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Rental investing

What is a good  way to invest your money to expect a return- what i am asking is what ratio of cash down as opposed to bank loan would provide positive cash flow in a typical market - 
In fact in Chattanooga the market is somewhat stable .
Also , how do i find the right investmant property now that things have changed so much - The way im looking at it is i cannot make any money on my money - interest is paying nothing nearly - I did numbers and with some work i should be able to invest in a small home and make more off of my money - But then again i see so many forclosures i worry that ill make a bad investment - 
Also the books available all seem to written befor the  housing  market crash - so its really hard to get any sound advice ...
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August 09 2013 - Chattanooga
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Answers (4)

As a local Realtor and invest, my clients are making a cap rate in most cases of at least 9% and usually between 20k-30k per flip. I would be happy to discuss options for you in the market. There are some local banks that do allow you to put down 20% based on the repaired value and only make interest payments until the house sells. Sitting down and discuss your goals and setting up a game plan is the best way to start. I look forward to hearing from you.
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August 13 2013
Most banks I see around here in Florida are not making investment loans. Most investors know they have to go to a hard money loan company or private funding for money. HML is at 12-14%, but it is short term money, used for Fixing and Flipping houses. Term is 12 months. Last time we looked, I think we could get $50,000 and with fees, cost us around $700 payment per month. We paid it off in 5 months when we flipped and sold the house.

If you are the private money lender, you would do well to find an investor who you can partner on a house. They use your money at 12-14% rate and you become the 1st lien holder on the property. The money is paid out through an attorney and the borrower is responsible for having a building inspector check the work for draws against the money.

Make sure your new investment property has good clean title, get estimates on work, but remember the MAO rule, Maximum Allowable Offer is After Repair Value (what you can sell for) x.70 - Repairs. So if a home will sell for $100,000 and needs $20,000 in work, you should not pay more than $50,000. To be safe, try and buy for even less.

On your first deal, see if you can partner with an investor in your local area, and see their work and meet some people they have worked with in the area. Trust is important in Real Estate, and money does bring out the worst in people, some people.

Best of luck to you,
Liz
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August 13 2013
A)
Take a look at the cash you have and the risk you want to take with it. Here is an actual example of one of my recent transactions.  Where I live real estate is cheap. I can buy a house in some neighborhoods for 35k and it will easily rent for $550 or $600 per month.  That is a really good return and very little risk. I would for sure pay all cash in this case as it will take 75 months to get your money back and with some luck the home increases in value as well but you can easily unload the house at any time for the initial investment amount especially if you make some improvements to it or you can take a loss and unload it at 20k or 10k or even 5k. the point is you have the power because you paid cash. This power is worth a lot to me.

B)
If you need to spend 100k and rent the home for $850 you can see the % of return goes down but this is a much more common scenario. Do you want to have a bank loan that will allow you to put down 20k down and pay $550 per month in mortgage payments netting you $300 per month. This allows you to make up your initial investment in about the same amount of time but you have a mortgage so even if you hate being a landlord you are stuck making payments until you are able to unload the place for 80k or 90k at which point you have nothing to start over with. Ideally option B can be repeated so you end up with two 100k units for about the same price as in option A. Right??

Then after a few years you sell them all and retire in the bahamas 

++

I know the books you have read suggesting you should leverage every dime. I don't see it that way. I like the power of being able to kick out a tenant and wait for my price on a rental and not have to worry about it "costing" me money.  Sure I am out time and unrealized income but I don't have a bill to pay while I get the best tenant I can find.

I don't own a lot of rental property and I live in a duplex. I always get great tenants and they are often neighbors for a while. When the unit is empty I make my own home mortgage payment. When it is full then I don't have too.  :)  In either case I come out pretty well and while all the books tell you I could move out of my duplex and leverage that income, I like not ever being leveraged. 

Just a different spin on things for you. I am sure there will be a lot of more traditional advice but look at how each option works best for you and not necessarily the best numbers from a bean counters point of view. :) Numbers are important but they are not everything.

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August 13 2013
Profile picture for Rob Hale
Great questions!  Typically you will want to put at least 20% down on an investment property.  That is usually the requirement for most loan programs, although some require 25% down or more and offer better rates.  You should be able to cash flow on lower end properties with good rental rates.
To find the best investment property you should find a good agent who also invests.  They will not only be able to recommend the area and type of home best for you, but also give you insight into what they own and why.
It's true that most books are pre-crash, but you can still glean positive info from them without getting caught up in too much of they pre-hype.  The Millionaire Real Estate Investor is a good start by Gary Keller.
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August 12 2013
 
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