How Could Great Cashflow be a Bad Deal?

are going to buy and control it as a rental for yourself then that is fine but if you intend on assigning it to another investor then it needs to be 70% of ARV.

Cash Flow is important on rentals but always ask How much is the equity, expenses etc. A Rental property with equity plus cash flow increases your net worth and portfolio. Hope you'll be guided before you make your decision, if you think it's good, then go for it. Blessings to all. LA

That makes sense Matt, i'm definitely buying this one for myself to hold. This is a strong area in Newark that a lot of people are trying to get their hands on, but I've always heard you make money when you buy, not when you sell. If I buy it for FMV, what if the value doesn't go up. I'll have positive cashflow on one hand, but I just don't know if I should be buying the property below FMV. Will that affect me refinancing in any way to get more property in the future? Maybe im paranoid, but this is getting pretty close and I don't want to do something I will regret. Thanks

If you are buying it for yourself then it matters on what your criteria is. It is tough justifying using up all of your money on one deal for $700 a month in cash flow due to the fact you cant really refi or get your money out. Tough situation, is $700 per month worth it? That does however sound like an amazing deal!

I love the quote!

1. Are there tenants in place?
2. How long and what are the terms of their lease?
3. What will happen to your cash flow projections with a 1 month vacancy?
4. You must have equity, you do not buy at retail, you are an investor.
5. Do you have 20% down? A no money down, FHA loan on a rental property? Let us know how that goes!
6. Do you have 6 months reserve mortgage payments in the bank?

Let us know how the meeting goes and good luck!

Michael Mangham
MD Home Acquisitions LLC

Deshone Remember ROI if this is a no money down and the financing won't put road blocks up for future financing,so you can keep investing,then you just need to make sure all bases are covered.

Check all the numbers,rehab work,any repairs that weren't done. Area rental rates, and don't forget to factor in vacancies because you still have to pay even when you don't get paid.

If every think looks good go for it's a great way to build cash flow.

on the risk-reward curve. If the property is positive cash flowing (and you have verified this) of $700 per month on a NO MONEY down deal; then you aren't tying up any of your funds but you are also getting $700 per month in your pocket plus tax benefits though depreciation. Assuming this information is true, you have to pull the trigger and go for it. FMV is an acceptable starting point but negative equity is not. (there are exception to this too, but I digress) If you are paying FMV, then you have to make sure that plans are in place for the area to grow. Sometimes, in this economy, major public section plans are placed on hold but the general public isn't aware of it until after the people in the "know" have unloaded their property. Be careful and make sure you indepentantly verify your information.

I, like Mike, am skeptical about a 0 down FHA loan in this environment. They have to be subsidizing the loan and probably doing it through a back door. Again, be careful because your name is on the loan. Don't sign papaers that will make you party to bank fraud.

Thanks for everyone's input Bill, Jim, Mike, Matt, and just plan-e. He was explaining to me that if I wanted to find buyers for him that I could raise his asking price and pay the buyers closing costs out of that money. I'm not interested in a deal like that, even though he said the money is in finding retail buyers. My biggest concern is the equity, because although I would be getting a property in a great rental market thats in demand, I can't bank on it going up in value. Once again, I thought you make money when you buy not when you sell. I'm still a little unclear since there were some mixed opinions.

I said would it be in my best interest to get something that I can fix up myself, but he said with an FHA loan, I would need to get a 203K(don't really understand that) and I would need some money down. I want to buy a cashflow property but am I moving too fast? Should I wait until my credits better than FHA standards or can I still get myself something killer with the FHA loan. Please help me through this one b/c I can feel a headache coming on, Lol. Thanks again everyone.

does the property have? how many vacant/occupied?
How do your numbers look?
I would not feel too comfortable buying a property at FMV with 0 down-what's your exit strategy?

It is my understanding that you need to live in the property if you have an FHA loan?

wishing you great success!

Valerie

I seen one comment on here and that should tell you what you should be expecting and that my friend is Mr. Michael Mangham himself. I guess I'm just here to boost his confidence that much further over the top. LOL! But I am learning A LOT from this man....and he KNOWS what he's talking about......so please take that advice and run with it!!!

Hope you have great success and good luck!

TheYungGun

Deshon,
If you have done your due dilligence, then you know the economic development plans in the target area. That may give you some insight on future appreciation and current rental demand. I would not purchase on hopes of future appreciation. Although that can be a deal sweetner it is not guaranteed. If the property cashflows after PITI and you feel comfortable with the target market after extensive research,then it is worth taking all of the info you can find on the property and compare it to all comps around it. That will give you an idea of where you stand in comparison to everyone else in the same area. As always, have an alternate exit strategy to back you up in case things don't go as great as you anticipated.
Also, if there are tenants in place don't forget to negotiate deposits or any other type of rent credits that may be due back to the renter in the future. This will come out of your pocket if you do not receive it from the seller.

Tradesmen1

I haven't gotten any numbers yet, our meeting is tomorrow. What I do know is what he told me and that is that I can easily clear $700 per month. I will ask tomorrow if there are renters in place already. I do know that this area is prime and up in coming because they are putting so much money there.(New NJ Devils stadium, NJ performing Arts center, right near transportation), but who would help me to understand that better, maybe a real estate agent? I sent out the fax from Profit from RE Right NOw to about 10 offices and got 1 phone call back. I will call this gentleman since he is the only one professional enough to call me back.

The RE Investor/Agent that I am going to meet with tomorrow is a heavy hitter in Newark and after telling him my strategy and vision, he said he wants to show me what he has.

These were rough numbers we went over on a 2 Family with a bonus room basement apt(I will make sure this is a legal unit)
Mortgage: $300,000 w tax($7000) and insurance: $2400
1st Floor 2BR: $1350
2nd Floor 2BR: $1350
Bonus 1BR: $750
Positive Cashflow: $1050

His properties are also fully renovated with new stainless steel appliances, granite counters, ceramic tile, so on and so forth. This is all I know so far, but if you guys could help me gather some questions for tomorrow I would definitely appreciate it. Thanks once again to everyone.

My exit strategy would be to buy and hold this property, I definitely want to build my passive income and I know this is a great area, so I would hold onto this for a very long time(10+ years). I just don't want to hurt my possibility of getting more property in the future. Can I refi if I buy at FMV. I asked him how I go about getting more cashflow properties in the future, he said wait about a year, refi, and buy another property with another FHA loan. Is this good advice?

You don't want to be waiting another year, but that's deal #2 let's get threw this one first.

Definitely don't want to wait another year if I don't have to. Being a little green(actually a lot) there's a lot that I don't know about things. It doesnt make it any easier that I don't have a 700 credit score or a lot of cash, but I am going to assign at least 6 properties this year and personally buy one cashflow property for myself.

I do qualify for an FHA loan, what does that change as far as what I'm able to do. I wanted to find a run down 2 family property, fix it up and rent it, but i'm open to doing whatever works.

My questions are.
1. Should i wait to get more cash before going into a deal like this? Does it make any difference?
2. What is the best strategy to acquire a killer cashflow property for someone using an FHA loan?
3. What questions should I have ready for my meeting tomorrow?

Thanks once again everyone. You guys and gals are priceless!! God bless.

Remember FMV is ok if the terms are great...if the terms were weak and you were tyiing up your money then you need to get them to lower the price. You have $700 per month positive cash flow with none of your own money...SIGN ME UP!!

Credit score does not mean you will get a loan easy either. I found this out myself as I talked with a local bank about wanting to buy investment properties in the area, filled out all the forms they needed and with my credit score right now being over 700 actually they still would not give me a loan. I own both my vehicles I have, do not have any credit card payments, no other bills except the normal stuff like water, phone, electricity, and home insurance along with my current mortgage for 15 yrs with low payment and still could not get a loan. So I have to look more into HML loans instead. As for FHA loans if I am correct too you have to live in the property, usda loans are different but their requirements are pretty strict too.

shawn

Deshone Don't forget you really want to find owner finance also when you can.
If all things look wright to you and your comfortable with a deal then move forward. If you are not sure don't let anyone HERE OR ELSEWHERE talk you in to it....

First of all thanks Jim and Shawn, Ok, so much to take in my head is spinning but I'm still focused. With owner finance, would that be like taking over the property subject to the existing mortgage? Also do they have to be current on payments to do that?

Our meeting is tomorrow at 2 and we're going to take a look at some property. I'm still a little confused about some things, like how I would refi if I buy at FMV, but ideally if I found a property and the owner was willing to do owner finance, what is the best thing to do because I would think that would be more on single family than multi and with these prices in NJ, its harder to rent out an entire house than a multi family.

I'm diving back into Profit From RE Right Now! Thanks again guys and once again any questions that I should have lined up for tomorrow would be very helpful. I really want that cashflow. We'll see what happens.

Find out how old the roof is, the carpeting and flooring, how old the water heaters are, the heating system. When was the last time they were serviced? What about snow removal costs from a bad winter or ice damage. These expenses come right out of your pocket. Check the floors around the tubs from tenants carelessly leaving the shower curtain open and letting water run on the floor. The same with the laundry area. If a tenant was to leave and you go vacant for a period of time how will this affect you? If you get a bad tenant or good tenant that looses their job that doesn't pay you and you incure legal fees on top of that and they destroy your property on top of that. I don't like to be negative here but these are the hard core facts of things that do happen. If you don't have a good reserve of money things like this could become a problem to you in the near future. Just things to think about and prepare yourself for.