Investment Property

[Father Demon]

I'm sure there are people on this board that already have investment properties, and I have questions.  I think I'm finally ready to move into a few rental homes near my house, and diversify my investments.  Hopefully, there are people here with answers.

1) I am thinking of homes in the $125K range (homes are cheaper in the midwest, but this is still in the lower 15% of homes in my town), so that I can purchase more than one over the next 12 to 18 months.  I think I should be able to get into 3, maybe 4, by then.  Question -- my feeling is that lower range of homes is more appealing as rentals because a) more renters available that can afford the rent, b) allows more homes to be owned.  Any experiences that can confirm or shoot down my assumption?

2) I found a nifty tool that calculates the ROI, Capitalization ration, and cash flow.  Using assumed rental rates (more on that later), the first couple homes I'm looking at are negative cash flow before taxes, but positive cash flow after taxes.  Is this the norm, or should I expect positive cash flows before taxes are considered?  Even with the negative cash flow, it shows an ROI of >70%.

3) How do you get around the 20% down and higher interest rates required for financing rental properties? Do you simply lie and say these homes are for your primary residence? If you do that, can you still get a loan where you document your finances, or should you go for the no-doc loans?

4) How do you learn if a) the area is already a rental neighborhood (I would think that would be a good thing if there were more rentals around, right?), and how do you learn what the average rent you can charge is? Do you do it by square foot? Do you do it by home value?

5) Anyone ever have any luck getting the seller to finance all or part of the selling price? Not as in late night become a millionaire sense, but as a means to get the property sold? How do you structure the seller financed part?  Interest rate at, above, or below the bank rates? How long a term should I expect?

Thanks....   I'm sure any answers received will make me think of new questions.

[Drunkmasterflex]

This is quite a post for a message board that is predominately sports related.  I wish I could help you but my experience with investment properties is on the renovation side not the financial.  Though being that I was a business and construction major in college this is definitely a topic of great interest to me.

[Geowhizzer]

There are still homes that sell for $125 K?

[Father Demon]

I figured that even sports fans know stuff about other stuff.  You never know where you might learn something! 

I've been looking into this for years, and think I'm finally ready to take the plunge.

Maybe.   

[Father Demon]

There are still homes that sell for $125 K?

Aside from the oppresive heat and humidity, the insta-turbo-thunder storms, the tornado seasons, the bible-thumpers, and having to endure news reports about the farging Rams every day, St. Louis has a kick-ass cost of living!!

$125K will buy a 3 bedroom, 1.5 bath ranch home bewteen 900 and 1400 square feet sitting on a little less than a quarter acre around here.  Of course, the home is 30 to 50 years old, but still....  I don't have to live in it!

[Drunkmasterflex]

I figured that even sports fans know stuff about other stuff.  You never know where you might learn something! 

I've been looking into this for years, and think I'm finally ready to take the plunge.

Maybe.   

To me the best investment properties are ones that need fixed up, they offer the best ROI imo.  Then again I have a lot of construction experience and many friends in the business so I can get things done on the cheap.  Other than that you seem to be headed in the right direction with your price range and your prospective tenants.

[Drunkmasterflex]

There are still homes that sell for $125 K?

Aside from the oppresive heat and humidity, the insta-turbo-thunder storms, the tornado seasons, the bible-thumpers, and having to endure news reports about the farging Rams every day, St. Louis has a kick-ass cost of living!!

$125K will buy a 3 bedroom, 1.5 bath ranch home bewteen 900 and 1400 square feet sitting on a little less than a quarter acre around here.  Of course, the home is 30 to 50 years old, but still....  I don't have to live in it!

Hell that sounds like the Taj Mahal to me I live in a 16x20 box with one other person and share a bathroom with two other people besides my roomate.

[Geowhizzer]

There are still homes that sell for $125 K?

Aside from the oppresive heat and humidity, the insta-turbo-thunder storms, the tornado seasons, the bible-thumpers, and having to endure news reports about the farging Rams every day, St. Louis has a kick-ass cost of living!!

$125K will buy a 3 bedroom, 1.5 bath ranch home bewteen 900 and 1400 square feet sitting on a little less than a quarter acre around here.  Of course, the home is 30 to 50 years old, but still....  I don't have to live in it!

$125K won't even buy you a small condo down here anymore.

We just got our home appraised for the purposes of expansion for our eight-year-old house.  We have 3 bedrooms, two bathrooms, and a family room.  No pool or anything, on 2½ acres of prime Florida swampland- about as far as you can get from the Gulf of Mexico and still be considered "Naples."

Here's the game:  Guess what the appraisal was.

[PoopyfaceMcGee]

No.

[Drunkmasterflex]

There are still homes that sell for $125 K?

Aside from the oppresive heat and humidity, the insta-turbo-thunder storms, the tornado seasons, the bible-thumpers, and having to endure news reports about the farging Rams every day, St. Louis has a kick-ass cost of living!!

$125K will buy a 3 bedroom, 1.5 bath ranch home bewteen 900 and 1400 square feet sitting on a little less than a quarter acre around here.  Of course, the home is 30 to 50 years old, but still....  I don't have to live in it!

$125K won't even buy you a small condo down here anymore.

We just got our home appraised for the purposes of expansion for our eight-year-old house.  We have 3 bedrooms, two bathrooms, and a family room.  No pool or anything, on 2½ acres of prime Florida swampland- about as far as you can get from the Gulf of Mexico and still be considered "Naples."

Here's the game:  Guess what the appraisal was.

Farg You! You rich bastich....On a serious note I would guess 650K.

[Father Demon]

I'm guessing $490K

[Geowhizzer]

There are still homes that sell for $125 K?

Aside from the oppresive heat and humidity, the insta-turbo-thunder storms, the tornado seasons, the bible-thumpers, and having to endure news reports about the farging Rams every day, St. Louis has a kick-ass cost of living!!

$125K will buy a 3 bedroom, 1.5 bath ranch home bewteen 900 and 1400 square feet sitting on a little less than a quarter acre around here.  Of course, the home is 30 to 50 years old, but still....  I don't have to live in it!

$125K won't even buy you a small condo down here anymore.

We just got our home appraised for the purposes of expansion for our eight-year-old house.  We have 3 bedrooms, two bathrooms, and a family room.  No pool or anything, on 2½ acres of prime Florida swampland- about as far as you can get from the Gulf of Mexico and still be considered "Naples."

Here's the game:  Guess what the appraisal was.

Farg You! You rich bastich....On a serious note I would guess 650K.

Note quite that high.  It was appraised at $450K.

The thing is, we built the house back in '98 for $110 K.  It has some nice features (tile floors in the kitchen and bathrooms, cathedral ceilings, ceiling light, fireplace- who needs a fireplace in SOUTHWEST FLORIDA?), but nothing that screams money.

I just have the liowest-tech hurricane shutters, though.

There would be no way in Hades I could afford this house today.

[Diomedes]

TrollJoel the fanatical capitalist would probably have some good advice for you.  He worships money.

The only advice I can give is spend some time in the neighborhood you're looking to buy.  Don't just drive through.  Find a local Dunkin' Donuts at morning rush..see who's there.  Check the area out around 10 p.m.  What's it look like?  Who's doing what?

You get my point.

[QB Eagles]

I don't have to live in it!

Demon the slumlord! 

I'm just breaking your balls, 125k here in the Pittsburgh area gets you even a better place than even in St. Louis. Go Rust Belt! You probably don't have to worry about the housing bubble bursting in your part of the country either. Homeless people in DC, LA, San Francisco, and New York can't even get a decent refrigerator box for 125k.

[Rome]

The best way to get around the 20% rule is to have the seller hold a second for a year.

And the reason that people purchase investment properties isn't to make money off the rents.  It's to get the value appreciation (rate of return) on the property.

The last investment property I purchased I paid around $75K for.  It was in a hell hole section of Daytona but I stole it just the same.  I put about $10K into it with new paint, finished flooring, landscaping, plumbing and electrical fixtures, held onto it for about 18 months.  During that time, I actually had a negative cash flow of about $100/month because the rents down here suck.

Big deal.  I ended up selling it for $120K after 18 months.  Sure, I got crushed on capital gains, but if you're paying capital gains, that means you're making a profit.

The only reason I sold it was because I got tired of dealing with the tenant's sob stories and the problems in the neighborhood.

Good luck, cuz.