Exponential Return on Your Investment

[pyriel]

What I am about to show you will bogle your mind. It might change the way you look at your investment and maybe not. But, whatever the case may be, I will be providing irrefutable evidence that my kind of investment far exceeds anybody's return here.
1) I will show you a comparison and analysis of investing through stocks/mutual fund/TSP/401k etc. vs. my way of investing. I will use 15% rate of return vs. my rate of return for my investment.
2) I will show you the benefits of smart and power investing by:
a. The power of cash flow
b. The power of appreciation
c. The power of loan reduction
d. The power of tax savings and benefits

If you've read my previous thread on "The hunt on bargain Property" you'll know that i just purchased a 3bd 2 bt house. I will use this property and compare it with stocks/mutual fund/TSP/401k investment using the same amount of cash that was used up for closing/renovation/others.

I hope you are ready for this because you will not believe what you are about to read... Here are some fact:
1. Purchase price total is 108,500.
2. closing 4,000, renovation 6,000, two months vacancy (Jun & Jul) 1,700.
Total of 11,700 which we will round off to 12,000 cash investment
3. Rent is 1,438
4. Monthly mortgage w/property tax and insurance = 850
5. operating expense of 300.

On my next post, i'll show you the Benefit of Cash Flow...;-)

[Wheels]

Before you go any further, where in the world do you find a 3 bedroom house that only costs 108,000 that rents for over 1400 a month.

Dave
<><


What I am about to show you will bogle your mind. It might change the way you look at your investment and maybe not. But, whatever the case may be, I will be providing irrefutable evidence that my kind of investment far exceeds anybody's return here.
1) I will show you a comparison and analysis of investing through stocks/mutual fund/TSP/401k etc. vs. my way of investing. I will use 15% rate of return vs. my rate of return for my investment.
2) I will show you the benefits of smart and power investing by:
a. The power of cash flow
b. The power of appreciation
c. The power of loan reduction
d. The power of tax savings and benefits

If you've read my previous thread on "The hunt on bargain Property" you'll know that i just purchased a 3bd 2 bt house. I will use this property and compare it with stocks/mutual fund/TSP/401k investment using the same amount of cash that was used up for closing/renovation/others.

I hope you are ready for this because you will not believe what you are about to read... Here are some fact:
1. Purchase price total is 108,500.
2. closing 4,000, renovation 6,000, two months vacancy (Jun & Jul) 1,700.
Total of 11,700 which we will round off to 12,000 cash investment
3. Rent is 1,438
4. Monthly mortgage w/property tax and insurance = 850
5. operating expense of 300.

On my next post, i'll show you the Benefit of Cash Flow...;-)

[FundSurfer]

Guam?

[pyriel]

Actually, if you've read my other post, the house actually cost 99k but with the 6k the bank lend me to buy energy efficient appliances and added part of the closing cost into the loan, I was able to bring down MY closing cost to 4k.;-)
GHURA or Section 8 pays 1438 for a 3 bd house. Yup, your hard earned money is being used to subsidized people like my tenant. I'm just taking back part of that pie;-)


Before you go any further, where in the world do you find a 3 bedroom house that only costs 108,000 that rents for over 1400 a month.

Dave
<><

[pyriel]

Here is the formula you need to find what is your cash flow per month multiply by 12 to arrive with annual cash flow:

Gross Income - Operating Expense - Loan Payments = monthly cash flow x 12 = annual cash flow

For this particular scenario I will fill in the blanks based on the numbers i provided earlier:

$1438 (Ghura rental for a 3 bd) - $300 (utilities paid by landlord) - $850 (monthly mortgage + property tax + insurance) = $288 cash flow x 12 = $3456 annual cash flow

Once you get the annual cash flow we will need to figure out the cash on cash return on our investment. On the previous post, our investment that came out of our pocket was rounded to $12,000.

Here is the cash flow rate of return formula:

Annual cash flow / Amount of down payment and repairs, and others = % rate of return

$3456 / $12000 = 29%

For this property alone, and for the first year the cash on cash return is 29% return on the investment. But is this it? Nope I have more returns to show you... Next one is the Power of Appreciation which is another return that people don't realize... Stay tuned...

[pyriel]

The other factor that people don't realize as part of the return on their investment is the appreciation. All newbies, and 99% of those who think they know real estate doesn't realize the power of appreciation. In 2003, I bought an 8 unit apartment for $240k. In 2005, I refinanced it for $320k because the apartment appreciated and was appraised for $470k. When I refinanced, I got all my investment back (plus more) and I still have the property. This post will show you how to use appreciation as part of the return for your investment.

Here is the formula you will need to come up with the Appreciation rate of return from your investment. Again for this, I will use the 3bd 2 bt i purchased.

Amount of Appreciation rate expected (USE CONSERVATIVE ESTIMATION) / Amount of Down Payment, repairs, and others

2% of $108k / $12k = $2160 / $12k = 18%

So where did the 2% come from? Appreciation rate around the country as a whole is averaging about 6-7.5%. To use appreciation rate you must know your market. We all know that there are some places in the US that real estate is slowing down. And some states, prices of housing continue to increase. Guam is in the same category like Hawaii and California. I used the 2% factor because it is a very conservative number. For Guam, the influx of Marines that have to relocate from Japan is creating an increase of this appreciation percentage. By using 2%, I can show everyone here that even with the lowest estimate of appreciation, this property still manage to pull in 18% of return from the investment.

This means that if I was to sell that property within a year or just by keeping it, the property would have appreciated in value by 2% and provide an 18% return on my original investmentof 12k.

So lets do the math.... In my previous post, the cash on cash return gave me a 29% return + appreciation gave me an additional 18% so my total return after one year would be 47% from my original investment of 12k.

Show Me The Money.... Oh we are not done yet. We still have more...

[pyriel]

The third benefit of real estate investing is the Power of Loan Reduction. I like this the most because my mortgage amount continue to drop because my tenants are paying for it. Everyone who has a mortgage knows this as Principal Payment. For those who are renting, this will be alien to you. Here is the formula you will need and again we will use the 3bd 2bt scenario:

Total Loan Payments - Interest Payments = Loan Reduction

For the first year a total amount of $9,103.80 with $1000.20 going to principal and $8103.60 going to interest. We are interested with the $1000.20 principal payment since this reduces the original loan of $108k.

$9,103.80 - $8103.60 = 1000.20

The Loan Reduction percentage is money that will be use to lower down the debt of $108k. So after a year, instead of owing $108k, I will only owe $107k. So this is pretty much money that came back to me. This is another return on my original investment of $12k. Here is the formula

Loan Reduction / Down Payment = % rate of return on loan reduction

$1000 / $12k = 8%

So from the last two posts, we have a 29% cash flow return on investment, an 18% appreciation which is another return on investment, and now we have an 8% return out of the 12k invested. This total return is now 55% return on my investment of 12k for the first year. Are we done? Not yet.. Stay tuned

[pyriel]

Out of the four segment of return on my investment, the Power of Depreciation is the most complex. I took an income tax course for two weeks in 1991 and I still have that knowledge until now. I've often spoken to people and advised them to take a two weeks tax course to maximize their tax benefits. Here is just one of the many things i learned with taxation. We have some calculation to do but I will try to break it down for you so that you may know how to get to the end result. Here is our first fourmula:

Land Value + Improvement Value = Total Assessed Property Value

Using the 3bd rm 2 bt, here is our numbers:

18k (land) + 81k (building) = 99k

As you can see, i didn't include the 6k energy efficient and part of the closing that the bank gave me. After fixing it up the value of the property had appreciated but as far as the government is concern the property was sold to me for 99k.

We will now take the Improvement Value and here is the formula:

Improvement Value / Total Property Value = Percentage Improvement Value

81k / 99k = 82% Improvement Value

Now, we have to know the depreciation table. Here they are:

27.5 years for residential properties = (one to four rental units)
39 years for commercial properties = (+15 + residential units, commercial, retial, and industrial)

Now, lets get the depreciation allowance for the year on my 3bd 2bt rental. Here is the formula

Improvement Value / depreciation year for residential = Annual Depreciation Allowance

81k / 27.5 = $2,950 annual depreciation

Now we need to find out what is the tax benefits. Here is the formula:

Annual depreciation - cash FLow - Loan reduction = Tax benefits

$2,950 - $3,495 - $1000.20 = -$1,545

The next step is to take the tax benefits and multiply it according to my current tax bracket. Everyone has a different tax bracket. The more income you make the more the more Uncle Sam would want from you. For my I’ll say I’m in the highest tax bracket and we will compute that as 36%. Please talk to your accountant to see what tax bracket you are in… If your head is spinning on all the formula I’ve provided you, I’m sorry but I have one more for you. Here is it

Tax Benefits / Amount of Downpayment and closing and repairs and others = Tax Saving Rate of ROE or return on investment.

-$1,545 / $12k = -13% ROE or ZERO (0%)

However, there is no such thing as negative percentage for depreciation. Why, because for tax purposes it is either you are able to deduct it or not. In this case, I am not able to deduct the depreciation because the CASH FLOW and the Loan reduction combined is higher. OK, I know that I am losing some people here and I will try to simplify this. When you do your tax return at the end of the year, you have a choice to take a standard deduction or adjusted deduction. If the adjusted deduction is higher than standard deduction, then you have a choice to use adjusted deduction. However, if your adjusted deduction is lower than the standard deduction, then you also have a choice to use the standard deduction. For married filing jointly, my standard deduction is $10k. The formula I’ve provided you means that my adjusted deduction will be lower than the standard deduction so I will take the higher of the two and use the standard deduction.

So for this exercise my return for Depreciation is 0%. So my final ROE is 55%. Now, lets me show you the comparison between stocks vs. Real Estate returns...

[pyriel]

Computing Return on Equitiy (ROE), I have shown that this property will provide me 55% return on my investment every year. Having calculated these returns, I am now ready to show you the difference between the investing through STOCKS vs. Real Estate. Please stay with me….

Stocks Investment 1 yr 2yrs 3yrs 4yrs 5 yrs
Rate of Return 15% 15% 15% 15% 15%
down payment 12K 12k 12k 12k 12k
Stock Value 12k 13800 15870 18250 20988
Growth Value 1800 2070 2380 2737 3148


Real Estate Inv. 1 yr 2yrs 3yrs 4yrs 5 yrs
Annual Appreciation 2% 2% 2% 2% 2%
Cash Investment 12K 12k 12k 12k 12k
Property Value 99000 100980 103000 105060 107161
Growth Value 1980 2020 2060 2101 2143
Leverage 00% 98% 96% 94% 92%
cash flow 3456 3456 3456 3456 3456
loan reduce (equity)1000 1078 1162 1251 1349
Total Gains 6436 6554 6678 6808 6948

% Total Returns against investment is $33424 or 279% return on investment after 5 years for real estate vs. $20988 or 75% return for Stocks. After the 2nd year, i've got all my money back and now I am playing with Other People's Money (OPM). Even if I lose this property, I already got my money back. Yet, many people here are so reluctant to jump into real estate because they always say that it is dangerous and risky. Which is more risky? 90% of the people who owns stocks (mutual funds/401k/403b/tsp/IRA etc) don't even pay attention to their investments and the other 10% can't even get a decent 25% return consistently year after year after year. For me, I like to manage risk. When a tenant moves out, i immediately have the place clean and advetised so that I can minimize my vacancy rate. Since last month, TSP has dropped $2 per share. All people can do is to get out of stocks and go to G fund which they call preservation. They fight and they cursed but they can't do anything about it. So which one is more risky???? P

[teknobucks]

agree 100% with Pyriel!
the tax advantages along with the leverage can make real estate the best investment by far!
now if you are buying stateside in a correcting "hot" market...u better buy at the right price with good terms. not just jump in for a belly flop hoping that the market will make u look good. {worked for the last 7-10 years..no more tho}
property taxes and insurance in florida are becoming a major factor. the rates on borrowed $$$ not a big deal yet since most in my area are retired from up north and do not require a note. {in fact a few on the water w/o a mortgage have simply opted to forgo homeowners ins altogether}

[FundSurfer]

I wish I'd been in Guam when word began leaking about the Okinowa (sorry my spelling is horrible). The prices were sure to go higher when you put another battalion on an island 3 miles by 30 miles. Only so much real estate to be had.

I know there were troubles with the local Guam young men before. It'll probably sky rocket now. There are only so many pretty young ladies to date. I would not be surprised if in 20 years Guam is giving us the boot because all those young men have grown up bitter toward the US.

[pyriel]

I wish I'd been in Guam when word began leaking about the Okinowa (sorry my spelling is horrible). The prices were sure to go higher when you put another battalion on an island 3 miles by 30 miles. Only so much real estate to be had.

I know there were troubles with the local Guam young men before. It'll probably sky rocket now. There are only so many pretty young ladies to date. I would not be surprised if in 20 years Guam is giving us the boot because all those young men have grown up bitter toward the US.

I bid on another house in Guam while I was in Malaysia. House was a 4bd 2 bt with 2 rooms extended in the back. So in essence, it was a 6bd house. It was bank foreclosed and they were selling it for 125k. I offered 110k but a week later, my real estate agent informed me that my offer was rejected and they accepted another offer for a full price.

Why am I mentioning this here? Because I didn't pay attention to the market. With the military increase happening, prices are going up. 125k for a 6 bedroom house is a steal and I should have offered full price as well. I did the number crunching and the house would have been a money making machine if I paid more attention to the market.

Morale of the story? Do not be afraid to pay full price if the numbers are telling you that it is a good deal and you know that the market will get hotter as time passes. Better luck next time for me;-)
Pyriel

[Gilligan]

Pyriel,
Its good to have you back in the game!

[pyriel]

Thanks G,
I've been gone for awhile. Too much travelling. I'm currently doing some renovation in my house and my wife is getting mad at me for doing it while I am gone travelling;-) hehehehe....

I plan on refinancing the house and maybe take out the equities to purchase another property. BTW, Uncle Sam is paying my mortgage and I am not maximizing my OHA. I'm thinking that I might as well use OPM to get me extra income and as I get closed to retirement, accelerate (spelling problem?) payment so that I wouldn't be owing anything once i'm done playing soldier boy. But then again, I am kind of leery of having too much equities sitting idle in one egg once my house is paid for. Oh well.... we'll see.
Pyriel

[colonialmike]

Pyriel- I just found this web site and have enjoyed your comments and teachings. Please feel free to offer any advice.

Last July I negotiated an "under construction" price for a condo in Myrtle Beach, SC. When I settled in January, I had 25K in equity and now have appx 50K in equity. I rent it at a loss of $150/month, before the end of the year tax deductions.

In March, I negotiated with the same developer a pre-construction price for a golf course view condo, also in Myrtle. I plan on settling and flipping that one next month and keeping my 15K profit. I will eat the tax on it because I need to pay some bills, specifically the HELOC on my primary residence which funded the 2 downpayments. The condo market has cooled, but the townhouse and single family market is stilll appreciating --"real estate is local".

I recently signed for a pre-construction price for large townhouse also in Myrtle. It is in a VERY nice/upscale community won't be ready until April or May (probably means June). The newer units are already selling for 18K more than I signed. I plan on selling the rental condo and doing a 1031 tax exchange for the townhouse. I will be close to breaking even, but I recently altered my deductions so I do not know exactly.

Although my rental currently costs me $150/month, I look at it as my $150 mortgage payment for a second property.

Let me know what everyone thinks.

[Gilligan]

Welcome to the RE thread colonialmike,
Pyriel does a lot of TDY so it might be a week or so before he replys to you.

[pyriel]

ColonialMike,
Keep doing what you are doing as long as you know the market in your area. My track is a little different from yours since I don't like buying properties that are not making money for me. Cash on cash return for me is KING. The reason for this is because if I am getting a positive cash on cash return on my investment, the rest will also follow such as appreciation and tenants lowering down my total mortgage. I'm not able to use depreciation since returns are too high to offset depreciation which is fine with me.

Be careful... You are in the right track but your way needs to be managed very closely. I'm sure that you've refined your exit strategy and have done the numbers on the return on your investment. If you can send me your data, i can analyze them for you.

Gilligan,
Thanks for your help... I will have to relook at my investment strategy. Pricess are going up but the rental remains stagnant. This means less return on my investment if i decide to purchase properties on a higher price. What to do? Hmmmm.... Cya

[colonialmike]

Pyriel

Thanks for getting back to me. Here is some data for you look at.

Purchase Price 1/06: 115,000
Mortgage Amount: 103,500
Downpayment from HELOC:11,500
Current Value: 165,000
Rent:925.00
Mgt fee (10%): 92.50
Net rent: 832.50
Mortgage: 823.00
Condo Fee (I pay): 165.00
Insurance: 254.50
Misc (Blinds, key fee): 450.00

On my other property I am going to flip:
Purchase Price:134,900
Downpayment from HELOC: 14,000
Mortgage Amount: 121,900
Potential Sales Price: 165,000


Let me know if you need any more data. Thanks for the help.

[colonialmike]

Pyriel

Sorry about repeating this info...I tried the edit function but it kicked me out after 30 minutes.

Here is some further and more detailed data for you look at.

RENTAL PROPERTY
Purchase Price 1/06: 115,000
Mortgage Amount: 103,500
Downpayment from HELOC:11,500
Current Value: 165,000
Rent:925.00
Mgt fee (10%): 92.50
Net rent: 832.50
Mortgage Payment (includes 140.00 in taxes): 823.00
Condo Fee (I pay): 165.00
Insurance: 254.50
Misc (Blinds, key fee): 450.00

On my other property I am going to FLIP:
Purchase Price:134,900
Downpayment from HELOC: 14,000
Mortgage Amount: 121,900
Potential Sales Price: 165,000
Profit to be gained and taxed:
165,000 sale price
-121,900 mortgage balance
43,100
- 7,000 (commission and minimal closing cost)
36,100 This amount will cover all/most RENTAL property downpmt; FLIP property downpmt, closing costs and commission, and any cap gain taxes

Townhouse Property to be ready in 4/07 (new units will be selling in 200,000 range):
Sales Price: 169,500
5% Downpayment from HELOC: 8,475
1031 Tax Exchange funds from RENTAL sale: 60,000 (all profit-11,500 downpayment from HELOC was recouped from "flip" sale)
Mortgage Amount (appx): 115,000
Mortgage payment at 7% with 140.00 in taxes: 945.00
Condo Fee: 225.00
Rent: 1300.00


Let me know if you need any more data. Thanks for the help.

[pyriel]

ColonialMike,
Sorry it took me awhile to assess the figures you've provided. Even with that, I only got as far as your first rental property. I stopped doing the others since I know that what I am going to find will be similar or closed to the first rental that I evaluated eventhough your plan is to flip the second property.

Our orientation is a little different as I said earlier. I buy rundown properties while you concentrate on newly developed properties. I don't factor in appreciation since I am here for a long haul and appreciation to me is useless unless I am about to sell the property or I am to remortgage. I also purchase properties that ensures I get a positive cash on cash return as soon as possilbe.

The first rental property that you bought in January 2006 worries me because is going to exact opposite direction of what I've been taught and what I believe. Since you participate in TSP and coming here to this board, I assume that you are interested in making money and not losing them. If EWGuy (our current tracker) informed you that you have a negative return of 10 or 20 or 50% in your TSP, would you be concern? I would and i'm sure all of our participants here would also be worried if this happened to them.

What if EWGuy tells you, after tracking you for 5 years, that your return is negative (-333%) would you be concern? I would. This is what your first rental property is showing. I'm attaching a copy of the excel worksheet so that you can see what I am talking about.

There are some information missing but they wouldn't be enough to change much of the cash on cash return projected profit.

Pyriel

[colonialmike]

Thanks for the info Pyriel...as we know, I look at it a little differently.

I bought my rental for $115000, using my HELOC for the downpayment (write of interest on down payment). I will sell it for $165,000 in spring 07, profit of $50,000, on none of my money. My expenses have been and will be minimal.

As far as the Flip property, I will walk away with a profit of $20-25,000 which will cover taxes, closing costs and downpayment for the rental unit. So my actual profit in the rental will be $60-65,000.

So, I see it as $60-65,000 profit in appx 13 months. I'm going to use that profit in a 1031, on a $169,000 3br 3ba townhouse in an upscale community which will be going for $200,000 when I settle in late Spring 07.

I tally it as appx $100,000 in equity and using virtually none of my money.

Also, I guess I wasn't clear...the insurance is $254/year, not a month. So it comes out to costing me appx. $150/month. I look at this as $150/month to make $60,000 in one year - and that is before my tax breaks.

Look forward to seeing your future posts. What is the weather in Guam, I'll be heading there later this month.

Colonialmike

[pyriel]

Hey come on over so I can show you the island hospitality. I will be going to Arkansas on the 16th but will be back on the 24th.

As for our investment differences, you are right, we do look at them differently. I'm a buy and holder while you are a flipper.

RedPillow is also from around here so i'll try to contact him before you get here. It would be nice for us to meet while you are here. I tried to see Gilligan when I went to Austin sometime this year but our schedule just didn't match up....

Goodluck buddy and I look forward into your future investment. Unfortunately for me, i'm supposed to be deploying sometime early next year so I have to start clamping down on purchasing properties until I get back.

P

[colonialmike]

Too bad our schedules won't permit us to view the island over a few cocktails. I'll be arriving and leaving right around the same time as you are leaving and returning. If my plans change I will send you a private message.

Where are you deploying to? I'm a civilian and was in Iraq (we called it Paradise) for 3 months in 03-04. It was a little more stable then!

[pyriel]

Too bad our schedules won't permit us to view the island over a few cocktails. I'll be arriving and leaving right around the same time as you are leaving and returning. If my plans change I will send you a private message.

Where are you deploying to? I'm a civilian and was in Iraq (we called it Paradise) for 3 months in 03-04. It was a little more stable then!

Guam Guard has this rotational deployment in Africa (Djibouti). This will be our fourth rotation there. Our mission is to provide security within the base and to send teams to different countries such as Kenya, Nairobi, Ethiopia, etc. Our leadership, with their great wisdom (thank goodness), raised their hands and volunteered Guam Guard to do this mission in a rotational basis since we first started the war on terrorism. Their point of view is to try to bring everyone home alive during deployment. Of course, we've also sent people to Iraq and Afghanistan but majority of our people deploys to the Horn of Africa (as they call it).

As for your arrival here on Guam, I'm scheduled to go but it will depend how I close the book for the finance department due to end of the FY. If I see that it is not going smoothly, I will bail and stay.

I'm the comptroller here for the Guam Guard. I still don't know how I got this job since I can't count beyond four (4). Goodluck....

P

[Gilligan]

Gilligan,
Thanks for your help... I will have to relook at my investment strategy. Pricess are going up but the rental remains stagnant. This means less return on my investment if i decide to purchase properties on a higher price. What to do? Hmmmm.... Cya

Pyriel,
Have your considered new construction. Around here you can build a new house for less money that buying one that is 10 to 20 years old. I’ve seen a lot of apartment complexes going up that are 4 plexes so they can get by with the residential loan and they don’t need the 20% down that a commercial loan requires. Does GHURA have a long list of people who need housing?

[pyriel]

Pyriel,
Have your considered new construction. Around here you can build a new house for less money that buying one that is 10 to 20 years old. I’ve seen a lot of apartment complexes going up that are 4 plexes so they can get by with the residential loan and they don’t need the 20% down that a commercial loan requires. Does GHURA have a long list of people who need housing?

OMG. Its been awhile since i last checked this thread. Sorry for not writing back any sooner. I am currently talking with a friend right now. Plan is to subdivide a lot and build several houses on smaller lots.

GHURA do have a long waiting list for people trying to get into to the program. One thing i noticed here is that GHURA tenant likes to stay in a single residential house. This is what I am concentrating on right now because once you get them to stay there for a year, they tend to stay there forever;-)

P

[colonialmike]

Pyriel and all-

Looking for some thoughts and advice on my investment properties. As mentioned previously, I have a rental condo with 1st and 2nd mortgages totaling 120K. I have put in a total of 15K for ALL expenses since I bought it. Last month it was appraised at 165K. I took out the 2nd (HELOC) and paid ALL other debts and increased my cash flow by several undred/month. However, because of the second, it has negative cash flow of 250/month (not including tax benefits).

Yesterday I setted on another property for 134900 and had already put down 14000 (from HELOC on primary residence). It cost me only 1280 out of pocket at settlement because I bought it with a HELOC on the property so there were no prepaids. I never heard of this before- the rate is higher but it is for folks who want to flip the property and have less out of pocket when purchasing. It was appraised at 158K.

In any case, I intended to flip it and make a quick 10K profit. I was going to apply the 10K to the 2nd mortgage on the above rental, put that one up for sale and do a 1031 on a larger property I am having built.

However, I was approached by someone who wants to rent the unit. I would need to put more $$$ into it (HELOC $$$) and refi to make positive cash flow. There is already decent equity in the propety.

So, the question is, do I keep it, refi, and let it ride, or apply to the other property and go with the initial plan?

As far as the larger property, I could probably buy down a loan to make the payments low enough for positive rental/cash flow, and then I would have this property and the larger one.

Looking forward to comments...

[Gilligan]

Pyriel and all-

Looking for some thoughts and advice on my investment properties. As mentioned previously, I have a rental condo with 1st and 2nd mortgages totaling 120K. I have put in a total of 15K for ALL expenses since I bought it. Last month it was appraised at 165K. I took out the 2nd (HELOC) and paid ALL other debts and increased my cash flow by several undred/month. However, because of the second, it has negative cash flow of 250/month (not including tax benefits).

Yesterday I setted on another property for 134900 and had already put down 14000 (from HELOC on primary residence). It cost me only 1280 out of pocket at settlement because I bought it with a HELOC on the property so there were no prepaids. I never heard of this before- the rate is higher but it is for folks who want to flip the property and have less out of pocket when purchasing. It was appraised at 158K.

In any case, I intended to flip it and make a quick 10K profit. I was going to apply the 10K to the 2nd mortgage on the above rental, put that one up for sale and do a 1031 on a larger property I am having built.

However, I was approached by someone who wants to rent the unit. I would need to put more $$$ into it (HELOC $$$) and refi to make positive cash flow. There is already decent equity in the propety.

So, the question is, do I keep it, refi, and let it ride, or apply to the other property and go with the initial plan?

As far as the larger property, I could probably buy down a loan to make the payments low enough for positive rental/cash flow, and then I would have this property and the larger one.

Looking forward to comments...
CM,
Although I am not against flipping houses, I would probably rent this one out as long as there was a positive cash flow and I had a renter that would take care of the place and paid his rent on time. By the time the renter paid the mortgage off for you the house would probably be worth 10 times what you bought it for.