An investment idea........California Cashflow
2 Comments Published by Brian W. Barringer on Wednesday, January 02, 2008 at 11:57 AM.
Concept:
Prices in the central valley, particularly in the hardest hit areas of Stockton and Sacramento, have gone down about 45%. Previously, it was un-thinkable to buy an investment in California that would "cash-flow". What that means it that the rent you get pays the mortgage you owe. Now it has just become possible again. The homes you can do this with are on the lower end of the price-range due to location or condition. Using my outline the target acquisition price of a unit would have to be $45,000. There are currently 18 units under $60,000 for sale. Here is the concept briefly as a 4 part process.
Stage 1) See all bank properties in target price range. Make $45,000, as-is, 10% down offer, 10 day inspection contingency and 15 day close. Inspections needed are pest, roof, and physical inspection. Also most likely the investment would be a condo. One of the most important things to remember when buying a condo is that you also buy the HOA so its important to get the HOA rules and read over them carefully. Why? because we want to make sure that the complex is A. friendly to investors B. not in a huge amount of debt and C. Not in litigation. The way I want to choose the units is the first offer will be made on best unit and work our way down the list until we secure a property for our target price. I will take care of this process.
Once the deal closes there are two objectives I need to get accomplished right away.One is rehab and the other is finding a tenant.
Stage 2) Light rehab: I am 100% confident I can get this done in 30 days or less. For the rehab, the unit gets re-keyed, new flooring and paint if needed (I am not looking to rehab a kitchen or bathroom, put up drywall or re-shingle a roof, and I also don't want to be a slum lord so units will be in a decent living condition). The first month of ownership or before we have to pay the first mortgage check(30 days) is maximum turn around time I give myself on this. I have many resources at my disposal to get this done.
Stage 3) Renting and holding: Stage 3 starts at the same time as stage 2. I have researched the target market rents and we should have no problem renting a unit for $650-$750/mo with a $650 deposit. I plan on making the unit available for SJHA(housing authority) section 8 housing, the good thing is rent is on time, the one bad thing about section 8 is that deposit is usually waived. One of the goals in holding the property is to develop a "rainy-day" account which we would dip into when we need to fix or rehab something.
I also plan on trying to rent out the unit using conventional means which include: listing it on craigslist, featuring on this blog and main website, getting a C-21 real estate sign in front of the complex with a flyer box and Stockton record classifieds. The only expenses here are again, my time, and money for the classified ads and possible credit check fees(if not section 8). I plan on using a standard rental application which looks similar to a job application. Who we rent to is a very important decision, final decision on who we rent to will be a group decision. I will handle all aspects of renting the unit. Process of rehabbing and renting will continue until we reach stage 4
Stage 4) Selling: Once equity in the investment units reaches 100% or $90,000-$100,000 we will sell. This will happen, it may take 5 or 10 years. This can get really profitable, if as a group we were holding 10-15 units. From there, as a syndicate,we could 1031 tax exchange into a very large out of state muli-unit apartment building.
Financial aspect:
The Loan: non owner occupied loan with a rate of 6.37% fixed for 30 years. ( 10% down required.)
Price: $45,000 with a 10% down payment (4,500) makes a loan amount of $40,500.
-Interest only payment of 252.67/mo.
-Private mortgage insurance at a cost of $22.61/mo.
-Taxes would be in the monthly payment at $46.88/mo.
-HOA dues (most likely) usually dues are not more then $195/mo.
Grand total with Principle, Interest, Tax, Insurance and HOA dues is 517.15/Mo.
Closing costs needed not including down payment is $3960.
So what that means is that if I had one partner we would both be responsible for about $250/mo when the unit is vacant. When the unit is rented we will be making $150-$250 in positive cash. This money will go into an account which will be used for rehab expenses. Once the account reaches $5000 the funds from then on will go to paying back the down payment.
So what I am saying is that we buy the place for 45K. We eventually sell it for 100K we owe $40,500. We get 53K profit(assuming a 7K expense buffer) By this time the down payment should be fully paid back and so would not be an issue on the bottom line. How each investor pays there taxes is not factored.
Depending on what you do with the money you may pay no taxes. Being in the real estate business I could sell the condo for cost, only accruing a buyers fee should the condo be sold by another realtor, fees for sale of the property might be 3,500 each on the high side, one thing to consider is that we will most likely sell in a buyers market where I will have a good chance of representing both sides of the transaction. So after expenses I estimate we should be making $22,000-$25,000 on each investment, each partner.
Partnership thoughts/rules:
-Buyouts: One may sell interest in the property to another. What you own is your fraction of the rainy day fund and your equity interest.
-No partner can force a sale before our target sale price.
-Partnerships shall be in equal parts.
-When partnerships are 3 or more there will be a voting system for major decisions.
-Partners give one person the power to make daily executive decisions regarding the day-to-day management of units.
-Agreements between partners will be in writing.
-If this is successful I would like do this on a large scale and form a corporation.
(no fractional ownership or stock)
Tags:
Central Valley, Stockton, Investment, Idea, Plan, Brainstorm, Partnership, Section 8, Landlording, Cashflow, California
Prices in the central valley, particularly in the hardest hit areas of Stockton and Sacramento, have gone down about 45%. Previously, it was un-thinkable to buy an investment in California that would "cash-flow". What that means it that the rent you get pays the mortgage you owe. Now it has just become possible again. The homes you can do this with are on the lower end of the price-range due to location or condition. Using my outline the target acquisition price of a unit would have to be $45,000. There are currently 18 units under $60,000 for sale. Here is the concept briefly as a 4 part process.
Stage 1) See all bank properties in target price range. Make $45,000, as-is, 10% down offer, 10 day inspection contingency and 15 day close. Inspections needed are pest, roof, and physical inspection. Also most likely the investment would be a condo. One of the most important things to remember when buying a condo is that you also buy the HOA so its important to get the HOA rules and read over them carefully. Why? because we want to make sure that the complex is A. friendly to investors B. not in a huge amount of debt and C. Not in litigation. The way I want to choose the units is the first offer will be made on best unit and work our way down the list until we secure a property for our target price. I will take care of this process.
Once the deal closes there are two objectives I need to get accomplished right away.One is rehab and the other is finding a tenant.
Stage 2) Light rehab: I am 100% confident I can get this done in 30 days or less. For the rehab, the unit gets re-keyed, new flooring and paint if needed (I am not looking to rehab a kitchen or bathroom, put up drywall or re-shingle a roof, and I also don't want to be a slum lord so units will be in a decent living condition). The first month of ownership or before we have to pay the first mortgage check(30 days) is maximum turn around time I give myself on this. I have many resources at my disposal to get this done.
Stage 3) Renting and holding: Stage 3 starts at the same time as stage 2. I have researched the target market rents and we should have no problem renting a unit for $650-$750/mo with a $650 deposit. I plan on making the unit available for SJHA(housing authority) section 8 housing, the good thing is rent is on time, the one bad thing about section 8 is that deposit is usually waived. One of the goals in holding the property is to develop a "rainy-day" account which we would dip into when we need to fix or rehab something.
I also plan on trying to rent out the unit using conventional means which include: listing it on craigslist, featuring on this blog and main website, getting a C-21 real estate sign in front of the complex with a flyer box and Stockton record classifieds. The only expenses here are again, my time, and money for the classified ads and possible credit check fees(if not section 8). I plan on using a standard rental application which looks similar to a job application. Who we rent to is a very important decision, final decision on who we rent to will be a group decision. I will handle all aspects of renting the unit. Process of rehabbing and renting will continue until we reach stage 4
Stage 4) Selling: Once equity in the investment units reaches 100% or $90,000-$100,000 we will sell. This will happen, it may take 5 or 10 years. This can get really profitable, if as a group we were holding 10-15 units. From there, as a syndicate,we could 1031 tax exchange into a very large out of state muli-unit apartment building.
Financial aspect:
The Loan: non owner occupied loan with a rate of 6.37% fixed for 30 years. ( 10% down required.)
Price: $45,000 with a 10% down payment (4,500) makes a loan amount of $40,500.
-Interest only payment of 252.67/mo.
-Private mortgage insurance at a cost of $22.61/mo.
-Taxes would be in the monthly payment at $46.88/mo.
-HOA dues (most likely) usually dues are not more then $195/mo.
Grand total with Principle, Interest, Tax, Insurance and HOA dues is 517.15/Mo.
Closing costs needed not including down payment is $3960.
So what that means is that if I had one partner we would both be responsible for about $250/mo when the unit is vacant. When the unit is rented we will be making $150-$250 in positive cash. This money will go into an account which will be used for rehab expenses. Once the account reaches $5000 the funds from then on will go to paying back the down payment.
So what I am saying is that we buy the place for 45K. We eventually sell it for 100K we owe $40,500. We get 53K profit(assuming a 7K expense buffer) By this time the down payment should be fully paid back and so would not be an issue on the bottom line. How each investor pays there taxes is not factored.
Depending on what you do with the money you may pay no taxes. Being in the real estate business I could sell the condo for cost, only accruing a buyers fee should the condo be sold by another realtor, fees for sale of the property might be 3,500 each on the high side, one thing to consider is that we will most likely sell in a buyers market where I will have a good chance of representing both sides of the transaction. So after expenses I estimate we should be making $22,000-$25,000 on each investment, each partner.
Partnership thoughts/rules:
-Buyouts: One may sell interest in the property to another. What you own is your fraction of the rainy day fund and your equity interest.
-No partner can force a sale before our target sale price.
-Partnerships shall be in equal parts.
-When partnerships are 3 or more there will be a voting system for major decisions.
-Partners give one person the power to make daily executive decisions regarding the day-to-day management of units.
-Agreements between partners will be in writing.
-If this is successful I would like do this on a large scale and form a corporation.
(no fractional ownership or stock)
Tags:
Central Valley, Stockton, Investment, Idea, Plan, Brainstorm, Partnership, Section 8, Landlording, Cashflow, California
Be careful you don't run afoul of the securities laws in soliciting for investors.
Hey, thanks for the comment. I dont really know about securities laws. I like to keep it simple. Anyways, this is more of an idea then a solicitation. I have changed the title and also some of the wording to reflect that, so I dont get in trouble. How dose it look now?
I will do some research into "securities laws", I wouldn't want to get into some kind of trouble.
Brian