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Been trying to come up with a good place to park my cash. Here is an idea, what do you think?
I have an opportunity to buy an older home in a decent established neighborhood for $75,000 cash. It needs about $10,000 in renovation work. The value of the home is estimated to be about $115,000 with the work done by comparable sales figures.
I am thinking to purchase the home for $75,000 cash and do the work myself. Then, offer it for sale at say $122,000 and carry the note myself. I would require about $15,000,-$20,000 down and carry the note at 8% for 15 years. I'm not interested in being a landlord, so renting is not in the equation. Obviously most people who would purchase this are lacking a great credit rating, but with the high down, they are less likely to default. If they do, I'll just start over. They would be looking at a payment of around $1150 monthly. Assuming the note went the full term, I am looking at a return of $390,000 or so on my initial $85,000 investment, over 15 years. Not bad, but again, this is all on paper.
Anyone have experience in the area and what success or failures did you experience?
Been trying to come up with a good place to park my cash. Here is an idea, what do you think?
I have an opportunity to buy an older home in a decent established neighborhood for $75,000 cash. It needs about $10,000 in renovation work. The value of the home is estimated to be about $115,000 with the work done by comparable sales figures.
I am thinking to purchase the home for $75,000 cash and do the work myself. Then, offer it for sale at say $122,000 and carry the note myself. I would require about $15,000,-$20,000 down and carry the note at 8% for 15 years. I'm not interested in being a landlord, so renting is not in the equation. Obviously most people who would purchase this are lacking a great credit rating, but with the high down, they are less likely to default. If they do, I'll just start over. They would be looking at a payment of around $1150 monthly. Assuming the note went the full term, I am looking at a return of $390,000 or so on my initial $85,000 investment, over 15 years. Not bad, but again, this is all on paper.
Anyone have experience in the area and what success or failures did you experience?
You cant look at the $390K in the end compared to the $85K investment because it doesnt tkae into consideration of the time value of money. The deal, if it worked out as planned sounds like an ok plan but what if it doesnt work out? What if you cant sell it at $122K, because people know that the house is only worth $115K? What if people wont put $15K + down with seller financing because they know they can get bank financing? While you'd probably make a profit, $390K wont be it.
Does the rental income become taxable? (quick answer yes, a percentage of it does), so your $390K is before taxes.
There are all types of issues that can go wrong, you simply need to plan for those issues, and then decide if its worth your time and if you can make more money elsewhere.
I've been trying to figure out out the "elsewhere" for quite some time now. I got bit in the market, Spring of 2000, got in then, got out then with a 30% haircut. First and probably last experience there. I'm more hands on with my $ now. But in this environment, I have no idea where and what to put it into. Cash is crashing, gold has already made its run (in my opinion, I know others say it is going higher) Money markets and CDs all under 3%.
I already run a successful small business. I just need some ideas on where to park this cash that is loosing value everyday.
I've been trying to figure out out the "elsewhere" for quite some time now. I got bit in the market, Spring of 2000, got in then, got out then with a 30% haircut. First and probably last experience there. I'm more hands on with my $ now. But in this environment, I have no idea where and what to put it into. Cash is crashing, gold has already made its run (in my opinion, I know others say it is going higher) Money markets and CDs all under 3%.
I already run a successful small business. I just need some ideas on where to park this cash that is loosing value everyday.
Yes, we're going through something similar at the moment. Having just purchased another home (cant beat the deals we're getting) and with a successful business, looking for ways to reinvest cash. I've gotten together with a few people and we're polling money together into NNN properties. While the returns are not that great (about 7%), they are very safe long term investments because we're dealing directly with banks and established businesses. We chose this route because of little risk, no maintenance 20+ year leases and no headaches. Maybe something similar might work for you.
Well travelquest, I can tell that you've never done this before. An experienced INVESTOR (and many that call themselves that don't know what they're doing either) will pay a MAXIMUM of ARV (after repaired value) X .70, MINUS the cost of repairs.
If it's worth $115 ARV then you should be paying no more than $80K MINUS repairs, or about $70K. Oh, and if you think it'll need $10K in fix up, it'll really need closer to $15K or more. I've been doing this 30 years, bought and sold about 100 houses, and I still underestimate repairs.
And if you're going to finance it yourself (your plan is how I've earned my living for the past 13 years) forget about getting that big a down payment. People who have that kind of downstroke are NOT going to pay over market to have you finance it. They are bankable anywhere in the country!
BTW, if it's worth $115 I'd probably sell it for about $130, BUT WITH A $3,000 DOWN PAYMENT. Of course that's in TX where I know I can foreclose for less than $1,000 and in less than 2 months.
Well travelquest, I can tell that you've never done this before. An experienced INVESTOR (and many that call themselves that don't know what they're doing either) will pay a MAXIMUM of ARV (after repaired value) X .70, MINUS the cost of repairs.
If it's worth $115 ARV then you should be paying no more than $80K MINUS repairs, or about $70K. Oh, and if you think it'll need $10K in fix up, it'll really need closer to $15K or more. I've been doing this 30 years, bought and sold about 100 houses, and I still underestimate repairs.
And if you're going to finance it yourself (your plan is how I've earned my living for the past 13 years) forget about getting that big a down payment. People who have that kind of downstroke are NOT going to pay over market to have you finance it. They are bankable anywhere in the country!
BTW, if it's worth $115 I'd probably sell it for about $130, BUT WITH A $3,000 DOWN PAYMENT. Of course that's in TX where I know I can foreclose for less than $1,000 and in less than 2 months.
golfgod
Thanks for the response. How often do you have to repo, what percentage? And if you do have to repo, is it always a bad deal? I would think if you get a buyer to pay for a few years, assuming they do not trash the home, then you would do alright?
My father does well with buying mortgage notes from brokers.
A fixed APR mortgage note will trade for 30 cents to 50 cents on the dollar. He picks up a $100k note for $35k to $50k. Obviously the $100k note over it's life span will payout $200k or more.
Read what Golfgod wrote and then reread it. He knows how it works. I've been through a similar wringer, but on a smaller scale. Bought a house I planned to live in, had my job scoot out from under me, rented, repaired, rented, repaired, sold, repossessed, repaired, and sold again. Overall, I am coming out ahead, but there were some years it was a drain.
I've probably "seller financed" close to 45 or 50 deals. I've had to "foreclose" (it's actually a "trustee's sale" in TX) on 4 or 5 of them. A "regular" bank would be out of business with those percentages, and I've had my share of sleepless nights. However my wife says we've gotten too old to do it.
OTOH, I've generally bought well BELOW the 70% of ARV that I advised. I did my own "document preparation" (an extra few hundred $$ in my pocket on each of those), and I've started the process when the check is not in my account within a very few days of when its due.
Yes I've made out on the turnovers, but only because I've acted quickly and generally scared the **** out of the buyers in the event they even thought about trashing the house.
If you do not understand any term in this post, or if you don't understand EVERY WORD on every real estate document you've ever signed (trust me, YOU DON'T), and if you're not a cold hearted ******* like me, YOU HAVE NO BUSINESS DOING WHAT YOU'RE THINKING ABOUT.
Put your money into an "index fund" and forget about it until you're 60 years old.
golfgod
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