[Belize King]

Little background. I'm 26, deployed in Kuwait right now, with no debt and descent credit. I worked for a company called Grainger for 5 years and am in supply right now. Almost finished with my AA. I have the GI Bill when I get back that can support me for 3 years while I finish up my degree. Not really interested in working while finishing up my degree. When I get back, I should have 100K to work with the summer of next year. Westcoast put me on Lendingclub.com which is showing real good returns for me right now.

I am thinking about turnkey businesses, or other ideas I have but right now I’m looking to get into real estate. At least until I finish up my degree. The property below has three tenants already so the money is there. I have access to a loan using the VA or I can put up 20%. I was thinking having my brother move in the fourth unit and manage it for me.

My question is what are the benefits and drawbacks into getting a property like this? The initial investment isn't high because of the cost of living down here. Also, if I do get the property should I pay it off next year or keep the mortgage? Appreciate the info.


http://realestate.yahoo.com/Texas/Corpus...RyDTNn47Qs

Listing overviewMap and community info Photo 1 of 10 Price:
$109,900 .
Bed(s): 8 .
Bath(s): 4 .
Type: Multifamily .
Sq/Ft: 3,072 .
MLS Number: 171942 .
Age (years): 62 .
Date listed on Yahoo!: October 07, 2011
(196 days ago)

[Pacesetter20]

(04-21-2012 05:01 AM)TexasMade Wrote:  

My question is what are the benefits and drawbacks into getting a property like this? The initial investment isn't high because of the cost of living down here. Also, if I do get the property should I pay it off next year or keep the mortgage? Appreciate the info.

Very complicated questions as there are many variables. Properties like this can be cash cows, but they can be money pits too.

How much is rent? How much are property taxes? How much is insurance? Home inspection (does it need repairs)? Liability (if someone slips and falls and hurts themselves on the property they could sue you; meaning you'd need to protect yourself with some sort of LLC). Bad tenants? (trash your place), Bad neighborhood? (crime, no one wants to live there except #1), stuff always breaking (need good cash flow to have a reserve to maintain the property).

Do the math and if you can make the numbers work, it can work, but if you are trying to be an absentee owner you will have more problems.

[Belize King]

(04-21-2012 05:27 AM)Pacesetter20 Wrote:  

(04-21-2012 05:01 AM)TexasMade Wrote:  

My question is what are the benefits and drawbacks into getting a property like this? The initial investment isn't high because of the cost of living down here. Also, if I do get the property should I pay it off next year or keep the mortgage? Appreciate the info.

Very complicated questions as there are many variables. Properties like this can be cash cows, but they can be money pits too.

How much is rent? How much are property taxes? How much is insurance? Home inspection (does it need repairs)? Liability (if someone slips and falls and hurts themselves on the property they could sue you; meaning you'd need to protect yourself with some sort of LLC). Bad tenants? (trash your place), Bad neighborhood? (crime, no one wants to live there except #1), stuff always breaking (need good cash flow to have a reserve to maintain the property).

Do the math and if you can make the numbers work, it can work, but if you are trying to be an absentee owner you will have more problems.

Appreciate the response. The rent should be between 500-800. I almost got a spot in the neighborhood for that amount. I would have to look into the home inspection. I saw a window AC so the AC probably isn't central. I would have to look into the liability issue and tenants. The neighborhood is cool. No drama or too many break-ins. Another flag is the homes age. Was built in the 50's I believe.

I don't plan on moving back to Corpus so I would be an absentee owner. So instead of having family occupy the other unit, would it be was to have property managers instead?

[WanderingSoul]

I think your best bet is to find a forum that deals with this type of thing. There might be a handful of knowledgeable posters here on this subject, but you are likley to find much more valuable information on a forum dedicated to this specifically. Good luck man.

[cycliss]

You didn't mention how much in assets you have, but I'm guessing that this property would eat up almost all of it. The fact that all your eggs are in one basket makes the venture pretty risky, especially since you have no previous experience as a landlord and housing is an illiquid asset. Also I'm assuming you don't have any tangible skills as a contractor, meaning that you will have to pay someone a lot every time something goes wrong. The only good points are that mortgages are at record lows and you can get a steep discount on properties, especially if they are foreclosed (doesn't appear this one is).

If you want to be in real estate, a much better alternative would be to buy shares in an REIT such as a professionally managed apartment complex. That way your investment would be much more liquid; you don't have to pony up the full cost of a unit; professionals do all the work for you. Consider also investing in commercial real estate rather than residential. Examples might be part of a strip mall or a low-rise office building.

[OGNorCal707]

I'd say the age of the property and the condition its in are the biggest concern. Are you saying that the total rent from all units is 500-800 that seems way too low, so I'm assuming that's per unit (it is a quadraplex). If it's $500 X 4, that's $2,000 combined, that's bank compared to what the monthly mortgage payment will be, should be only around $500 a month. To me that's a damn good deal, as long as the place is turn key, I'd definitely consider the investment. As much as people hate on real estate, I think it's still safer than investing in a business venture.

[Pacesetter20]

(04-21-2012 09:06 PM)OGNorCal707 Wrote:  

I'd say the age of the property and the condition its in are the biggest concern. Are you saying that the total rent from all units is 500-800 that seems way too low, so I'm assuming that's per unit (it is a quadraplex). If it's $500 X 4, that's $2,000 combined, that's bank compared to what the monthly mortgage payment will be, should be only around $500 a month. To me that's a damn good deal, as long as the place is turn key, I'd definitely consider the investment. As much as people hate on real estate, I think it's still safer than investing in a business venture.

If this is true, than it is probably a no-brainer, but lets go with the OP's scenario. 3 units rented, with the 4th pro bono to the brother, who we are assuming is the property manager.

110,000 purchase price (25% down =27,500), so 82500 mortgage, which equals around 510/month.

500x3 = 1500/month
500x2 = 1000/month
500x1 = 500/month

So even with only 2/3 units rented it is profitable (and barely a loss if only 1 rented).

You probably want to sock 100-200/month away for repair budget and another 100-200/month for taxes.

Mortgage - 510
Repairs - 100-200
Taxes - 100-200

So you are looking at 710-910/month in expenses. With 1 unit you are losing 210-410, with 2 units you are profiting 90-290, and with three units you are profiting 590-790. This is a rough estimate and not fully exclusive of the things that may pop up and could easily change if your brother is not doing property management and have to go to a management company. Which will cost you 10% rent per month, plus half of the first's months rent. But will also give you another unit to increase your profit potential. But the key is a reliable property manager that knows what they are doing and will keep your units full as often as possible. Also, if you are going to be absentee, you will probably need to hire someone to do basic book keeping and a decent accountant/tax advisor to make sure you are straight with the IRS.

[Belize King]

(04-21-2012 08:16 PM)cycliss Wrote:  

You didn't mention how much in assets you have, but I'm guessing that this property would eat up almost all of it. The fact that all your eggs are in one basket makes the venture pretty risky, especially since you have no previous experience as a landlord and housing is an illiquid asset. Also I'm assuming you don't have any tangible skills as a contractor, meaning that you will have to pay someone a lot every time something goes wrong. The only good points are that mortgages are at record lows and you can get a steep discount on properties, especially if they are foreclosed (doesn't appear this one is).

If you want to be in real estate, a much better alternative would be to buy shares in an REIT such as a professionally managed apartment complex. That way your investment would be much more liquid; you don't have to pony up the full cost of a unit; professionals do all the work for you. Consider also investing in commercial real estate rather than residential. Examples might be part of a strip mall or a low-rise office building.

Never thought about REIT until yesterday. Appreciate the info. Yeah, I have no skills as a contractor. I should be able to see the property next week if I make it to Texas, from there I will figure out something. I dont like having my money sitting now. My education is free so I really dont need to invest in myself. The other thread with 50K question is good help also.

[Cr33pin]

reading the description it has 4 units, i own property an rent it out for a living. multi unit houses are where its at. you only pay taxes, insurance, repairs, for one house, yet get rent equal to 4 houses... its alot cheaper to replace a roof on one house then it would if you had four houses

at your age this is a very wise investment, you will be making enuff money to double up on your principle payments an pay it off in less then half the time you finance it for. and as soon as it paid for its money in your pocket every month for the rest of your life or as long as you keep the property an keep it rented.

and giving your bro a apartment in it just for looking after 3 others is not the smartest move money wise. the property managers around where i am from charge 10% of your total monthly rent income, so if you had all 4 units rented for 500 a month they would charge $200 bucks to manage your property.. id still charge your bro atleast 200 or more dollars a month for rent....

buy it now, have your renters pay for it for you. and one day if you decide you dont want it anymore you can sell it for way more then you paid for it pus you would have been making money off it for years......... WINNING

Buy it, an buy other properties every chance you get, realestate makes alot of millionaires.. it is always better to buy the properties somewhere you are living where you dont have to pay someone to watch over them an you can keep a better eye on them.

my .02

[kosko]

(04-24-2012 03:35 AM)Cr33pin Wrote:  

reading the description it has 4 units, i own property an rent it out for a living. multi unit houses are where its at. you only pay taxes, insurance, repairs, for one house, yet get rent equal to 4 houses... its alot cheaper to replace a roof on one house then it would if you had four houses

at your age this is a very wise investment, you will be making enuff money to double up on your principle payments an pay it off in less then half the time you finance it for. and as soon as it paid for its money in your pocket every month for the rest of your life or as long as you keep the property an keep it rented.

and giving your bro a apartment in it just for looking after 3 others is not the smartest move money wise. the property managers around where i am from charge 10% of your total monthly rent income, so if you had all 4 units rented for 500 a month they would charge $200 bucks to manage your property.. id still charge your bro atleast 200 or more dollars a month for rent....

buy it now, have your renters pay for it for you. and one day if you decide you dont want it anymore you can sell it for way more then you paid for it pus you would have been making money off it for years......... WINNING

Buy it, an buy other properties every chance you get, realestate makes alot of millionaires.. it is always better to buy the properties somewhere you are living where you dont have to pay someone to watch over them an you can keep a better eye on them.

my .02

You bring up good points but with investment RE your still open to a lot of risks. What you stated works out great if your in this for the long term. The best part about this is that you get a fluid source of cash coming through but you sitll ahve to factor in costs that will most likley rise. Taxes will go up, Interest rates will go up, fees will cost more with no guarantee this property will be worth more in 3-5 years than it is today. Nobody really knows if American markets have bottom'd out, if you believe its wise to take a %'age hit for a few years then that's cool, but it will also mean you will have to wait years longer to sit on this thing to build up sizable equity. A REIT you can dump in a few hours and you still got all the benefits of fluid cash coming through. Depending on where you live also you can swish your fund around to avoid taxes, not so with property.

I see time and time again when cats jump into the physical rental game and only come out with a meager 5% gain in the end when all is finalized with all costs in. I know in Canada you can 'hide' your dividends and get a tax break on them, would they count your rental cash flow as income in the States or Texas?

With a REIT I don't have to worry about shit as long as its a well performing fund people still gonna pay there rents. You can own Apartment blocks and shopping malls and sit on your ass. If you are crafty with your hands I would say go into a physical holding since you can cut down on maintenance and repairs costs by doing shit yourself.

Look at all options. Look at tax rules also to see how much of your cash you can keep in your pockets. Also look at rent trends in the area and figure out if its the most viable spot to cash in on some high rents. Is it near a University or something like that?