The real estate business has been going well, so I decided to upgrade my 1983 Chevy S-10 to something a little bigger. The family loves to take the truck to Home Depot, and we are tired of being jammed in the front seat of that truck. Plus, it has no air conditioning and we live in the South. Enough said.I wanted a three-door long bed with a back seat. Nothing fancy, but big enough for everyone.Unfortunately, the oldest truck that meets this requirement is a 1997 Ford F150. This is about 10 years newer and $10,000 more then any vehicle I have ever bought, so this is uncharted territory for me. Apparently, banks offer financing on vehicles (new to me), so I arranged with my credit union to get pre-approved for a used car loan.If you are wondering what this has to do with real estate, hang in there. I'll get to it…After looking for 3-4 weeks, I finally locate a truck, negotiate a good price and arrange to meet the guy at the credit union to do the deal. Before the seller arrives, I am sitting in the credit union going over the terms of the loan. I am getting 7.5% and we are figuring out how much I have to put down. He does some figuring and tells me that he can loan me the entire cost of the truck PLUS $3000. The rate would go up to 8.5%.Let's see.I pay my hard-money lenders 16% plus fees. I pay 9% for most of my long-term financing. Here is $3k for 8.5%. I'll take it.So, what to do with the $3,000?Well, before we answer that, don't forget about the old truck. I don't need it anymore and no sense in it sitting around the house. Coincidentally, a guy in my church wants an old truck. We agree on $2,000. I paid $2,100 about a year ago, so this seems fair enough.So, what to do with the $5,000?Here is the good part.I just so happened to have found a condo in a not-so-great location. The seller was asking $28,000 for a 3/2 in pretty good condition. It's already rented to a Section 8 tenant for $875 a month. We agree on $26,000 plus some of the closing costs.Turns out, the down payment and closing costs add up to about $5,000. If you include the hefty association fee, the positive cash flow on the condo equals the monthly payment on the truck.Is this a great country?Best I can figure, I just arranged for the United States Housing Department to pay for my truck and purchase a condo for me. After 4 years, I get to keep the extra cash flow and the truck will be paid for. After 30 years the condo will be paid for.All with no money down.
Good deal! That's how you do it. Seems to me you did very well on the condo also, though I imagine your expenses are somewhat on the steep side, compared to a house or an apartment building.I have a similar story. A few years ago, we had made the decision to separate our real estate business from our residence (translation, get the office out of the house). So I needed an office.I ran across a nice property. The office was an old grocery store that had been completely remodeled into a nice small office with garage and workshop in the late '80s. The attached duplex commanded $550 a month in rent.I stole the place. The rents on the duplex pay the mortgage, the property taxes, and a part of the utilities for the whole place. So I have a free office. All I have to pay for is the secretary.
Good deal! That's how you do it. Seems to me you did very well on the condo also, though I imagine your expenses are somewhat on the steep side, compared to a house or an apartment building.It's stories like these that make me sad I don't live in a large city. A $28,000 condo? And it rents over $800? Here, all condos over $700/month cost at least $70K. All of them. So houses are a better deal, but still no steal. About the same price/rent ratio as condos. I only have multi unit buildings, but I am trying to find a house or two to buy this summer, to see if I can cut my costs down.Here's the typical deal for me, one I'm just doing, and it doesn't really work out using the numbers Jim suggested a few weeks ago. But I'll be positive $100/month or so right out of the box, put some cash into my pocket and since I rent to grad students, there isn't a lot of turnover.This is a tri-plex, owned by a 65 year old widow who wants the rental income, but not the hassles. There are 2 1-bdms and the middle unit is a 2 bedroom all one bath. Near downtown and walk to campus, so it's a natural for students. It's run down, so I'll remodel for about $17K, and purchase for a total price of around $80K. I'll get $17-22K from the bank to cover the remodel and put some in my pocket, and the owner will carry the $80K at around 9.0% to give her the rent she's been making all along. I'll pocket about $5K at closing. I'll rent one for $290, one for $310 and the middle for $525. Taxes are about $100/month and the utilities I will pay are around $30/month. Since I have a steady stream of students to rent to, I use 5% vacancy, but that happens only when I get lazy or busy with my day job. So, I pocket $5k at closing, I get about $75-100/month on rents (not much maintenance because of the way I structure the leases and because I remodeled) and about $80/month in tax rebate from depreciation, half of which goes into maintenance fund.Not great, good enough, but the lot this tri sits on is perfect for later development into two 3 bdrm 4-plexes, 6-8 years down the line.Rick
Trick:Here's the typical deal for me, one I'm just doing, and it doesn't really work out using the numbers Jim suggested a few weeks ago. But I'll be positive $100/month or so right out of the box, put some cash into my pocket and since I rent to grad students, there isn't a lot of turnover.*shrug*. The deal looks OK to me. Usually student housing commands a premium because of low vacancies, and students are not usually too fussy, so you can fix 'em up cheap. Grad students are among the best tenants, IMO.By the time you factor in your remodel costs, your GRM is a bit high, but again given the clients that is probably OK. And, of course, you walk from the table with money in your pocket.I would do a deal like that. In fact, I have done deals like that.
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