To say I am a newbie is a major understatement... I have so much to learn. 

I found a property in one of the best school districts, in a rural area, about 10 miles from where I live.  It seems to be all about school districts here.  Though I am planning on holding it as a rental... I went for this school district for when I am ready to sell.

Okay... don't make fun of my tiny numbers as I am just starting out and I don't have a ton of $ (yet) to work with.

Asking price: $27,000 (stop laughing)

First offer: $19,000

When asked for best and final offer because there was one more offer I offerred $22,500.  I offerred the highest but I am waiting to make sure the forclosure company doesn't counter.

This is for a forclosure which needs roughly $5,000-$6,000 in improvements. It is a 3/2 with a partial carport on .44 acres of land with road frontage.  The taxes are said to be about $573.00. It is 972 square feet... small, I know.  It is dirt cheap because half of it is a mobile home but It has been added on to and bricked around and had a metal roof added.  It is half house half mobile home (stop laughing again)- only in Mississippi, I know. :)  You can't tell by the outside or the inside that it isn't all "house".  It is listed with the county tax assessor as a house and not as a mobile home, and they have it as being appraised for $35,000.

I am actually paying for a chance to bring in some cashflow.  I am a stay-home mom and it is my dream to just keep doing this over and over and never have to report back to "work". 

I'm looking a 15 year loan and putting 10% down.  The "word on the street" is that I could get about $500 a month for rent.  I already have someone wanting to rent it if it all works out. 

I guess I covered all the bases here.  We aren't really sure about what kind of numbers I should have been running before I actually made an offer.

Any advice? Opinions?

 

It's hard to say how you did as you did not state what your monthly mortage/tax payment would be, nor maintenance expenses on the property.  You only gave us the money coming in, but not the expenses going out.  I can't imagine you would make very much if the rent is only $500 a month.

I stated previously that the taxes were 573.00 per year... I will just pay them yearly.  They will not be escrowed in.  Insurance- I don't know yet. 

Sorry I didn't state the mortgage payment- It will be less than $200.

I'm new at this, hence the lack of information in my orgional post.

What all do maintence expenses include?

CONGRATULATIONS ON YOUR FIRST PURCHASE!  Since you do not have all the information I cannot tell whether it is an income producing property with positive cash flow, but you took the plunge and it's under $25,000 (really how can you lose).  The monthly mortgage is probably $350.00 a month?  Right?  Can you rent it as is?  Or, do you need to put the $5,000 or $6,000 into the property right away, which will impact your cash flow.  By the way, no one is laughing at the numbers. Everyone has to start somewhere.  I started off with a 3 bedroom, 1 bath (21-years-old) at $39,500, which provided me the confidence to purchase other higher end properties.  So, do not think that it's tiny numbers because those green little houses (monopoly) can be turned into red little houses someday (hotels).  As long as it makes you money no one is laughing!

At the very minimum, you took the plunge and you will learn from this property, which is extremely valuable.  Additionally, you did what most people talk about and never do.  Finally, I would rather do a $30,000 mistake than a $650,000 one.  So, good job. But, next time try to get more information on the property such as monthly mortgage, repairs, rental income, taxes, etc. so you definitely know if your property will be positive cash flow.

Wow, Maryellen, thank you so much for your positive response. 

I have recently just "closed the door" on a business I attempted a few years ago (which I am grateful for the learning experience) and I am envolved in a partnership doing photography with a friend.  It has become evident to me that to make lots of money in either of these fields I would need to spend many, many hours away from my 2 year-old and husband.  So, I was just really ready to step over into something new.  Learning about real estate is exciting to me. 

All that said, I think my hastiness was due to a great desire to cross over into a new thing, a thing that will work.  I will need to make repairs now... around $5,000.  My loan officer said my mortgage payment would be right around $200.  What exactly am I supposed to allocate for miscellaneous repairs and vacancy?  Taxes are just under $600 a year.

Thanks again.

First of all.....   BIG, BIG, BIG congradulations for taking action.  It can be scary, but it is oh, so exciting too!

And, no one is laughing...  (in fact, some people are probably thinking....   where do you live and how can I get some?  lol)

On to the specific deal:

I like to set up all my prospective properties in a spreadsheet.  This will really lay out the potential cashflow and profit for you:

• Rent   xxx ( times 12)
• Vacancy rate (check on your area - but you can figure 5 to 10 percent as a default.  I like to be conservative on this number )
• Net Rents:   (Rent - Vacancy)

 Expense:

• Property Taxes
• Insurance
• Maintenance (again 5 to 10 percent depending upon the house.  If it is 1/2 trailer, you might end up with a little bit higher maintenance...  plumbing problems, etc.)
• Utilities:  Who will be responsible for water, garbage, power?
• Property Management Fee:  If you will be using a PM. - - it can be anywhere from 6 to 10 percent.
• Debt Service

You can also use a spreadsheet to come up with your payment pretty easily. 

Then - - NET CASH FLOW:  Income - Expense.

And now - - - for the most important part:

Start a Notebook - - - record your goals and more importantly YOUR LESSONS!!!  This is your first property and the first property is always full of lessons.  The key to success is to learn from your experience and apply what you learn to the next deal!

 

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Make a Million. We Did
Start a Self Storage Business

AroundTheWorld,

Thank you for your response.  I haven't made very many connections on this forum, but I have read lots of your posts and followed your links to the self storage start up site and fastlane.  The whole world of self storage sounds appealing to me, though it is somewhere off in the future (but hopefully not too far).  Needless to say, I was secretly hoping that you would respond to my post. 

I am going to put all of that information to use, and will definitly let you know how it turns out.  I'm really excited about this and looking forward to doing it again and again.

As for the property manager- you're talking to her.  As for the garbage, water, and power... what is the norm?  I was just thinking that the tenant would be responsible for those things.  The property is outside the city limits and residents are responsible for taking their trash to the nearest dumpster site.  I guess I could take care of the water.  Hmm.... lots to think about. 

Thanks again!

 

DreamingBig:

As for the property manager- you're talking to her. 

That is how we started too - - - and it is a great way to go at first.   For one, it saves money and for another - - - - it puts you right in the trenches where you will be learning big lessons (which is what it is all about at first!) 

 

DreamingBig:

As for the garbage, water, and power... what is the norm?  I was just thinking that the tenant would be responsible for those things.  The property is outside the city limits and residents are responsible for taking their trash to the nearest dumpster site.  I guess I could take care of the water.  Hmm.... lots to think about. 

In our area, landlords are typically responsible for water and garbage.  Power can go either way.  You can charge more and pay for power yourself.  Advertise as "utilities included"  or you can make tenant responsible for power.

I like making the tenant responsible because people are much more conservative with the power they use when they are paying for it.  Also, if they are responsible for power, it takes away a level of uncertainty for you.  You will never know from month to month what your cashflow will be if you are at the mercy of the fluctuating power bill.

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Make a Million. We Did
Start a Self Storage Business

Hello Everyone:

 Yes, I agree with "Around the World" regarding the utilities. In both Washington State and Arizona, I have the tenants pay for the utilities (make them responsible) to reduce my responsibility as well as decrease expenses.  Additionally, most people are more cautious and energy conscious when they pay for the water or utilities themselves!  So, I would not pay for the garbage, water, and power, but instead have the tenant pay for these expenses. As for the property manager, I've always managed the properties myself or paid a friend (when out of the country) to manage them for me who is in the real estate business.  I don't have a lot of properties (only four) and co-owner of an engineering business, but when I continue to acquire more (duplexes, four plexes my next buys) I will probably continue to manage them unless it begins to cost me more money (my time is worth something) to manage them myself than for someone else to manage them, which frees me up to begin to create more businesses.  For the first one, I would manage it myself to learn the ropes, but just my opinion.

If you are not sure what to do, ask people and listen to them carefully (but know that opinions are for free and everyone has one)!

 By the way, "Around the World" is an excellent person to ask and she is extremely helpful (one of the most helpful on this site).  It's good that you are developing a relationship with her and she is very generous with her help.  Good luck to you. 

Maryellen & AroundTheWorld-

I agree too, it makes sense to give the tenant the responsiblity of the power.  I will figure out whether or not I will pay the water when all of my numbers are in order.

I have to say that I am overwhelmed by how much ya'll are willing to help and offer up your free advice.  It has become evident to me that mentors are so important when starting out in any area.  The fact that perfect strangers are willing to take their time to help me is astounding. 

The final figures will be posted as soon as I nail everything down.

 

 

The realtor called today.  He told me that he was very confused because the forclosure company he is working for actually decided to counter an offer that was $2500 less than mine because they were paying cash.  However, he also contacted the bank from which I am getting an "in house" loan, and the loan officer who wrote my precertification letter told him mine was as good as cash. 

Is it just me, or is this weird?  Is it normal for them to be interested in a lower offer because it is cash?  Will they not still be getting paid in full? 

First off congrats on taking the first step!  No one will be laughing except for you all the way to the bank.  My first property, I paid $15K for and it has been the most profitable. 

No, it is actually very common for the bank to accept a lower cash offer to get a foreclosure off the books.  I got around this once by waiving my mortgage contingency in the sales agreement.  You said that you have a precertification letter.  Is this a pre-qualification letter or a pre-approval letter?  These are not the same thing.  A pre-qualification letter means that you are approved up to a certain dollar amount, a pre-approval means that the bank has committed to providing the funds.

As far as the utilities, you should research what other landlords in the area pay.  You can find this just by looking in the classifieds.  In my SFHs, I have the tenants pay all utilities.  Keep in mind that water is lienable.  This means that if your tenant fails to pay the water bill (even if it is in their name), then the water company can put a lien on your house.  Some landlords opt to put the water bill in their own name & just bill the tenant for their usage.

richgirl:

You said that you have a precertification letter.  Is this a pre-qualification letter or a pre-approval letter?  These are not the same thing.  A pre-qualification letter means that you are approved up to a certain dollar amount, a pre-approval means that the bank has committed to providing the funds.

That is such a good question.  I think it was a pre-approval letter. 

They did accept my offer- finally!  I didn't know this would require so much patience, but I'm not complaining, I think it is fun.

How many properties do you have now?

Thanks for your reply.

Yay!  That is so exciting.  I just got started in real estate investing a little over a year ago.  I did a flip with a partner and I was hooked.  Since then, I've bought and rented a 3 unit and 2 SFHs.  I completely rehabbed all of them.  One of my SFHs is a lease option (I like this b/c the tenant is responsible for maintenance).  I currently have another 3 unit under contract, but I am having a difficult time getting a mortgage b/c the banks are tightening up.  I am only 25 y/o, so I think that I am on the right track.  

Great to hear that you are so young!  I am 27, and I love to see young people being successful. 

The banks are tightening up!  Are the days of "first time homeowner/no down payment required" over?  I sure hope not.  I was looking forward to that when I got ready to buy my first and I quickly saw that they definitely don't do that around here, especially when the house is in need of some repairs. 

I was also advised at the bank to wait at least 6 months before I buy another property.  [:'(]  I see that you have bought two and did a flip in one year.  that is awesome. 

Let me know how it is going with the mortgage.  You're definitly seem to be on the right track to me.