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Posted: 11/19/2008 8:14:38 AM EDT
I currently own two rental properties. I will break down the properties with what seems like my best course of action to get positive cash flow. Just so you know I am 33 years old and have a full time position that pays very well for the area.

Property #1 - Townhouse
I currently owe $67,000 for this property. It appraised at $85,000. The current loan is a 15 year fixed at 6.5%, the amount of the loan at that time was $73,000. I still have 13 more years to pay it off. The monthly payment is $642 / month. This does not include taxes, insurance or the $100 / month HOA Fee. I am currently renting this property for $650 / month. Same as the other units this size. Insurance is $312/year and the taxes are $525/year. I am losing $2037.00 per year or $169.75 per month.

I could refinance the townhouse on a 20 year fixed for $67,000 and cover my costs and pretty much break even or I could go the full 30 and make positive cash flow. Or I could suck up the loses and get it paid off quickly and sell the property for full profit in 13 years. I like this idea but at the same time a couple of months of no rent could put me in some financial heat. The current tennant pays on time or before.

Property #2 - 3 Bed 1 Bath House
I purchased this property as a foreclosure and I put a couple thousand in it. I did a HELOC at 5% and borrowed $14,000. I used $5000 of my own cash so I bought it for $19,000. This house appraises for $30,000. I currently owe $12,300 on the HELOC. I would have to pay off the HELOC from the Townhouse before I could refinance it. I could borrow $12,500 against this house to payoff the HELOC and my payment would be sub $150 / month for 10 years. I am currently getting $345 / month rent. Taxes are $303 / year and insurance is only $180.00 / year. As of right now the difference in rent and the amount I pay on the HELOC has been covering the loses on the townhouse.

I also own a lot on a lake in subdivision that we were going to build a house on. Once gas started going thru the roof we decided against moving there because it was a 45 minute drive both ways to work and family. I owe $24,000 for the lot. There are only two left on the lake and the developer has raised his price per lot by $3000. The economy in WV is the same as it ever was if not a little better due to coal. I could potentially make $8,000 on this lot. We ended up buying a home closer to work and family and as much as I love that property it's not doing me any good but if I were to start making extra money from my rentals it could also pay for the lots. Not really sure what I should do. If these were your properties what angle would you aproach?
Link Posted: 11/19/2008 9:32:46 AM EDT
Am I following you correctly...?

You owe:
$67,000 (townhouse)
$12,300 (3br house)
$24,000 (empty lot)
––––––
$103,300 (total)

Your income:
$650 (townhouse)
$345 (3br house)
$0 (empty lot)
––––––
$995 (total monthly)

Your expenses:
$837 /yr (townhouse)
$483 /yr (3br house)
$?? /yr (empty lot)
––––––
$1330 /yr (total - taxes & Ins)

None of this is taking into consideration any other expenses (empty unit for 1+ months, repair, background checks, legal fees, etc), but as I see it:

$103K on a 15 year note @ 6% (if you can get that) leaves you paying $870 a month, plus your $110 /mo in taxes/insurance leaves the PITI at $980 /month, which is almost exactly what you bring in. (Doesn't include HOA fee!)

Putting that into a 30 year note @ 6.5% leaves you at $763 /mo (PITI), which helps a lot (still not including HOA fees and/or any expenses).

I personally prefer to try to budget out 50% of income as expenses (everything but P/I and cashflow) as a goal for a good buy, so to me, these numbers are a little scary. Having vacancies, evictions or major repairs could really set you back.

TO ME, the townhouse seems like a bad situation (as viewed by "my rules") and it might be a good idea to see about selling, or passing on some of the cost (HOA fees, maintenance, etc) to the renter (either directly or by raising rent). Both have their ups & downs.

The foreclosure fits "my rules" and is makes sense (positive cashflow) from a business perspective. I'd personally try to find more property like this one (low price/foreclosure) and invest the money from selling the townhouse into them.

Also, if you're not planning on building on the empty lot, I'd consider offing it to either pay down current mortgages, or find better rental property opportunities.

But there are 100's of ways to approach property/REI, and I don't claim to have the best answers... just how I see things. YMMV.

Good luck, whatever decision you go with.
Link Posted: 11/19/2008 9:51:33 AM EDT
I definitely see your point. I have been considering selling the townhouse once the lease gets a little closer to renewal. I lived in the townhouse as my primary residence and once we found a house we liked we jumped in and bought it. Instead of trying to sell it I had one of the other owners approach me to tell me they knew a good tenant looking to rent there. I thought I would make life easy and have them pay a years worth of mortgage and I would cover dues and taxes and insurance and eventually sell the place. Never really wanted to turn it into a rental place because it is nice and worth some money. I should be able to make $15k worse case scenario by selling.

The empty lot needs to be sold, as much as I like it, there is no point in hanging on to it. Plus I should be able to make almost 10% and I've only owned it for a little more than a year.

I was considering trying to make this all profitable by refinancing everything and at least getting my costs covered. Like I said in the previous post, I fortunately make enough in my full time job that I can take the monthly hits without hurting our lifestyle but a couple of months empty along with dues and I would be hurting.
Link Posted: 11/19/2008 12:12:52 PM EDT
Since I find myself unexpectedly in the position of a potential landlord of a townhouse due to an inheritance, I'm going to jump in with some questions being it seems like there are some knowledgeable folks already here...

First, I found this calculator online - does it appear to at least somewhat accurately depict reality? http://www.goodmortgage.com/calc_investment_property.htm

Summary is:

Approximate Value: $205k (similar unit sold for this over the summer)
Owed: $110K
Taxes: ~$3k/yr
Insurance: ~$500/yr
HOA: $100/mo (going up to some as-yet unspecified amount in Jan)

I'd hope to get something in the $1350/mo rental, another unit rented for $1250 over the summer, but was not as nice.   I do plan on using an agent to find a renter, which is 1 month's rent out the door, but I just don't have the time right now.

With a 30 year note @ 6.0% (is that really out of the question these days?), taking into account taxes and depreciation (which actually has be claiming a loss), the calculator claims I'll pocket about $3500/yr, assuming a modest property value growth (it is down a bit in the area, which is why I want to hold on to it, but we haven't been hit that bad), it puts me at +$9500 to my net worth.  

For all practical purposes, I think I'll need to set aside the positive cashflow for unexpected repairs (although nearly everything is nearly new - new kitchen appliances, new heating system, new, expensive carpeting and hardwood, new deck, roof replaced ~5 yrs ago).   On the flip side, all the new cosmetic repairs make me a bit leery about renters coming in and trashing them.

On the other hand, I could sell and after commissions and taxes, walk away with around $85k.  Of course, it might sit on the market for 6 months for sale, where I'd probably get a renter in much sooner...   I've no doubt that holding onto it is the better long term investment, but I'd also like to use the opportunity to purchase a new home and take advantage of the relatively cheap market for that...  Getting what I want in the area of want, without some of the cash influx from the sale of the property would have me be on the edge of my comfort zone, in the case where something really goes wrong with the rental...

So, what say the hive mind?    No brainer to keep the property and rent it?
Link Posted: 11/20/2008 8:31:18 AM EDT
What are you allocating for maintenance and repairs?  
Link Posted: 11/20/2008 10:49:16 AM EDT
Originally Posted By shootemup:
What are you allocating for maintenance and repairs?  



Right now I would just rely on my savings to cover any major repairs. I think I am going to let it ride with the current situation and try to sell both properties in the spring and the lot as well.
Link Posted: 11/21/2008 11:15:27 AM EDT
Originally Posted By rocko:

With a 30 year note @ 6.0% (is that really out of the question these days?)...


Might be.
Investors pay a little more than owner occupied.
A 1% bump over the owner occupied conforming rate is not unheard of.

I financed two places about 6 months ago, but had very large down payments (30-40%) and a long history with the portfolio lender.

Rental calculators can tell you what you want for the rent, not what you can get for the rent.

Rental rates tend to be a VERY local thing.

When I started out I was in the hole before taxes a couple hundred a month.
I now have enough to put down more $ and make sure I can break even.

I purchase very well located but run down places (often 'old lady' houses from an estate)

After a thorough update I often sell, but more than once have gotten caught in market gyrations or unanticipated repair costs.

Those house get held until I can get enough for them.
They have all generated neutral to positive cash flow while being held.

Just be prepared.
Markets go up, AND they go down (unlike so many fools seemed to think).



Link Posted: 11/21/2008 2:37:01 PM EDT
[Last Edit: 11/21/2008 2:38:17 PM EDT by rocko]
Originally Posted By brickeyee:
Originally Posted By rocko:

With a 30 year note @ 6.0% (is that really out of the question these days?)...


Might be.
Investors pay a little more than owner occupied.
A 1% bump over the owner occupied conforming rate is not unheard of.

I financed two places about 6 months ago, but had very large down payments (30-40%) and a long history with the portfolio lender.

Rental calculators can tell you what you want for the rent, not what you can get for the rent.

Rental rates tend to be a VERY local thing.

When I started out I was in the hole before taxes a couple hundred a month.
I now have enough to put down more $ and make sure I can break even.

I purchase very well located but run down places (often 'old lady' houses from an estate)

After a thorough update I often sell, but more than once have gotten caught in market gyrations or unanticipated repair costs.

Those house get held until I can get enough for them.
They have all generated neutral to positive cash flow while being held.

Just be prepared.
Markets go up, AND they go down (unlike so many fools seemed to think).





Thanks.   There is currently about 45% of the value in equity (comp in the same development sold for $205k a couple of months ago, about $110k left on the mortgage in the estate's name), so I'm hoping that will help in getting a better rate.   I believe the rental price is in line - another in the same development again rented a couple of months ago for $1250, but had one less bathroom.

The area is on the way to be the next yuppie-ville hotspot, unless the economy really goes south.   Frankly, the town used to be a crap hole, but they've pumped tons of money into it, and the main street of the town (about 1 mile away) has had about 4 new bars (nice - not dive bars) and 6-7 medium to high end restaurants open in the last year or so.   I think the immediate area will trend higher than average because of all that revitalization, so I'd really like to hang onto it if I can also upgrade both the location and size of my current primary residence w/o needing to sell...
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