investing

JasonR · Post by **JasonR** » Sun Feb 20, 2011 1:05 am

[deleted]

AlexK · Post by **AlexK** » Sun Feb 20, 2011 2:00 am

I agree, the banks are not loaning easily these days. And they wonder why they can't get top dollar for their bank owned properties. I will be using personal savings for an investment 4-plex in a few days but I'm going in 50% with a friend.

MossySF · Post by **MossySF** » Sun Feb 20, 2011 11:43 am

The problem is not your credit or downpayment ... it's the price of the house. Fannie & Freddie will not repurchase a $24K mortgage. This means the bank either has to hold the mortgage itself or sell to the limited number of private investors willing to hold small mortgages.
Seriously at $30K, this is a 100% cash purchase. Think it through .. a lender has the same costs to approve/service a mortgage whether $24K or $240K. They simply cannot make enough money charge 5% on $24K.

Shandi76 · Post by **Shandi76** » Sun Feb 20, 2011 4:09 pm

I agree about the cash purchase. In the UK, many banks refuse to grant mortgages for less than £25,000. And most mortgages require a minimum of a 25% deposit. So if you want to purchase anything under about £40K you are looking at cash, or alternative financing.

JasonR · Post by **JasonR** » Sun Feb 20, 2011 5:15 pm

KevinW · Post by **KevinW** » Sun Feb 20, 2011 6:27 pm

Do you have another property you could refinance to 80% LTV?
Keep in mind that being leveraged with a high average LTV is ideal when you have no vacancy and rents are increasing due to inflation or housing demand. Owning outright is ideal for vacancies and/or falling rent due to deflation or low demand. So owning properties in cash diversifies you against economic factors, while owning multiple properties diversifies you against individual vacancies.
The market swings between these extremes so you want to be positioned to do OK in either situation. When I was running numbers on real estate I concluded that running around 50% average LTV was the best compromise for me. So if I were in your shoes I'd be snapping up $30k homes in cash. However I am more cautious about housing slumps than most real estate investors seem to be.

JohnnyH · Post by **JohnnyH** » Sun Feb 20, 2011 6:59 pm

Can you buy cash, fix up and then refinance? Seems like you might have a shot at a larger mortgage if the house was worth more.
Also, there are other options. I got a discoverbank ad in the mail yesterday, up to 25k loan at 7.99% with no origination and no early repayment fees.
I am interested in this too, a bank lien on the property is good protection from litigation, no?

Shandi76 · Post by **Shandi76** » Sun Feb 20, 2011 8:13 pm

Jason, have you considered applying for a loan from ZOPA or another peer-to-peer lending site? I'm not sure how big they are in the USA yet, but loan rates are usually much more competitive than 12% if you have a good credit rating.
I am a ZOPA lender in the UK and people with good credit ratings get loans for around 8%. You can't get a 25 year loan: only a 3 or 5 year loan, but it is not secured against the property.

Chris L · Post by **Chris L** » Sun Feb 20, 2011 9:27 pm

If you use leverage from your other properties the math is all the same if you apply it to this new purchase at 100%. You are still leveraged the exact same except that you can probably get a better rate.
Have you thought about this?

JasonR · Post by **JasonR** » Sun Feb 20, 2011 10:35 pm

Chris L · Post by **Chris L** » Wed Feb 23, 2011 2:49 am

So you'd make $1200/year profit on a $30,000 risk for a return of 0.04%? That's a horrible return for that much risk. I would hold out for 12% ROI minimum. It's kept me out of the market since 2001, but that's fine by me. I'm in Canada by the way where our RE is going strong and stronger...pretty ridiculous really.
At $100, what if something major/minor went wrong? When I invest hard earned money, I want my cash back ASAP.
And yeah a bank will usually look better on a HELOC since it's your own house. I have no idea what the landscape looks like in the US though.

JasonR · Post by **JasonR** » Wed Feb 23, 2011 3:22 am

George the original one · Wed Feb 23, 2011 3:59 am

Canada and the UK have not popped their bubbles. The banks felt pain since the whole world was investing in our mortgage-backed securities, but real estate prices have held up in both countries.

Chris L · Post by **Chris L** » Wed Feb 23, 2011 3:05 pm

If you want a different view on our housing market, I recommend: http://www.greaterfool.ca/.
We're due for a strong correction I would say.

jasoninmississippi · Post by **jasoninmississippi** » Mon Feb 28, 2011 5:59 am

Is there a standard % for maintence and repairs to be saved per month? I looking at rental in good shape but not sure what % to use in in my figures.

mikeBOS · Post by **mikeBOS** » Mon Feb 28, 2011 6:17 am

I've read you ought to expect 25% of rent to go towards maintenance, taxes, insurance and vacancies. I don't have enough anecdotal data of my own yet to know how accurate that figure might be.

Chris L · Post by **Chris L** » Mon Feb 28, 2011 3:11 pm

Generally 20% is a good figure to go toward maintenance. Some years you'll spend little, other years you might blow through 35%. The taxes are known...insurance too. Vacancies will kill you if you have 2 units or even under 10.

halcyon · Post by **halcyon** » Mon Feb 28, 2011 7:56 pm

Personally, I do a lot of repairs when I purchase the property and then set aside $50/mo for small maintenance items. My holding period is less than 5 years and so I don't expect to make any major repairs (roof, hvac) during that time.
For long term, I think the 20% figure quoted above is probably a good start. There's rule of thumb known as the 50% rule which says that 50% of the rent will go towards operating expenses (which don't include debt service). This includes management though so if you manage your own properties then you can expect to spend less than that.