the best for rentals. I haven't checked into the rental market in Wilmington, but usually the best rental markets from a cashflow standpoint are in slow growth areas. Hot markets are generally best for appreciation, but they are also most prone to depreciation if the economy slows(which I suspect will happen after the election). Personally, I don't like interest only loans. I can't see what they accomplish. Sure, you get good cashflow, but I think they can hide depreciation which is not infrequent in the best rental areas. I like to pay down the loan at a reasonable rate to make certain that the properties have a good cashflow no matter what happens. You mentioned that you are in a hot market several times. That is a negative not a positive from my experience from a long term landlord standpoint.. The best areas in my experience for consistent growth is in plain Jane, boring, middle to lower class neighborhoods where not a lot changes, regardless of the economy. Glamor areas tend to have violent swings in prices for both rents, and purchase prices, which are not what I personally desire. But of course, to each his own. I like the old Benjamin Franklin idea of consistent,steady work to riches, instead of a gamble at overnight success.


    Best of luck,

    Dave

  • powpow644th June, 2004

    Thanks for the reply Dave

    Can expand on this comment. Especially on the bolded part.

    Personally, I don't like interest only loans. I can't see what they accomplish. Sure, you get good cashflow, but I think they can hide depreciation which is not infrequent in the best rental areas. InullSure, you get good cashflow, but I think they can hide depreciation which is not infrequent in the best rental areas.


    Also do U know any publications ( books , public records, web sites...)spefic to my area that state and/or forecast local growth and development trends in specitc neighborhoods?
    THx Mike

  • cjmazur4th June, 2004

    now or wait until fall?
    people here are concerned about interest rates

    online resources
    search the web, there are reports out, but typically for large cities

    what ROI/IRR are you looking for?

    Is landlord of SFR best way to atain this goal

    Apts rather than SFR?

    seasonality of markets if a local thing

    Pls. explain your interest only depreciation comment, in PM if you feel it's off topic.

  • active_re_investor4th June, 2004

    Follow up questions are more then welcome.

    If I do not immediately respond I might be swamped or traveling. Just send me a reminder.

    John

    Quote:
    On 2004-06-01 19:23, powpow64 wrote:

    Thank you so much for your time and efforts John. Would it OK to ask you some follow up questions later?
    [addsig]

  • active_re_investor4th June, 2004

    On when to buy...

    The peak season for transactions is late spring, early summer. People with children in schools need to move then.

    Investors buy when they find a good deal. You are not a stock investor who is trying buy a generic share (all common shares for 1 company are effectively the same). You are buying a specific (unique in the world) property. Buy when there is a real bargain on the offer. Any season will do.

    John
    [addsig]

  • active_re_investor4th June, 2004

    Quote:
    On 2004-06-02 21:43, davmille wrote:
    Unfortunately, the hottest markets are usually not the best for rentals.

    ...usually the best rental markets from a cashflow standpoint are in slow growth areas. Hot markets are generally best for appreciation.


    This is a very good set of points. Cash flow is negatively be appreciation when you are a buyer. The more the values go up the more the rent has to rise to cover the debt service (assuming a loan).

    You will find that rents do not track prices. Prices are mostly driven by home owners (not renters). In areas that are mostly rentals the values will only shift significantly when the rents go up of the OO crowd moves in.

    Quote:
    Personally, I don't like interest only loans. I can't see what they accomplish. Sure, you get good cashflow, but I think they can hide depreciation which is not infrequent in the best rental areas. I like to pay down the loan at a reasonable rate to make certain that the properties have a good cashflow no matter what happens.

    Dave


    In the UK loans to investors for NOO are always assumed to be interest only. It made me think about why the lenders lend this way.

    Their assumption is that investors are holding for the appreciation and that the asset will be sold when it comes time to repay the loan. Tying up capital in the asset is seen as a poor use of the capital (standard advice to companies when it comes to buying vs. leasing)

    Though I have traditionally has amortized loans for real estate it might be safer and more efficient to have the extra cash flow in had rather then tied up in the property. Easier to deal with emergencies. The risk is that you will spend or otherwise tie up the extra capital and not be in a stronger position for the 'rainy day' events.

    John
    [addsig]

  • davmille4th June, 2004

    active_re_investor,

    I THINK those were good points you made. However, I'm not sure I translated all of that correctly from your England english to my southern english!


    powpow64,

    Of course, I have my own personal bias about what I consider to be the best rental markets based on several factors. However, I was simply stating that I don't feel comortable with the fact that you could pay for 10yrs on a 100k mortgage, and then still owe 100k even though the property could now be worth 80k. This not only happens, it happens frequently. It is more likely to occur in rental areas, because as a neighborhood transitions to more rentals and fewer homeowners prices will generally soften. Of course, it can go the other direction also, but that is only a guess. If you have paid down the loan, you have some insurance if prices fall, and extra gravy if they don't. A far better way to boost your cashflow in my opinion, is simply to go for lower priced properties, especially ones that you can do some rehab on to enhance the value. I'm sorry, but I'm not sure about any good resources for your locale.

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