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- Thread starter jeff_eaglz
- Start date
What's the more accurate ratio in "hot" markets now?The 1-100 ratio is a very common term, and was the delfacto law of RE for years. I understand that it is out the window in Hot markets now.Thanks Jeff and love this thread! Curious, but how did you come up with rent number and X by 100? I am pretty positive the cost to update will be much less than what I can rent out.Check the local laws / ordinances about having a tenant. Then figure out what college kids would pay for an apt. like that (or better yet, someone who works there given how college renter kids are). Multiply that rent number by $100 and if you can build it for under that amount - go for it.(EX: $600 a month - $60,000 budget to build).Check this site out guys:
Kiplinger's Best Places To Live
Under Ideal Hometowns, click on the link take a look at affordable homes.
I just moved to Austin and my house is shown as the final house!
I do have a question:
On said house, we have a garage in the back that needs a lot of repair on the bottom portion of the structure due to a flood that happened years ago. Basically, it needs to be elevated. Solid brick on either side but should I simply tear it down and rebuild a brand new garage apartment? We are actually two doors down from the University of Texas shuttle and in a pretty prime area.
Edit: Doing so to rent out to make a nice bit of money towards paying mortgage.
Thanks and this thread is the best!
Good luck.
Jeff Pasquino
Footballguy
All in the verbage of a contract. You can "control" a property with it under contract yet not closed if the parameters of that "control" are clearly stated in the contract.
Jeff Pasquino
Footballguy
Usually not worth the hassle or risk. The bottom line is you need to cover your expenses with your rent. Otherwise you are at negative cash flow, coming "out of pocket" which is counterproductive to investing. You are "banking" on appreciation in a few years to bail you out and let you cash in.That's risky investing.What's the more accurate ratio in "hot" markets now?The 1-100 ratio is a very common term, and was the delfacto law of RE for years. I understand that it is out the window in Hot markets now.Thanks Jeff and love this thread! Curious, but how did you come up with rent number and X by 100? I am pretty positive the cost to update will be much less than what I can rent out.Check the local laws / ordinances about having a tenant. Then figure out what college kids would pay for an apt. like that (or better yet, someone who works there given how college renter kids are). Multiply that rent number by $100 and if you can build it for under that amount - go for it.(EX: $600 a month - $60,000 budget to build).Check this site out guys:
Kiplinger's Best Places To Live
Under Ideal Hometowns, click on the link take a look at affordable homes.
I just moved to Austin and my house is shown as the final house!
I do have a question:
On said house, we have a garage in the back that needs a lot of repair on the bottom portion of the structure due to a flood that happened years ago. Basically, it needs to be elevated. Solid brick on either side but should I simply tear it down and rebuild a brand new garage apartment? We are actually two doors down from the University of Texas shuttle and in a pretty prime area.
Edit: Doing so to rent out to make a nice bit of money towards paying mortgage.
Thanks and this thread is the best!
Good luck.
Some investors use the newer loans to promote cash flow. I'm in favor of that myself and will do I/O (interest only) loans. That means your monthly payment is lower, so the 1% rule / 100x can be raised to 125-150.
Example:
100K property
100% financed
100K mortgage
@7.5% / 30 year - P&I (principal and interest) is $700.
@6% / 30 year (3 year ARM) - I/O is about $500 a month. $200 difference.
Taxes and insurance and management and utilities and maintenance all add up - let's say $300 a month. So that would have been $1,000 a month ($700 mortgage and $300 other stuff).
$1000/month x 100 = $100K property. That'd work if you could rent it for $1,000 /month.
Let's say you can't.
Now you can rent it for $800 a month. That's still doable with the newer version of a loan, since you are paying only $500 P&I now, so you have $800 in, $800 out. You are covered. Now you're not at 100x, you're at 125x (800x125=100K).
Some push further and go in their pocket for $100-200 a month or $1-3K a year, knowing that they get tax writeoffs and the $$ washes out, and just wait for the rising market and then to sell.
That's risky.
BassNBrew
Footballguy
Want pics???There's no way you did a complete rehab for $.30 a square foot.HVAC costs $3-5K - even if you got it for $2K - for a 4,000 sq.ft. house - both are BIG REACHES - that would be $.50 a sq. ft.I did mine for $0.30 per sq ft including new HVAC. Of course I found a note from the inspector saying have your electrician call me and spent all day today reassembling the cabinet drawers which were backwards.This could get interesting. Should I have asked for green cards?
The rule of thumb for most builders is AT LEAST $100 / sq. ft. - but that includes the land.
Back out the land and you are $50-75 a sq. ft.
I'm doing a high end rehab in Baltimore and am spending about $90 / sq. ft.
Jeff Pasquino
Footballguy
I'd settle for a SOW and your definition of a "complete rehab".How big is the property?Want pics???There's no way you did a complete rehab for $.30 a square foot.HVAC costs $3-5K - even if you got it for $2K - for a 4,000 sq.ft. house - both are BIG REACHES - that would be $.50 a sq. ft.I did mine for $0.30 per sq ft including new HVAC. Of course I found a note from the inspector saying have your electrician call me and spent all day today reassembling the cabinet drawers which were backwards.
The rule of thumb for most builders is AT LEAST $100 / sq. ft. - but that includes the land.
Back out the land and you are $50-75 a sq. ft.
I'm doing a high end rehab in Baltimore and am spending about $90 / sq. ft.
4,000 sq. ft. would be $1200. I call MAJOR
Jeff Pasquino
Footballguy
Nice work.A few phone calls and/or a little research can save thousands of $$$.
Raider Nation
Devil's Advocate
Question for Jeff.
Sorry if this has been covered... don't have time to read 800+ posts.
I was reading about 50 year mortgages. Most websites which have commentary on them completely trash them, but I must admit, I'm intrigued by the prospects of cutting my monthly nut from $2100 (on a 30 year mortgage) to $1300 or so (on a 50 year mortgage).
The main drawback I've read about the 50 year mortgage is that you build equity very slowly..... almost to the point where it's no better than a I.O. loan.
Is this type of loan good for ANYONE?
Sorry if this has been covered... don't have time to read 800+ posts.
I was reading about 50 year mortgages. Most websites which have commentary on them completely trash them, but I must admit, I'm intrigued by the prospects of cutting my monthly nut from $2100 (on a 30 year mortgage) to $1300 or so (on a 50 year mortgage).
The main drawback I've read about the 50 year mortgage is that you build equity very slowly..... almost to the point where it's no better than a I.O. loan.
Is this type of loan good for ANYONE?
Franknbeans
Footballguy
the mortgage company?
Jeff Pasquino
Footballguy
Short answer - NO.Long answer - NO NO NO.
Let's go with an example, just using a $250,000 mortgage. (The numbers scale up or down, so the amount doesn't matter.)
30-year mortgage at 6.5% = $1580.17 a month.
50-year mortgage at 7.0% = $1504.22 a month.
You save $75.95 a month, or about 5% on your payment.
Before you
on me, I did take the rate from 6.5% to 7.0%. Why? That's because that is what they are doing with these mortgages. Maybe not 0.5% higher, but they are higher than 30 years. Why? Risker loans and longer to get their $$$ back.Even if it was 6.5% it would be = $1409.29 a month, or about 12% difference in payment.
The real difference is after say 3-5 years. The 30-year knocks off almost $9,000 of the loan balance in 3 years, whereas the 50-year shaves less than $2,200 off.
It's virtually an interest only loan (I/O).
You'd be better off taking an I/O loan at a lower rate and paying less and/or throwing some $$ at the principal of the loan.
If you got a 5% loan for 3 years (ARM), sometimes called a 3/1 ARM with 30-year amortization (payments spread as if you were paying it off in 30 years at 5%), your payment is lower than the 50-year at $1342.05 a month. You could pay the $1409.29 listed above and knock your principal down slightly faster.
I know I won't live in my house OR my mortgage for more than 5 years, so I'm an I/O guy.
Mike Anderson
Footballguy
Dear God NOWell, if you are only going to live in your home for another couple of years, then I might be inclined to say look at it. Maybe if you are only there for another year, and you can save your refinance costs in a couple of months vs the reduced payment.
If you are going to own your home for any period of time at all, At all, dear God NO!
have to believe that an Interest only loan is better for this scenario, so I can't see a single time that a 50 year Mortgage is worthwhile except if you can't get a Fixed I/O and you could get a Fixed 50 year. Most of that is my worry about where interest rates are going, others might not share that view.
Seriously, ask ProNinja
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Mike Anderson
Footballguy
I don't know how many times I have updated this for this board, but I keep a running update for another board.
SERIOUSLY, you want to rent property, you need to go and live on
Mr.Landlord - Click the FIRST KEY labled "Q & A"
Anyway, here is so0me of my running commentary from that board about my battle with a drug house in and around my properties:
As a Few of you know, I personally live within a National Register Historic Neighborhood that has Magnificent Stone Castles and Victorian treasures valued at the very top of the Fort Real Estate prices and Value, empty and condemned Properties priced at under $10K, and operating Drug Houses all within 7 by 7 block area.
As I have updated, from time to time there are posts on "Why would you buy in an area like that????" My Answer is that I live here, and every time I do the right thing, I help my OWN neighborhood personally.
At some point, I am going to walk my neighborhood with a camera, and post pics. You would be shocked that within this 7 x 7 block area, there are homes that are within the 100 most expensive in the city and homes under $5K.
It is an area to make a fortune in if you are willing to operate and fight in one of the Blocks that hasn't exploded in value yet. Many are, and the area is improving with every flip/restored home. I personally was outbid by my Mentor late last year on a Triplex. He took it for $28,500. He converted it back to a SFH, and sold it after just 4 months for $140K. These properties are on almost on every block. His latest two buys that he will convert back into SFHs cost him $32K and $6K. My latest buy I will turn into a Duplex renting for around $950.00 a month. I picked it up for $6K.
So anyway, sorry to ramble, just doing a little defending.
For the record, I recently bought in the very worst block in the area, where the very most money can be made, and this is part of this tale.
UPDATE:
I was able to get the Neighborhood association on board. I was SHOCKED with the comments from some of the older members that this drug house has operated for some 15+ to 20+ years, and it's always been that way, and why bother. At the end of the process, (I've been a member for about 4 years, but it's very old boy (Gal)), I was able to get massive support, and somehow found myself as the Chairman of the Get rid of the Drug house committee.
Following some advice here, We called Everyone: Code, Cops, Fire Marshal, everything.
We attended the CCW, which is the local Citizen Police volunteers. NOW they were a HUGE bunch of Knowledge. HUGE!!!! I was easily the youngest person at this meeting by some 20 years. Easy.
They set me up with a Retired police officer who just goes after Drug houses for Kicks I guess? The Fire Marshall went over and shut down a number of the Units (There are 24). Minimal Housing/Neighborhood Code is out in full force.
Many of you might remember that this is above and beyond my last update where I stated that a Beat officer was all over the place, and had three Federal Cases working as this is within 1,000 yards of three elementary schools, this is all new.
Spoke with the Head of the Police Drug Task force. He said that the problem with the current ordinance is that the Police go out after a property, set up drug busts, the works, TONS of man hours. Then by Law they are required to notify the LL by writing, and the LL must start the eviction process within 30 days or he will be fined $2,500 and then $1,000 every day there after. End result, the City seizes the property, sells it with the proceeds going to the War on Drugs, the LL has a Mortgage without a Property, the bank finds out, calls the loan due, the LL goes under. However, as long as the LL starts the eviction process within 30 days, he can simply evict, and rent to more Crackheads, and the process starts over. It seems that it is a Huge expense to the Police in Man hours when they feel that they accomplish nothing, as the LL just rids them self of that particular Crackhead, and then rents to a new crackhead.
The Police Lieutenant said he needed the Law to change, and wanted me to get behind an Ordinance that quite honestly was VERY anti-normal LL. Charging for each and every Police visit, and many other things that the Normal LL couldn't stomach. It's one thing if you want to charge for every visit after say 20 police visits a year (Which this Drug House could rack up in a couple of months), but every visit? Who could control that? Would they charge for every single visit to an Owner Occupied SFH? It would need to be fair.
Meeting with the Head of the Swat Team soon. The Swat team came out to my rental as chronicled by the "Blood Bath Girl" story line, so I have seen them in action, these guys are HARSH. Anyway, hoping to get them on board.
I'll update again soon as I get more info.
SERIOUSLY, you want to rent property, you need to go and live on
Mr.Landlord - Click the FIRST KEY labled "Q & A"
Anyway, here is so0me of my running commentary from that board about my battle with a drug house in and around my properties:
As a Few of you know, I personally live within a National Register Historic Neighborhood that has Magnificent Stone Castles and Victorian treasures valued at the very top of the Fort Real Estate prices and Value, empty and condemned Properties priced at under $10K, and operating Drug Houses all within 7 by 7 block area.
As I have updated, from time to time there are posts on "Why would you buy in an area like that????" My Answer is that I live here, and every time I do the right thing, I help my OWN neighborhood personally.
At some point, I am going to walk my neighborhood with a camera, and post pics. You would be shocked that within this 7 x 7 block area, there are homes that are within the 100 most expensive in the city and homes under $5K.
It is an area to make a fortune in if you are willing to operate and fight in one of the Blocks that hasn't exploded in value yet. Many are, and the area is improving with every flip/restored home. I personally was outbid by my Mentor late last year on a Triplex. He took it for $28,500. He converted it back to a SFH, and sold it after just 4 months for $140K. These properties are on almost on every block. His latest two buys that he will convert back into SFHs cost him $32K and $6K. My latest buy I will turn into a Duplex renting for around $950.00 a month. I picked it up for $6K.
So anyway, sorry to ramble, just doing a little defending.
For the record, I recently bought in the very worst block in the area, where the very most money can be made, and this is part of this tale.
UPDATE:
I was able to get the Neighborhood association on board. I was SHOCKED with the comments from some of the older members that this drug house has operated for some 15+ to 20+ years, and it's always been that way, and why bother. At the end of the process, (I've been a member for about 4 years, but it's very old boy (Gal)), I was able to get massive support, and somehow found myself as the Chairman of the Get rid of the Drug house committee.
Following some advice here, We called Everyone: Code, Cops, Fire Marshal, everything.
We attended the CCW, which is the local Citizen Police volunteers. NOW they were a HUGE bunch of Knowledge. HUGE!!!! I was easily the youngest person at this meeting by some 20 years. Easy.
They set me up with a Retired police officer who just goes after Drug houses for Kicks I guess? The Fire Marshall went over and shut down a number of the Units (There are 24). Minimal Housing/Neighborhood Code is out in full force.
Many of you might remember that this is above and beyond my last update where I stated that a Beat officer was all over the place, and had three Federal Cases working as this is within 1,000 yards of three elementary schools, this is all new.
Spoke with the Head of the Police Drug Task force. He said that the problem with the current ordinance is that the Police go out after a property, set up drug busts, the works, TONS of man hours. Then by Law they are required to notify the LL by writing, and the LL must start the eviction process within 30 days or he will be fined $2,500 and then $1,000 every day there after. End result, the City seizes the property, sells it with the proceeds going to the War on Drugs, the LL has a Mortgage without a Property, the bank finds out, calls the loan due, the LL goes under. However, as long as the LL starts the eviction process within 30 days, he can simply evict, and rent to more Crackheads, and the process starts over. It seems that it is a Huge expense to the Police in Man hours when they feel that they accomplish nothing, as the LL just rids them self of that particular Crackhead, and then rents to a new crackhead.
The Police Lieutenant said he needed the Law to change, and wanted me to get behind an Ordinance that quite honestly was VERY anti-normal LL. Charging for each and every Police visit, and many other things that the Normal LL couldn't stomach. It's one thing if you want to charge for every visit after say 20 police visits a year (Which this Drug House could rack up in a couple of months), but every visit? Who could control that? Would they charge for every single visit to an Owner Occupied SFH? It would need to be fair.
Meeting with the Head of the Swat Team soon. The Swat team came out to my rental as chronicled by the "Blood Bath Girl" story line, so I have seen them in action, these guys are HARSH. Anyway, hoping to get them on board.
I'll update again soon as I get more info.
Mike Anderson
Footballguy
I couldn't be more serious. If you want to RENT, not what Jeff does, but RENT, then you should go and spend hours upon hours at:
Mr. Landlord - Click the FIRST KEY Labeled "Q & A"
The moment I found it, I didn't sleep for some four days as I clicked each and every link all over the site.
My Wife was less than happy as I wouldn't go to bed with her, but I honestly learned as much if not more about being a Landlord and how to deal with things in those FOUR days than I did in some 10 years of actually being a Landlord.
How huge is that?
Anyway, I can't recommend enough.
Only think I ask is that I am a true ball buster over there, not the staff member here. If you see Anderson going off over there being an ###, understand that those are not the statements of a staff member here.
You want to be a Landlord??? Go spend a month on the Mr. Landlord Message board.
(Outside of being a lose cannon regular poster, I am in no way affiliated with that board, but dear god it has helped me be a stronger LL)
You want to be a LL, I can't make a better recommendation. Maybe I could say buy Leigh Robinson's LL book, but nothing can compete with MrLandlord.com
****This is a recommendation by Mike Anderson, average citizen and professional real estate investor, NOT FBGs in any way.
Mr. Landlord - Click the FIRST KEY Labeled "Q & A"
The moment I found it, I didn't sleep for some four days as I clicked each and every link all over the site.
My Wife was less than happy as I wouldn't go to bed with her, but I honestly learned as much if not more about being a Landlord and how to deal with things in those FOUR days than I did in some 10 years of actually being a Landlord.
How huge is that?
Anyway, I can't recommend enough.
Only think I ask is that I am a true ball buster over there, not the staff member here. If you see Anderson going off over there being an ###, understand that those are not the statements of a staff member here.
You want to be a Landlord??? Go spend a month on the Mr. Landlord Message board.
(Outside of being a lose cannon regular poster, I am in no way affiliated with that board, but dear god it has helped me be a stronger LL)
You want to be a LL, I can't make a better recommendation. Maybe I could say buy Leigh Robinson's LL book, but nothing can compete with MrLandlord.com
****This is a recommendation by Mike Anderson, average citizen and professional real estate investor, NOT FBGs in any way.
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Raider Nation
Devil's Advocate
I'll probably gamble it.
Seriously though, it doesn't much matter now, since I've been talked out of it.Thanks to all.
Jeff Pasquino
Footballguy
Since I'm on staff here now as well, I'll state the same disclaimer - I'm posting here as a Real Estate investor, not as a rep of FBG.I have heard many a good tale and recommendation for MrLandlord.com.
I have rentals, and I'm not proud of it. I'd rather rid myselves of the headaches that they are.
Got a new one for the OREF board:
Have investment, 2 family property back in NY and generate income that helps pay towards my home my family just moved into here in Austin.
I was just qualified on my Home Line Equity an extra $120k. What should I do with this increase? Here are my options:
1. I am going to put roughly $5 k to fix up our garage apartment out back. We should be able to get easily $500 given the area and two doors down from UT shuttle bus. We checked out craigslist and compared comprable prices and think at worst we could get $500.
2. Check out and purchase a fixer upper then flip it. The thing is that I keep hearing EAST Austin is the place to buy/fix/flip but when people talk about an area, I guess I'm jaded from NY, but that typically means you will overpay. Thoughts? Anyone from Austin obviously would love to know your input.
I met someone who has workers (he buys and flips houses) and gave me his workers contact information if I need demo/carpenter help.
Any thoughts on this, thanks!
Have investment, 2 family property back in NY and generate income that helps pay towards my home my family just moved into here in Austin.
I was just qualified on my Home Line Equity an extra $120k. What should I do with this increase? Here are my options:
1. I am going to put roughly $5 k to fix up our garage apartment out back. We should be able to get easily $500 given the area and two doors down from UT shuttle bus. We checked out craigslist and compared comprable prices and think at worst we could get $500.
2. Check out and purchase a fixer upper then flip it. The thing is that I keep hearing EAST Austin is the place to buy/fix/flip but when people talk about an area, I guess I'm jaded from NY, but that typically means you will overpay. Thoughts? Anyone from Austin obviously would love to know your input.
I met someone who has workers (he buys and flips houses) and gave me his workers contact information if I need demo/carpenter help.
Any thoughts on this, thanks!
Jeff Pasquino
Footballguy
Because they are a headache waiting to happen. Tenants are the bain of every LL's existence. Sure you might get a couple of hundred bucks of cash flow ($ after expenses are paid) per month, but one bad tenant and it'll set you back years. $10K of damage isn't hard to do by a crazy tenant, or one that just doesn't care about your property.
Many places in Maryland are hard to rent for a profit / cash flow. You're hoping on appreciation and no headaches for years. Rarely happens.
Also, in areas that might break even or net a small profit, the neighborhoods (A) aren't appreciating as fast and (B) are usually sketchy at best. Sad, but true.
Try finding a place at about $100K a unit that can rent for $1,000 a month, or $50K for $500. It is tough anymore, at least where I am.
Markets change, and right now it is a fixer-upper and sell market where I am.
Jeff Pasquino
Footballguy
RKMoney,Good questions.
1. $5K to fix up an apartment to get $500 a month. That pays for itself inside of a year. NO BRAINER - DO IT.
2. Find a local RE club and go. Find out where the hot areas are, and where people are working the rehab projects. Then, go and cruise that neighborhood and see the level of activity. Dumpsters / contractor trucks / scaffolds are all good signs. If you can get RE records online, see if companies / investors own houses in the area. All good signs.
Good luck, and don't bite off more than you can chew. Do ONE PROPERTY of a rehab at first, and PLEASE PLEASE PLEASE consider getting a loan on the property. Don't put all your $$ in a property and get stuck. Have some cash in reserve. Buy a place for 20-30% down and get a loan (hard money, construction, etc.) to fix it up. There are lenders everywhere in the country that do this, and you'll find some at the RE club. I'd rather pay the high rates and points than to have all my $$$ stuck in a property (been there, done that - sucks royally).
Followup questions are welcome.
As always, thanks a bunch Jeff. So, if I find ONE PROPERTY, I should definitely take out a loan (interest only I assume) say 70% and use the rest from my up in Home Line of Credit for the rest? Or should I try to get as much as possible from a loan? Curious why you put 20-30% as an amount to put down with rest with loan.East Austin is currently "the place" to buy, rehab and turn it around.
True, they can be a headache to deal with. That said, all my tennants (knock on wood) have been great. When the time comes for an increase in rent, would you recommend not increasing as much as the market will bear in order to keep them or simply increase rents on par with other places but take the chance on losing an excellent tennant?
Jeff Pasquino
Footballguy
I say 20-30% down because:1. Hard Money Lenders (HMLs) loan 60-80% of after repair value
2. Banks doing rehab / construction loans do 70-80% of after repair value
So you shouldn't need to put down more than 30% of the property, if that.
I/O would be preferable. Whatever keeps the cash flow down. Some banks defer payments 6-12 months.
I typically pay 20% down of the PURCHASE price, then get a loan for 80% of the after repair value.
So if I buy a place for $80K and it will be worth $275K, I can get a loan of about $220K to do the repairs and buy it for $16K (20% of 80K). That's actually less than 10% down on the $220K.
Jeff Pasquino
Footballguy
RK,Even if I had someone for you, I'd be hesitant to "endorse" a particular lender.
Go to a local RE club and you'll find 4-6 of them. Ask EXPERIENCED investors what banks work with them. Local banks who keep many loans in house are your best bet. These are called "Portfolio" lenders. Find some of those and local HMLs and you'll be set.
With good credit, 20% down like I did is pretty simple.
Ask them for a sample list of what they'd need, but I like banks because you don't have to keep jumping through hoops over and over again. Once they know you, you're set.
Good luck.
Mike Anderson
Footballguy
I haven't even read down, but I assume that Jeff's advice is different?Anyway, I would spend $5K any day of the week to see an extra $500.00 a month in flow. The Cap rate on that is a Monster!
Mike Anderson
Footballguy
And this is a big part of the Mindset. I can buy a ready to go SFH for $36K and rent it for $675 a month.My buy last month was a Duplex with Electric and Gas already split. $18K, two months work with the rehab and say another $7K, and it will rent for $950+ a month where I pay the water bill.
There is no appreciation of any kind in my market, and Although I do know ONE single area in the city where you can pull $60-80K a flip, Cash Flow is King.
Mike Anderson
Footballguy
Mike Anderson
Footballguy
Please follow that advice. I can't tell you how many investors I've seen go under pushing the envelope. They are the guys I circle like a Vulture when they are on the last desperate breath and ready to do anything.I currently have 8 units in rehab spread over 5 properties. It's a painful unhappy existence to be Tottering on the Brink constantly. I have been trying to clear the slate for a year now.
At the worst, it was 14 Units over 9 Properties.
Don't be that guy, I barely survived the Winter with 10 years experience under the belt.
Mike Anderson
Footballguy
Treat them right and don't worry about it. I once gave a tenant a 32% rent increase. They are still with me.I don't know your Market, but if you are at the going rate, and they can't find cheaper/better, no one is going through the trouble of moving. You can most likely be just over Market.
Every year your Taxes, Water, Gas, Electric, Labor, ect costs go up. Everyone raises the bar on you, if your market can support it, raise.
I've actually dropped rents over the years when I needed to. It's all about knowing your market.
I am going to only do one rehab property at a time. I think I may want to do a very small rehab project to pop my cherry. I am currently gutting out my garage apartment as we speak so I can quickly get that up to speed.Over this weekend, I have gone through the two zip code areas where there's lots of rehab projects going on.
Question:
There's one place that I keep being drawn to, the property is ~68k 2br/1ba 768sq feet but a few concerns:
1. Long term tenant (family) is living there ($450 a month pay out in rent), I don't think Texas is like NY where it's tough to remove tenants but I do feel a bit uncomfortable.
2. Stop and Go like store across the street and down the street there's a drug dealer. Interesting the second time I drove by he even smiled at me. Tough to get rid of dealers?
3. Good thing is two doors down, total rehab is going on and house looks nice, one door down from that house is a newly build house is for lease, 1300 for 3br, 2bth.
4. The house that shares a two car garage with above house is also for sale. It's vacant, 960 sq feet, 3br/1.5bath asking 90k. Both property = 158k
Thoughts?
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one more question if you don't mind:
What's the easiest way to compute if it's worth purchasing a particular property IF you were going to rent it out? So, a house for 68k on the market should at least generate x amout to break even; x amount to generate y profit...
Edit: I can use a mortgage calculator, just looking for a "quick and dirty" method...thanks!
Edit2: 68k must get at least 680 a month to be "worth" buying?
What's the easiest way to compute if it's worth purchasing a particular property IF you were going to rent it out? So, a house for 68k on the market should at least generate x amout to break even; x amount to generate y profit...
Edit: I can use a mortgage calculator, just looking for a "quick and dirty" method...thanks!
Edit2: 68k must get at least 680 a month to be "worth" buying?
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BassNBrew
Footballguy
#### Jeff...didn't see my typo with that decimal. $30 / sfI'd settle for a SOW and your definition of a "complete rehab".How big is the property?Want pics???There's no way you did a complete rehab for $.30 a square foot.HVAC costs $3-5K - even if you got it for $2K - for a 4,000 sq.ft. house - both are BIG REACHES - that would be $.50 a sq. ft.I did mine for $0.30 per sq ft including new HVAC. Of course I found a note from the inspector saying have your electrician call me and spent all day today reassembling the cabinet drawers which were backwards.
The rule of thumb for most builders is AT LEAST $100 / sq. ft. - but that includes the land.
Back out the land and you are $50-75 a sq. ft.
I'm doing a high end rehab in Baltimore and am spending about $90 / sq. ft.
4,000 sq. ft. would be $1200. I call MAJOR
Jeff Pasquino
Footballguy
#### Jeff...didn't see my typo with that decimal. $30 / sfI'd settle for a SOW and your definition of a "complete rehab".How big is the property?Want pics???There's no way you did a complete rehab for $.30 a square foot.HVAC costs $3-5K - even if you got it for $2K - for a 4,000 sq.ft. house - both are BIG REACHES - that would be $.50 a sq. ft.I did mine for $0.30 per sq ft including new HVAC. Of course I found a note from the inspector saying have your electrician call me and spent all day today reassembling the cabinet drawers which were backwards.
The rule of thumb for most builders is AT LEAST $100 / sq. ft. - but that includes the land.
Back out the land and you are $50-75 a sq. ft.
I'm doing a high end rehab in Baltimore and am spending about $90 / sq. ft.
4,000 sq. ft. would be $1200. I call MAJOR
about time.Still a good price. Did you rip it down to the rafters?
Jeff Pasquino
Footballguy
What's your goal? Landlording (LL'ing)? $450 a month is probably low. Does the place need any work, or is it a "turnkey" (just buy and rent)?
Are you going to manage it yourself? If you aren't, ask a Property Manager (PM) in the area for going rates / rents in the area. If syou are managing, good luck. It's not easy. Try at least NOT TO TELL THE TENANTS YOU ARE THE OWNER - RATHER YOU WORK FOR THE OWNERSHIP. That way you can blame bad news on the ownership rather than yourself.
Check the paper for local rental rates, or call "for rent" signs in the area.
Don't know S n G stores. I'll let Mike discuss turning around neighborhoods.
Once in leases, that will help a lot. Lease / option to buy? If so, find out how much. Also a good sign that others are rehabbing / fixing up the area. Adds credibility to doing it there. Rarely, if ever, do you want to be the first one on a block to rehab.
#4 is confusing. Both for $158K? Which two?
Jeff Pasquino
Footballguy
This is the 1% rule. Search "rule" on this thread and you'll find more.You should try and get at least 1% of the purchase price of the rent to cover expenses. It can be done for <1%, but that can be stretching and also hurts your cash flow, which is why you want the rental in the first place.
My goal is now to purchase a piece of property, rehab it, then sell it off for a nice little profit. Sorry about the confusion above. There are two pieces of property that are for sale for a total of $158k. They share the same carport. One piece has current renters paying $450 out while the other piece of property is vacant.
Update:
Yesterday, I scoured in a little bit better neighborhood (closer to downtown/UT) and found a nice little place on a street where three houses were just put up (complete tear down and new house) or almost finished.
This house I found is a bit more though, $90k but includes complete DEMOLITION from the seller. There's no AC and a complete dump. The lot size is 42 X 129.
Interesting, while zillow.com usually shows properties undervalued, I did a quick search and the property was valued at 110k.
Thinking about buying the place, having the seller demolish it then build a two story on it and sell it.
My biggest problem is finding out what that property is really worth? Don't want to overpay.
Homer J Simpson
I don't push
I'd think that the biggest question would be what it will be worth after investing in the property and then the new construction.That's a lot of scratch to lay out.
Jeff Pasquino
Footballguy
Ok, bear with me. You can buy ONE house / lot for $90K, or THREE?Big difference.
Whatever the cost - if you spend more than 70% on building a house or renovating one, you are asking for trouble. If you plan to spend $100K to build a house, you better plan on selling it for $135K or more.
70% covers EVERYTHING while you own it / buy it. 10% goes to selling it (realtor, closing costs). 15% is for profit, 5% is cushion for when stuff goes wrong.
Figuring out what the place is worth when you are done is part of the RE art.
When the two houses (one across and the other three doors down) get finished and put on the market, I can get a better idea of the value but that may be too late.Around the corner, there's a newly build house that's 2k square feet asking price is 300k.
Looks like the new houses built in that area are at least 300k.
No problem Jeff, sorry, I haven't laid it out more clearly.1. House A that seller will demolish for me = $90k
2. House B and House C combined = $158k they are in a slighly less desireable but cheaper location than House A. Problem is that House B (68k) has tenants and drug dealer but it's cheaper and people are buying in this area for rehab as well.
So, just a prelim here but House A land and demo = 90k + build a 2 story, 2k sq ft house = $150? and sell for 300k would net me a profit of 60k. Worth it?
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Jeff Pasquino
Footballguy
How certain are you that you can build a 2k sqft house for $150K?That's $75/sq.ft. - certainly possible.
$300K - $150K - $90K = 60K left.
You are missing many "incidentals" which add up. Builders' risk and property insurance. Interest on a loan. Monthly payments. Utilities. Taxes.
What would a lot cost? Any available? Comp out a buildable lot and see what they are selling for.
I'd try and get the 90K lower. That's also a big project for your first one - DEFINITELY don't use your $$ here (except a down payment).
BTW - this could take 6 months easy to get done. Zoning / permits? Is it ok to build that big of a house on that lot? Call the city / zoning office to check.
Jeff,I am not 100% certain. Long story short, there was a newly build house that I was told cost 150k to build (about 8 months ago). I will need to contact this builder directly to see if this price was correct or not.
There are two HUGE houses, one across the property I'm talking about, and the other a few doors down. I think this house would be no different but will check. I think the key is build up as I've seen the other newly built houses.
I do not see any empty lots in this part of the city. This is the hottest rehab/redo section of the city since it's still pretty rough in patches but it's increasing by the month so I don't know how to comp it out to a buildable lot.
Definitely want to get this property for as cheap as possible though.
goldenchild
Footballguy
Hi Jeff,
Instead of copying and pasting my original post, I though I'd link to it:
Original FBG Post
Or, if you'd prefer, I can go over all the details right here.
So far, I'm getting mostly negative feedback, albeit from few replies, but very good ones.
Should I get my deposit back and look for other RE investment opportunities?
Thanks in advance.
Instead of copying and pasting my original post, I though I'd link to it:
Original FBG Post
Or, if you'd prefer, I can go over all the details right here.
So far, I'm getting mostly negative feedback, albeit from few replies, but very good ones.
Should I get my deposit back and look for other RE investment opportunities?
Thanks in advance.
Jeff Pasquino
Footballguy
For the benefit of this thread....Real estate is highly local.
Find another property manager in the Norman area and ask what typical rents for apts/ THs that size are in the area.
Google area newspapers to check rents as well.
Call the college and ask what room costs typically run, and what drives the higher rents (close to campus, facilities, etc.). Also ask what is included - utilities can cost dearly.
Sounds like you're basing EVERYTHING on $1800 a month, and that costs will be $1500 a month. It also sounds like that's too high to expect based on this thread.
Do your homework NOW, ASAP. If the $1800 is BS, bail.
Don't get caught holding a bad property. You have a chance to get out so use this time and do your Due Diligence fast.
goldenchild
Footballguy
Thanks for the reply.Great advice
. I'll get on this ASAP.I went ahead and "Craigslisted" a bit and found that rent in the Norman area averaged just under $1000.
I think the builder's selling point was that these are brand new townhomes and these types of properties are new in the area (i.e. townhomes practically within a shopping center...)
Another point made by the builder was "if we didn't think that we'd be able to sell these properties, would we be developing them?"
I've read that the city of Oklahoma has been doing quite a bit of developing lately, especially in the downtown area.
After much thinking, we are already leaning toward getting our deposit back and moving on to other opportunities.
Thanks again for your input.
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