Author Topic: I was face-punched over idea of buying my first rental property  (Read 24013 times)

MorningCoffee

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Re: I was face-punched over idea of buying my first rental property
« Reply #50 on: June 12, 2013, 01:22:23 PM »
@F140: that's not possible.  At best, one can do a little try with the historical mean, 8.7%.
We know 20% has happened, but what's the probability of that?  If you plan everything using the worst assumptions you will never do anything.

A quick info for our US friends: any fixed rate longer than 5 years in Canada is not binding the debtor after the 5th year, so banks mostly don't do it.  Some places give 10 year rates, but the big ones don't.

I don't think it's possible to account for it perfectly either because it's an unknown, but assuming it will stay the same (i.e. at historic lows) might be the implicit assumption of the OP. One might want to structure an investment that still makes sense if rates are up to 6 or 8% in five years.

I agree it's hard to pinpoint, but I'm going with the assumption interest rates will be higher when we need to renegotiate. I'm thinking of going with the 30 year amortization to take advantage of the current low interest rates.  I would then keep the positive cash flow invested in something safe, short term and accessible, in order to build up a lump sum should I need to throw some money at a +6% interest rate in four years.

Anyone have another way to deal with possible interest rate increases?

TLV

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Re: I was face-punched over idea of buying my first rental property
« Reply #51 on: June 12, 2013, 02:39:25 PM »
I'm thinking of going with the 30 year amortization to take advantage of the current low interest rates.  I would then keep the positive cash flow invested in something safe, short term and accessible

I don't think there's anywhere safe, short term, and accessible that will give you a better return than just paying down the mortgage. It's not taking advantage of the low interest rate if you keep it in a savings account earning an even lower rate, unless you need the liquidity.

Praxis

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Re: I was face-punched over idea of buying my first rental property
« Reply #52 on: June 18, 2013, 11:41:58 AM »
Cap rate = NOI/Value or NOI/Sales Price.  Free and clear cap rate = the yield rate for the unleveraged property, as well as the capitalization rate.

We are not valuing the property here, we are estimating the return.  Assumptions consistent with the OP's statements were made. 

Praxis:

I'm not seeing 30 year loans at the rates you quote.  Are your rates for 10 or 15 year paper?


Sorry for the late reply.  I just reviewed my loan documentation to make sure I was being accurate.  3.75%, 30 year term, on an investment property.   Just took it out.  If it was my primary I could have gotten 3.25%.  However, I had to use a mortgage broker to find a bank that did this- the local credit unions tack on 1% to 1.5%.


Another Reader

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Re: I was face-punched over idea of buying my first rental property
« Reply #53 on: June 18, 2013, 11:58:30 AM »
Looks like you got a darn good deal.  None of the brokers I have worked with could have accomplished that, even before the recent run-up in rates.  Are you paying origination/discount points?  Do you have fewer than 4 financed properties?  Is this a Fannie Mae backed loan or a portfolio product? 

tryan

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Re: I was face-punched over idea of buying my first rental property
« Reply #54 on: June 19, 2013, 12:45:17 PM »
I wouldn't touch anything that isn't cash-flow positive month to month.  Using 12-15% of rents for maintenance and a 5% vacancy rate ... you're right on the edge. 

Perhaps the bigger question is do you really want to rely on friends/family since your an hour away.  Although I now own property in 3 states, the first ones were less than 10 miles away and could be managed by me.  The learning part is important and may trump everything else. 

meadow lark

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Re: I was face-punched over idea of buying my first rental property
« Reply #55 on: June 20, 2013, 01:45:52 AM »
I am confused why the RE category so frequently degenerates into nastiness.  It often seems this one category is less educational and more "you're too stupid to ever do this, so leave it to the adults." 

MrMoneyPinch

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Re: I was face-punched over idea of buying my first rental property
« Reply #56 on: June 20, 2013, 07:54:42 AM »
I am confused why the RE category so frequently degenerates into nastiness.  It often seems this one category is less educational and more "you're too stupid to ever do this, so leave it to the adults."

Some people think snarkiness helps.  It's the "Internet tough guy syndrome" at work.  The cool thing is looking at the posting history of the culprits.

SwordGuy

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Re: I was face-punched over idea of buying my first rental property
« Reply #57 on: June 20, 2013, 10:25:31 AM »
There's a thread on this forum that Arebelspy pointed out to me that lists some very good real estate books.  I picked up one of them and gave it a read, it really explained a lot.

Don't remember where it is, but a bit of searching will find it.

arebelspy

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Re: I was face-punched over idea of buying my first rental property
« Reply #58 on: June 20, 2013, 10:46:46 AM »
I am confused why the RE category so frequently degenerates into nastiness.

Hmm, I don't feel like this is the case.

Care to give some examples?

It often seems this one category is less educational and more "you're too stupid to ever do this, so leave it to the adults."

Especially don't agree with this - I feel like it's quite educational, there's lots of newbie (to real estate) posts that are helpful, rather than saying "you're too stupid to ever do this, so leave it to the adults."

Obviously if they're asking about a (poor) investment, and one is blunt in their reply, it may come off as a facepunch, but I don't think there's anything personal (i.e. "you're too stupid") in that.

Sorry you feel that way, Meadow Lark.
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DoubleDown

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Re: I was face-punched over idea of buying my first rental property
« Reply #59 on: June 20, 2013, 03:36:23 PM »
I can see how it comes off that way, although not because any of you real estate investing gurus are being a-holes in any way. You guys are dispensing excellent advice. I think it's probably because the people with experience (rightly) pass over about 100 or more real estate "opportunities" for every decent one they move on. So when a n00b comes forward with an "opportunity" and it's pretty evident to the folks with background in this that the person really hasn't done due diligence, ran the numbers, and so on, it's inevitably going to turn into a recommendation to do more research, or that this particular opportunity is not really an opportunity at all. Probably sounds like the 99th-in-a-row-occurrence of negativity and "put on your big boy pants" condescension even though that's not the case at all. When the 100th question about a property comes up, they'll all say "looks like a pretty good opportunity."

The perceived tone isn't intended; it's like if my buddies bust my balls, we know it's just the way we speak with each other in fun and because we're friends. In other contexts it could be seen as harsh or rude (say, if I walked up to someone at the office and said "you're such an idiot" would get me in some trouble but that would be fine coming from my friend sitting around watching a game on TV or whatever).

arebelspy

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Re: I was face-punched over idea of buying my first rental property
« Reply #60 on: June 20, 2013, 04:03:18 PM »
That makes some sense, doubled.

Oh, and it's way more than 100. ;)

We just have better filtering mechanisms.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Another Reader

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Re: I was face-punched over idea of buying my first rental property
« Reply #61 on: June 20, 2013, 05:05:19 PM »
My objective here is to help people avoid very costly mistakes.  I tell people what I would do in their shoes, with my 30 years of real estate experience and 17 years of owning multiple rental properties.  That does not mean I am always right or what I would do makes sense for their specific situation.

Most folks new to real estate investing have no idea what's involved and they draw inaccurate conclusions because they lack knowledge and experience.  You can't just read a book and know how to invest in real estate.  If you make a bad stock investment, it's the cost of the trade, a few minutes of your time, and whatever you lost to get out of it.  It can cost you tens of thousands of dollars and months or years to get out of a bad real estate investment. 

If I come across at times as rude or arrogant, the intent is to keep someone from committing an egregious error, or possibly even financial suicide.  I prefer to think I am being direct and to the point.  The concept of the "face punch" applies here, although the analogy is a bit too violent for me.

arebelspy

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Re: I was face-punched over idea of buying my first rental property
« Reply #62 on: June 20, 2013, 05:51:48 PM »
Also sometimes trolls make things more contentious (as was the case earlier in this thread).

Short of banning them, I'm not sure what to do regarding that.  ;)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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Check2400

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Re: I was face-punched over idea of buying my first rental property
« Reply #63 on: December 30, 2015, 03:34:08 PM »
So, what eve happened with the duplex?   I've read through the thread, as I am putting an offer down on a duplex soon.  I appreciated Praxis's post with the numbers on Internal return, Max ROI, and Expected ROI. 

It seems to be, at the very least, a good starting point for discussing numbers when approaching an investment, and also omits the nominal, but I believe worthwhile mention of principal paydown on the monthly mortgage as well as the, once again, nominal but worthwhile mention of depreciation deductions on the property.  I don't see those as factors for consideration on purchasing, but cherries on top of an otherwise good purchase.

My property is a $70,000 duplex, 20% down, 20 year, 4.5% note. 
Total closing costs are $18,000. 
Monthly mortgage is  $1,000.00, conservatively.
IRR is 13%
Max ROI is 28%
Est. ROI is 14%

I am purchasing with my two side hustle business business partners/good friends.  One of them lives in the city of the rental property. 
I think the original question for new investors, like myself, is not whether this is a good deal.  Like ARebelSpy so sagely pointed out, the good deals are less than 1% of the deals you come across. 
I think the question should instead be, is this a bad deal.  We are not looking to retire on this one property, but instead are relying on being able to scale up the amount of properties over the next 8 years.  Despite some posters beliefs, experience is the best education I've ever received, not internet advice.  So for a first property, I think the question is is it a property that you can learn from without getting burned too badly.

Of course, if anyone has a different take, I'd still reflect upon it and factor it in to the purchase determination.

More importantly, MorningCoffee, did you pull the trigger and buy the duplex?

MorningCoffee

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Re: I was face-punched over idea of buying my first rental property
« Reply #64 on: January 04, 2016, 11:37:31 AM »
Hi Check2400,
I didn't end up buying that specific duplex - someone else swooped and bought it, making my decision for me. I did buy 2 other rental properties since then, and I'm glad I did. I've been hunting for property #3 for about 6 months now. I'm pretty picky, but I'm sure something will come up soon.

Some of the best advice I got was not to force the Math. Just about any property can look good if you play with the numbers long enough, put down a large down payment or predict overly optimistic real estate appreciation. Understanding the tenant act was also important since the laws are quite pro-tenant in my area. I met a former landlord who lost everything because he bought an overpriced property without understanding the laws regarding rent control, renovations and evictions.

arebelspy

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Re: I was face-punched over idea of buying my first rental property
« Reply #65 on: January 04, 2016, 12:15:31 PM »
Oh god, I forgot about honobob.  Hah.

Glad to hear you got some good investments, MorningCoffee!

This is phenomenal advice:
Some of the best advice I got was not to force the Math.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

J Boogie

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Re: I was face-punched over idea of buying my first rental property
« Reply #66 on: January 04, 2016, 01:31:51 PM »
Ugh. Here to vent and gather some feedback.
 

So I guess I have 3 questions.
1. Do the numbers work?
2. Have I missed anything?
(Edited: my #3 was about the FIL rant, which I don't think was clear :)
3. Why does someone rant like that, when they have no facts, no data, just a negative opinion on being a landlord. What makes them think they have the right to shit on my plans just because it's not something they would do? Argh!

1.  What numbers?  There is NO such thing as "the math"!  Quit getting numbers over the internet.
2.  Rent growth and appreciation! Seriously, how can you come up with any decision without KNOWING these numbers.
3.  It's much easier to support a non active decision.  Plus I think he didn't want to be involved.

Here ya go.
http://www.mortgage-investments.com/resources/online-calculators/10-year-investment-in-real-estate/

I don't think rent growth and appreciation are knowable.  It's good to have an informed and conservative estimate of what people will pay to rent/buy your property in the future, but it would be impossible to know these numbers.