What To Do With This Single Family House?
Hello everyone! First time post here. I am just about to close on a nice 3 bedroom 2 bath single family house. This is what the numbers look like:
150,000 purchase price
30,000 down
1,000 per month PITI
1,200 per month rental income
8% yearly ROI (2,400 profit / 30,000)
Of course this doesn't factor in price appreciation, but it's really not a very good return, especially considering possible tenant hassles or major property maintenance. So, what do you think? I could probably re-sell the house immediately for 170,000 or more. However, by the time I subtract realtor's fees and closing costs, I might make 10,000. What about lease option? As hot as the market has been here at the beach, I could also let it ride. The thing is, I usually prefer multi-family from a ROI standpoint. For example, I am also buying a duplex, and this is what those numbers look like:
80,000 purchase price
16,000 down
550 per month PITI
1000 per month rental income
33% yearly ROI (5400 profit / 16,000)
But I do like this house. It's in a good area and really close to where I live. Any thoughts? Thank you very much!
[ Edited by VirginiaBeachRealEstate on Date 10/27/2004 ]
Go for the multi, less risk!
Sounds like you are buying the multi anyway, right?
If you have the resources to tie up your funds, credit, etc, and your market is stable,and the loan is a good one, why not?
I know I look at this far more long term than many, but a good property is a good property to me.
It sounds like you like this home and it will be easy to manage and rent. So?
Oh, and if you are getting it for 150K and the value is 170K, aren't you starting out ahead?
Will this limit you from continueing to buy your prefered properties?
Well, I do have limited resources, but everything is relative. My cash position is about $100,000, and my equity position is about $450,000. However, about $150,000 of my equity position is in out-of-state property and somewhat under the control of other persons. It's a long story. Anyway, I do have access to that equity, but it would probably take me about 90 days to get it. So for now I just go with my remaining local equity position of about $300,000. If conventional lending is at 80% of that, then it really amounts to $240,000. Ultimately I prefer multi-units, but good ones are hard to find around here at a reasonable price. In fact, I changed my mind on the duplex because the place is falling apart. If I could get the city to re-zone an existing piece of property I have here, I would like to build a 6 or 8 unit apartment on that. Keep things a little more collected together and more manageable geographically. Thank you very much for your replies. What do you think of a lease-option on this single family house? Maybe I should go over to that forum because I don't really understand lease-option enough to proceed with one. Or should I simply stick with a straight rental? Regards...
I'll bet that if you asked which comes first, The property, or the decision of what to do with it? I'd bet that the majority of investors on this site would tell you that they know what they will be doing with the property before they buy it.
If you know what your exit strategy is prior to closing the sale, several of your important decisions will already have been made
Excellent point, and I agree 100%. Your advice just reconfirms that I am absolutely a beginner and still have a lot to learn! The fact that I really don't know what the best thing to do with this house has been bothering me from the start. I just couldn't pass up the good deal. Thank you for taking the time to reply for me. Regards...
How many of those hefty down payments can you afford to fork over? Looks like you may need to find better ways to acquire properties.
I, like you, started out buying conventional: 20%down, bank loan, etc.
I soon learned that a paper 15% ROI is death! My scheduled rents came in at 75%, so I had a negative cash flow. OOPS!
Stick around this site, go to various forums, and you will, over time, learn creative investing. Where you really make your money in real estate is in the purchase. Buying right.
If I were you, I'd sit tight on my nest egg until I learned to buy properties with little or no money down.
Good luck.
Dan
Another tip: I don't hold any property for rental unless it passes the 55/45 test.
What I mean is this. Of scheduled monthly rent, PITI is no more than 55%, cash flow 45%.
Example: Rent, $1,000. Principle, interest, taxes, insurance, $550, cash flow, $450.
This is only achieved by buying right.
Hope this is helpful.
Dan
Sometimes as a beginner, it's not necessary to be convinced that the exit strategy we choose is the best. Sometimes it has to be enough to know that it's a good one.
Make a choice. A good deal is a good deal. As long as the numbers work, You'll be fine. Doing something is often the best teacher. As you gain experience, your strategy will develop.
Good luck,
Jeff
How do you pay $1000 PITI on a 120K loan? I would be doing an interest only loan on an investment.
If so you're payment total with should be about $700 and this does pass Dan's 55/45 rule.
mag...,
Where do you find interest only for investment loans?
Do you include your escrows in your payment?
Well I'v just talked to a number of lenders about this and they are available.
Points and LTV make a difference. In my case LTV is less than 80%.
Example:
5% interest only = 6000/yr =500/mo
1.2% tax =1800/yr = 150/mo
insurance=480/yr = 40
TOTAL = 690/mo
Another way to find interest only deals is to work with Hard Money Lenders
Is it just me, am I the only one out there
who would never consider buying a property that there was not at least a
50 % return on my money? Maybe it is the areas I am buying in, but no I have had similar success in nice areas as well! I don't know much about these other states but it seems to me if there are huge profits here, there are huge profits nationally! Try using the Short Sale approach instead of dealing with realtors exclusively.
dl will
"Short Sale Master"
I am beginning to move beyond the 'beginner' investor and learning a lot more creative ideas. I think a good broker is key. I have started to refi some of my properties to interest only loans to maximize my cash flow situation. I also always finance at least 95% and if possible have the seller give me back a % for 'repair's' to pay me back for the 5% down and sometimes put a little extra in my pocket. I bought a flip property from a big local investor, mainly for his insight. I didn't love the property and didn't get the best deal on it but the information from the many converstaitons i had w/this guy were priceless. I now use his broker, his lease and contract, and still call him up for advice when needed. Networking is a must as well!