patrick.net

state says

why

Because it's cheap money, and the interest is deductible to boot. If you are buying boats and prime rib dinners with it, then it's stupid...but if you are putting the money to work (buying income producing, cash flow positive properties, for example) then you are generating / accumulating personal wealth.

Not all debt is dumb. Many people think they should pay extra payments on their mortgage, when that is actually a pretty bad idea economically (in most cases). The big problem is that most people aren't disciplined enough to take the "extra payment" and put it in savings, or in bonds or whatever... instead they spend it on a new fishing pole, fancy skis, or a vacation...in that case they would be better off making the extra payment. If you do put the money aside, you may not be earning enough to cover the additional interest your mortgage imposes, but it gives you much more flexibility. When you lose your job, you have a cushion. When a great deal on a property comes along, you have the cash to jump on it (if you choose). And as interest rates go up, you will likely find yourself in a position where the cash outside of the loan is earning more than the (fixed, extremely low) interest you are paying on your mortgage.

I don't really think it _should_ be this way...but it is, so you should take advantage of it. The mortgage interest deduction is probably the biggest factor in making this appealing, and the fixed (particularly low) rates are another big factor.

It's not without risk, of course, but much of that risk is mitigated by not making bad decisions.

Yeah well you've got to keep those units occupied, and besides the normal upkeep, you'll need to be able to do emergency repairs on those units due to either stupidity, negligence, or just plain old fashioned spite, to get back at the land lord.

"Will I be able to apply/qualify for traditional owner-occupant financing for a multi-unit building? "

Not if it's an FHA loan.

In my town many of the Houses were originally SFH, there were built up in the big back yards with some cases a duplex or even a quadplex detached building added, and a few rooms in the main house converted into eff, or 1 or 2 br apts.

Most of these houses are written up as single family homes, on the Loan paper work, because FHA only finance SFH homes.

I guess I'm a more conservative residential investor. I'm not seeing the words "cash reserve" anywhere here. Anyone going all in will lose sooner or later.

state says

assets dont generate cash. what generates cash is the time and effort you put into running an investment property. buying a house and letting it sit there does not generate cash

Clearly it's the combination of the two, no? If you did all the work to rent and maintain a place, but didn't own the asset, do you think you would make as much? (hint: no)

The work, hopefully, is a small part of the equation. Controlling the asset should be the big part...otherwise you are getting paid for doing painting, yardwork and the like...

state says

buying a house and letting it sit there does not generate cash

Tell this to Chinese.

Chinese rent will not cover the maintenance, but the house price goes up 10+% every year.

This is why 50% apartments in China are empty, but they are great investment.

xenogear3 says

Tell this to Chinese.

Chinese rent will not cover the maintenance, but the house price goes up 10+% every year.

This is why 50% apartments in China are empty, but they are great investment.

we just lived through something like this recently. it won't last.

I would recommend going to John T. Reed's site. http://www.johntreed.com/realestate.html

He is a pretty thorough skeptic on real estate investing, yet still does it. I would spend a lot of time reading his free material - he gives away a ton of truly useful free information and opinion.

Interesting. Skeptic I guess. However I never met anyone from Colorado that could invest worth a shit. Not in houses anyway maybe in semi automatic rifles. Some of those guys he has on his crap list of investors are my money men. Some of them are multi millionaires. Very well versed in Real Estate.

Some of them are indigenous to this country. WHICH MAKES MY POINT. See. We aren't keepers of the timber. We work and build things. Some of them know what they are doing. You get some mench (ole John T Reed can appreciate that word). Like Ben Benanke or Greenspan who I am pretty sure is related to Nixon. Honest to God you look to them for direction. I look to them for really interesting BS.

Anyway. You need to understand the lay of the land before throwing someone out there you don't understand.

What I've read from my bank is you qualify for a normal loan if you live in a unit and there are a maximum of 4 units total. Anything over that and you have to get an investment mortgage.

My point in the cite of the site is that there are a lot of ways to lose money before you even start investing. Lay of the land comes from knowing people who know it and knowing when they know it. Just as important, is avoiding techniques that the people selling don't even understand or care to get right. A simple example is selling the idea of DIY trusts. Trust law is incredibly diverse and if your paid-for information isn't highly state-specific, it is likely to do more harm than good.

The question posed here suggests that he is a novice with some money, time and energy to get into the market, but may not realize some of the implications of his own good-enough questions. There are plenty of people who will take his money and not answer his questions, because mostly, they could care less. Reed's page is where I direct people dying to spend (lose) money learning the ropes. I'm not saying he is necessarily the bomb, but he's smart, and hammers incessantly themes that a successful investor almost surely can't believe to have a chance.

Just to address a particular point here, I don't know the definitive answer:

Q: "Will the bank/underwriter consider rental income when determining my ability to service the loan, or will my normal income have to suffice?"

A: Probably not, for an "agency loan" unless you have 12 months immediate experience as a landlord.

I base this on the answer I got from a guy who has done more than a thousand loans - many more - and I trust that he is right. He says it is in the agency guidelines. I will still check it out. One thing I do know, however, is that if it can be done, I would be disappointed with him if he were not doing it. I would still check it out, though, before I had a client put a deposit on anything, only to fail at the financing stage. Agency guidelines are available for free, BTW. No seminars.

One final comment is on the recurring theme of whether it's better to rent or own at this site. Regardless of anything else, at the moment, there are a lot of people making the transition from being owners to renters, and ownership provided a very long period (years?) where they made no house payment. I'm not trying quantify this, but being a landlord requires "credit" evaluation skill, and post-foreclosees seem a particularly risky group to be a neophyte landlord to. No judgment, but incidental landlords don't get what they're taking on. Your pro forma is likely to be too optimistic.

One last point on JTR that I like is that, by and large, he isn't selling information. He heartily encourages use of premium content services (e.g the newest one I have seen is Clear Search - a law enforcement tool that just became available to the public, that's maybe $300/mo, but may have a per use fee that is much less). Expensive yes, but not as expensive as seminars at ten times the price, that don't give real information.

Being a landlord requires getting a check out of someone in the real world. Life in landlord land isn't always that happy. You can take notes.

My point is some of those guys he has on the crap list. Can buy him 700 times over and have most of it left for themselves. That tells me something. Cause i can with a phone call get 1m dollars for something without it hurting some of those aforementioned people. So I have to question his knowledge of whats going on.

You will have to put 20% down on an MFR going conventional. But FHA will loan money for anything....at 3.5% but with much MI.

Hi everyone - first time posting here and I am hoping someone can give me advice. I am selling an investment property and will net about $225K; It was part of a 1031 20 yrs ago and I will 1031 again in my area (college town with low vacancies); I am pre-qualified for up to 500K with 25% down - in my area a good 4 - 6 plex goes for $300K - $400K but the market is very slow and I think a lot of these sellers are dreaming; At the current asking prices the CAP rates are in the 5% - 6% range but I will be making lower offers trying for 8% CAP rates; Now my question: my real estate agent is urging me to put down 50% or bigger down payments and not leverage any more than necessary. My feeling is that rates are low and rental vacancies are low so this is a good time to leverage. If I follow his advice I would probably buy one property - if I follow my family's advice I would buy 2 or maybe 3 properties with 25% down. I currently own 4 investment properties - one has a mortgage for about 50% of its value and the other 3 are paid off. Just interested in whether anyone has some advice for me. Thanks in advance!

Try putting this into your financial model:

Your tenant is well vetted. Stable income, stable employment record, good credit, decent hardworking night shift custodian for a community college district.

She moves in and pays the rent on time.

A few months later, her gang banger adult son moves in after release from his incarceration. His gang banger buddies spend a lot of time at the property. One of them needs a place for his fighting pit bulls, so he leaves them at the rental.

Neighbors of the rental don't like all the commotion and remind the landlord that he is on notice about the pit bulls and will be held accountable if anything happens to them or their kids from those animals.

Landlord is not anonymous and is intimidated by gang banger son and his relatively anonymous buddies.

This really happened, I was one of the neighbors.

How does that fit into your spread sheet calculation?

Last week, I spoke to a real estate agent about insurance for earthquakes (I currently live in Pennsylvania); she told me she could not afford the insurance, and if she could, it carries a 15% deductible of the replacement value of the home. She said she would be up the creek if she was impacted by an earthquake. Are the "investors" considering this risk. What happens to a condo development if 80% of the residents do not have this insurance (or cannot afford repairs not covered by deductible amount)?

I find it funny that people are getting into specifics about Patrick's investment scenario. Minus all of the financial jargon the experts used in their responses, it comes down to your willingness to commit and work towards your investments. It's really that simple. In the beginning stages of any investment plan, you make sure the numbers make sense, all risks are carefully assessed and accounted for, but once you commit, you decrease all the risks through your own inter-personal discipline.