Returns on Real Estate Investment

<p>Notrichenough..</p>

<p>You are buying places for 96,000 that rent out for 2400 a month?
Or 48,000 that rent out for 1200?</p>

<p>dstark...</p>

<p>Both were REO foreclosures, both sold within a couple days of listing. One went for 5% over listing price and was pristine, the other was over 50% over listing price and needed significant rehab (mold, water damage - not a project I want to go through again any time soon :cool: ).</p>

<p>They both have ideal ROI of 20%+, which is (rents - mortgage, taxes, insurance, water)/my investment.</p>

<p>Most properties with this kind of potential return are in areas where I wouldn't go after dark, but these two were in a safe area. It helps that DW is an agent. There is some luck involved in getting something like this, and you have to be ready to jump immediately.</p>

<p>Those are very nice returns....</p>

<p>Well, those are "ideal". </p>

<p>In practice, when you add in maintenance, vacancies, commissions, repairs, etc (I've got my plumber on speed-dial), it can eat up a lot of that. Last winter, for example, the ridiculous amounts of snow we had caused over $7000 in damages to roofs and gutters, and you don't want to know what happened to my snow removal budget. :cool:</p>

<p>So if you are starting with returns in the single digits, they can vanish in a hurry.</p>

<p>
[quote]
snow we had caused over $7000 in damages to roofs and gutters

[/quote]
</p>

<p>That should be covered by your insurance, with deductable.</p>

<p>Yes, snow country should have higher expenses, but this is in Florida and the condo external damages/repairs/maintenance should be covered by HOA. However, with such a small mothly HOA for such a large unit, I can imagine the property must be in shambles. In my mom's condo that unit should be assessed with $700 HOA fee.</p>

<p>We have looked at some condo that has a $230 HOA Vs $350 and it really shows the difference in overall quality of the building maintenance.</p>

<p>Who will cover the shortfall in condo associations' reserves when condo owners default or not able to pay the monthly fees? This is the first problem in buying condos in areas of foreclosures.</p>

<p>Make sure the roofs on those condos are not tile, tile roofs in Florida are notorious for failing and leaking after tiles shift, tear underlayment felt and the roof starts leaking. If all the roofs start leaking in the project, you could get tagged with a giant assessment for new roof. Too make sure construction is concrete block. If units are frame with stucco, water leak problems could happen and again big assessment to remedy.</p>

<p>Too, make sure there is no Chinese drywall in unit, it was used a lot in Florida when that condo was built.</p>

<p>"Returns on Real Estate Investment "
-Negative</p>

<p>Only a small point, but my experience is that it's not likely to find 4% fixed on a rental property. They typically are higher, and fixed is not always available.</p>

<p>
[quote]
That should be covered by your insurance, with deductable.

[/quote]

Well, it was spread out over several buildings, and a bunch of it was maybe not "damage" per se, for the first time ever we had to have our roofer come out and shovel the roofs because the snow and ice got so high. We have high deductibles too. I maybe should have looked into it, it didn't really occur to us that insurance might cover some of it. :(

[quote]
but my experience is that it's not likely to find 4% fixed on a rental property.

[/quote]

I've refinanced several properties in the last year, converting them all to 15 year mortgages. Low rate was 3.25%, high rate was 4%. I got a HARP refi for 4.625%. The rates are unbelievable right now.</p>

<p>TD Bank has a 30 yr fixed 0 points for 4.25%, and a 15 yr fixed 0 points for 3.375%, and they don't charge higher rates or higher points for small (<= 4 unit) investment properties. I would have everything with them except they limit you to two mortgages with them.</p>

<p>This is great analysis and very helpful to me. We own one rental property and I've been looking at others. The first one is a totally different scenario. Multi use building with tenant longterm tenant whose rent pays the mortgage. The other use is office space for DH. Area is very desirable and easy to rent. We've often rented to people we know. Real estate has flattened here but it's still worth about 150K more than we paid for it.
Now I'm looking at single family or condo. Definitely if you can't pay full cash for the property you have to have at least 25 percent down and the interest rate won't always be 4 percent.
We've been able to get under 4 fixed by using the equity (we have a lot of it) in our primary home and financing all properties together.<br>
I've never actually used that GRM or other "real" analysis as I'm not a pro so it's very helpful to me in evaluating new properties.</p>

<p>
[quote]
I maybe should have looked into it, it didn't really occur to us that insurance might cover some of it.

[/quote]
</p>

<p>We had the wind blown loose gutters, the insurance covered the repair cost, so was those replacement fences. At the end, I got a small check, because the high deductables.</p>

<p>
[quote]
"Returns on Real Estate Investment "
-Negative

[/quote]
</p>

<p>^^^Actually not. In the high days of 2007 everyone is buying a house as "real estate" and hold on to it with negative am, thought the price will increase and they can flip it later, as long as the rent paid a part of the mortgage. That is NOT "investment" that is speculation. RE investment is a maticulously calculated business activity, first thing is to buy into a defensable location. secondly a positive cash flow for at least 5% on NOI and a much higher cash on cash. You just cannot speculate in RE which most of the small "investors" did.</p>

<p>
[quote]
make sure there is no Chinese drywall in unit,

[/quote]

How do you tell if you have Chinese drywall?</p>

<p>
[quote]
first thing is to buy into a defensable location. secondly a positive cash flow for at least 5% on NOI and a much higher cash on cash.

[/quote]

+1</p>

<p>Our worst-performing building from a ROE standpoint (we are underwater, which is why I got the HARP loan mentioned above) cash-flows really nicely, and because it is in a decent location it is pretty easy to rent. So I don't have to worry about what its current value is, I can wait forever.</p>

<p>Wait....wait...wait...</p>

<p>Notrichenough...</p>

<p>You call SS an entitlement?
You want the government to get out of SS?</p>

<p>And you are getting HARP loans?</p>

<p>:)</p>

<p>:)</p>

<p>SS is an entitlement, and I never argued that the gov't should get out of SS, just that they stop lying about what it really is.</p>

<p>As for the HARP - I have never missed a payment on any mortgage I've ever had. I never will miss a payment on any mortgage I have (and I have a bunch). I'm not getting a bailout here. I haven't created any more risk to anyone by taken advantage of this program. It's just getting me a rate closer to the current market. Note that it is still almost 1.5 points higher than the current market rate.</p>

<p>Why would you use HARP if the rates are higher than market rates?</p>

<p>Chinese drywall:</p>

<p>Florida</a> Attorney General - How to Protect Yourself: Chinese Drywall</p>

<p>Inspection</a> steps for homeowners</p>

<p><a href="http://www.DrywallResponse.gov%5B/url%5D"&gt;http://www.DrywallResponse.gov&lt;/a&gt;&lt;/p>

<p>If SS is an entitlement, can I opt out of paying into it, please??</p>

<p>Lol.....</p>

<p>Yeah....</p>

<p>I did not mean to turn this into a political thread...</p>

<p>So...it is amazing that real estate is still weak with these interest rates...</p>