Fannie Mae Rental Investment (Need Advice)

[DavidabeteAJ]

Hey,

So I'm 19 y/o and looking into investing in real estate and I love the aspect of flipping and renting. I would ideally love to buy one of those houses for like 40k-60k on homepath in north Georgia and flip it myself. So I ran all the numbers from everything like the material cost to property tax and I'm getting a cash flow that is good, But I'm scared that I am forgetting something or not adding something and that the moment I buy into something it's going to go south. I'm just scared that Fannie Mae properties are too good to be true. Any advice/inspiration in flipping Fannie Mae Properties is appreciated. I will put a screenshot of the numbers I ran below. P.S. I understand I will have to sacrifice a lot to get this done. Thank You :)

[waltworks]

Run the numbers with management at 10% and vacancy at 10%, and maintenance at $3k (this is a standalone house, right? $1k is way too low).

But, basically, sure. A $55k (after repair expenses) house that rents for $850 will usually at least be a halfway decent investment. Property taxes look (to me) on the high side for a place that cheap so that's a bummer, and you might be attracting high-maintenance tenants (I don't know your market) but I'd at least explore it. If nothing else, it's a great way to get your feet wet.

-W

[sammybiker]

What waltworks said.

Big picture, you'll be able to cut your teeth on this without much risk.  You'll either hate it and be done with it with minimal loss or you'll see the light of RE investing, adjust per your comfort zones (maybe buy more expensive properties that cashflow less but attract better tenants) and be FI in six years. 

[DavidabeteAJ]

Run the numbers with management at 10% and vacancy at 10%, and maintenance at $3k (this is a standalone house, right? $1k is way too low).

But, basically, sure. A $55k (after repair expenses) house that rents for $850 will usually at least be a halfway decent investment. Property taxes look (to me) on the high side for a place that cheap so that's a bummer, and you might be attracting high-maintenance tenants (I don't know your market) but I'd at least explore it. If nothing else, it's a great way to get your feet wet.

-W

Ok I did all the changes and the cap rate is not good the cash flow is horrible but it would get my feet in the door and I would build equity but as a rental investment property I don't see much potential I am going to manage the home myself therefore I am not adding it. Do you think if I'm doing the work myself it would still cost that much for repairs like holes in walls and stuff? If so do you know of other things I could invest in that would cash flow better I'm really just wanting cash flow so i can re-invest and build a portfolio?

[wbranch]

Maintenance costs aren't just holes in the wall, you have to be thinking about long term stuff - water heater, furnace, a/c, capex fund for large replacement/repairs, deductible on insurance when there is a large storm, roots in sewer, etc. Might only pay $500 in first couple years and then $10k in year 3.

Management cost should always be included as an expected expense, in this case think of it as paying the 10% to yourself. If you keep going down this path and have 10 rentals and decide that you need to hire management all of a sudden the number don't look very good.

[DavidabeteAJ]

Maintenance costs aren't just holes in the wall, you have to be thinking about long term stuff - water heater, furnace, a/c, capex fund for large replacement/repairs, deductible on insurance when there is a large storm, roots in sewer, etc. Might only pay $500 in first couple years and then $10k in year 3.

Management cost should always be included as an expected expense, in this case think of it as paying the 10% to yourself. If you keep going down this path and have 10 rentals and decide that you need to hire management all of a sudden the number don't look very good.

Makes me really re-consider what I've learned haha, I just don't know any properties that would be profitable at all because the properties that are 200K-300k the maintenance is much higher due to the larger area of sqft and the profit margin on those home before all the money taken out is like 200 so I'm thinking the only option is multifamily apartments? which sucks because you have 4x the appliances and stuff you have to upkeep. Any suggestions on investment strategies for real estate?

[tralfamadorian]

Are the mortgage numbers based on actual numbers or just estimated? At first blush, they don't seem realistic to me.

I don't know of anyone who closes for $1k- that's usually the closing costs for a non-mortgaged property. And 10% down with 4.5%? That looks like owner-occupied numbers. Are you planning on living in the property for a year first? And, you have scouted out the banks that will do a $36k mortgage, right? Only a small minority of banks will lend under $50k. Also, since you mentioned your age- you have discussed pre-approval with a loan officer, correct? Most lending institutions want 1-2 years working experience at the same job...

And one more- most of your profit is based on the presumption of appreciation. For the homes to be selling for $40k now, the region appears to be below the national average for appreciation. Can you find some real appreciation numbers for that area for the past 30-40 years?

[DavidabeteAJ]

Are the mortgage numbers based on actual numbers or just estimated? At first blush, they don't seem realistic to me.

I don't know of anyone who closes for $1k- that's usually the closing costs for a non-mortgaged property. And 10% down with 4.5%? That looks like owner-occupied numbers. Are you planning on living in the property for a year first? And, you have scouted out the banks that will do a $36k mortgage, right? Only a small minority of banks will lend under $50k. Also, since you mentioned your age- you have discussed pre-approval with a loan officer, correct? Most lending institutions want 1-2 years working experience at the same job...

And one more- most of your profit is based on the presumption of appreciation. For the homes to be selling for $40k now, the region appears to be below the national average for appreciation. Can you find some real appreciation numbers for that area for the past 30-40 years?

Well avg there is 3% that's why I put it and even without the appreciation I'm looking mainly for cash flow so i could invest in multi-families in the future and the 1k closing yeah i just threw in a number was not sure about that still learning and no i was not planning on living in it so I'm probably going to have to switch to a private loan so probably like 8% interest which I calculated in the 2nd screenshot. Just trying to get extra knowledge thanks for the info.

[waltworks]

Yeah, you need to think of management (if you do it yourself) as a job. You wouldn't work for free, so expense it at 10% no matter what.

It sounds like you need to spend a little more time establishing credit and building up DP funds. Even if you managed to get this private loan, do you have $5-10k in reserves to deal with emergencies/vacancies/etc? That's what I used to keep per SFH when I had rentals. Never had to dip into more than half at once, but shit does happen.

-W