Macro Economics and Personal Finance
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My view is that if you do not have the knowledge about real estate investment before you went into the workshops...you probably shouldn't invest in real estate.
There is no magical elixir...if you want some tips, talk to some local realtors, who are likely to be investors. Positive cash flow properties are great in theory but if it was so easy...everyone would be getting them.
It's not difficult to find cash flow positive properties during down cycle if you look beyond Irvine/OC. However, competing against other buyers is difficult.
In cities like Norwalk and Bellflower, in 2012 you could find 3 bed 2 bath SFR's for $250,000-$300,000. They rent for $2,200/month-$2,400/month back then and $2,600/month today. But competition to buy is very fierce. We cruised targeted area and look for homes being fixed up for sale and hit them up with offers before they go on the market.
For sure but there is a lot of risk and unexpected costs. You need good cash flow and cannot rely on it to be your primary source of income. It can be done but it's not close to easy.
Most of us here do not own enough rental properties to make it our primary resource of income. We need jobs to qualify for mortgages.
To simplify, the two common choices are newish homes that cost more but have very little maintenance cost, versus old homes that cost less but have higher maintenance expense.
In the first scenario a newish 3 bed 2 bath home (built in 2000's-2010's) in places like Chino will cost $280,000-$300,000 during market low. At best you might break even with a 30 year loan. To make it worth the effort we refinanced one SFR there with 15 year loan, have paid off 8 years since and can either sell another property to pay it off now or wait another 7 years to pay off the loan. It's newish, it's nice, it's a keeper to help retire earlier.
In the second scenario, old, small 2 bedroom SFR's in Riverside County are cheap (<$100,000 to $150,000) during market lows. $100K-120K SFR will rent for $1250/month back then and $1350-$1400/month today. Your mortgage is 1/3 of the rental income. Downside is that the home is built in 1960s-1970s and you can expect a lot of repair expenses. Your cashflow will go into a maintenance reserve and home insurance & home warranty is highly recommended. These SFR's are not keepers, when the market goes up sell them and cash out.
A key factor that people always forget is time. If you have an older home and/or a home that is in a less desirable area, you will to spend a lot of time between repairs, maintenance, and just checking up on the property. Renters are great if they are good ones but if you get bad ones, ones that don't pay, or worse, both...you are in a lot of headaches. Go try filing an UD and see how much time that takes. You can hire an attorney but that's a few thousand dollars down the drain...and hopefully the renter doesn't trash the place on the way out.
This bring up a good point about Home Warranty. Not to be mistake for Homeowner Insurance.
Are they scam, gimmick? Such as American Homeshield, or First American Home Warranty, which is a division of the First American Title Company. I find it hard to believe, that they would actualy replace a high price applicance such as an A/C unit cost of 7-8 thousands when you only pay 65 bucks or less a month. If you have good experience with a company please share. If not I would like to know which to avoid.
My rentals are newer, but worth looking into.
Doesn't it depend on a number of factors...especially age of the system/appliance?
I mean $65 a month is $780 a year....$780 covers a lot of repairs. How often do you really need to replace an entire system?
I don't worry about those things. I pay property managers to worry about it. We've never had to evict a tenant, they're usually open to negotiate if you're polite enough.
It's your property manager's job to deal with tenant issues, including eviction as last resort. Your job is to find a good property manager. When I first went to South Riverside County I didn't know anyone. I drove into downtown Temecula (old town front st?) and saw many real estate offices lining the road, so I just walked in and started talking to people.
Ask property managers if they have trusted handyman and contractors who can perform repairs at reasonable rates. How much do they charge for X and Y? Have they worked with home warranty companies and can they recommend one? If memory serves we had First American home warranty from the purchase and kept it, they charged $60 to fix a gas leak.
Positive cash flow is very powerful and enables you to do many things. When your mortgage is $400/month and it rents for $1250/month, you have cash flow to comfortably pay for insurance and property manager expenses. You can afford to tell your property manager to be picky with tenant screening -- it's OK if it takes 3 months to find a good tenant, you can afford it.
Not sure that those warranty covers things like freon...that's not really a "repair".
That is correct. Freon is not cover under warranty plan, I checked. They at most cover very minimal, for the the both American Home Shield and First American only cover $ 10 dollars per pound. But the point that I am trying to get accross is, if the Freon is no longer available because of the ban by EPA. They have no choice but to replace your system. IF they do what they suppose to do.
I have not sign up with any Home Warranty and I read the fine print very carefully.
I like my life too much
momopi
Well-known member
I've read several of Kiyoaski's books and played the games (cashflow 101). IMO the original Rich Dad Poor Dad book was worth the read, the simple principal of only investing in cash flow positive properties is, simple enough. The other books were unimpressive.
Back in the mid 2000's or so I went to a "Learning Annex" real estate seminar event with Trump and Kiyosaki as speakers. A lot of people went and upon entering, you're welcomed by a line of leggy girls in skirts and fishnet stockings. On stage the two speakers acted like college frat boys cracking adult jokes that were probably inappropriate for the younger audience.
The actual real estate "learning seminars" were conducted by "trainers" in smaller rooms, selling real estate investment training classes. To afford the classes they advised the audience to go and open 10 credit card accounts. At this point I bailed.
Back in the mid 2000's or so I went to a "Learning Annex" real estate seminar event with Trump and Kiyosaki as speakers. A lot of people went and upon entering, you're welcomed by a line of leggy girls in skirts and fishnet stockings. On stage the two speakers acted like college frat boys cracking adult jokes that were probably inappropriate for the younger audience.
The actual real estate "learning seminars" were conducted by "trainers" in smaller rooms, selling real estate investment training classes. To afford the classes they advised the audience to go and open 10 credit card accounts. At this point I bailed.
Irvinecommuter
New member
momopi said:
My view is that if you do not have the knowledge about real estate investment before you went into the workshops...you probably shouldn't invest in real estate.
There is no magical elixir...if you want some tips, talk to some local realtors, who are likely to be investors. Positive cash flow properties are great in theory but if it was so easy...everyone would be getting them.
momopi
Well-known member
Irvinecommuter said:
It's not difficult to find cash flow positive properties during down cycle if you look beyond Irvine/OC. However, competing against other buyers is difficult.
In cities like Norwalk and Bellflower, in 2012 you could find 3 bed 2 bath SFR's for $250,000-$300,000. They rent for $2,200/month-$2,400/month back then and $2,600/month today. But competition to buy is very fierce. We cruised targeted area and look for homes being fixed up for sale and hit them up with offers before they go on the market.
Irvinecommuter
New member
momopi said:
For sure but there is a lot of risk and unexpected costs. You need good cash flow and cannot rely on it to be your primary source of income. It can be done but it's not close to easy.
irvinehomeowner
Well-known member
I should write a book... Poor Dad Happy Dad.
momopi
Well-known member
Irvinecommuter said:
Most of us here do not own enough rental properties to make it our primary resource of income. We need jobs to qualify for mortgages.
To simplify, the two common choices are newish homes that cost more but have very little maintenance cost, versus old homes that cost less but have higher maintenance expense.
In the first scenario a newish 3 bed 2 bath home (built in 2000's-2010's) in places like Chino will cost $280,000-$300,000 during market low. At best you might break even with a 30 year loan. To make it worth the effort we refinanced one SFR there with 15 year loan, have paid off 8 years since and can either sell another property to pay it off now or wait another 7 years to pay off the loan. It's newish, it's nice, it's a keeper to help retire earlier.
In the second scenario, old, small 2 bedroom SFR's in Riverside County are cheap (<$100,000 to $150,000) during market lows. $100K-120K SFR will rent for $1250/month back then and $1350-$1400/month today. Your mortgage is 1/3 of the rental income. Downside is that the home is built in 1960s-1970s and you can expect a lot of repair expenses. Your cashflow will go into a maintenance reserve and home insurance & home warranty is highly recommended. These SFR's are not keepers, when the market goes up sell them and cash out.
Irvinecommuter
New member
momopi said:
A key factor that people always forget is time. If you have an older home and/or a home that is in a less desirable area, you will to spend a lot of time between repairs, maintenance, and just checking up on the property. Renters are great if they are good ones but if you get bad ones, ones that don't pay, or worse, both...you are in a lot of headaches. Go try filing an UD and see how much time that takes. You can hire an attorney but that's a few thousand dollars down the drain...and hopefully the renter doesn't trash the place on the way out.
irvinebullhousing
Well-known member
momopi said:
This bring up a good point about Home Warranty. Not to be mistake for Homeowner Insurance.
Are they scam, gimmick? Such as American Homeshield, or First American Home Warranty, which is a division of the First American Title Company. I find it hard to believe, that they would actualy replace a high price applicance such as an A/C unit cost of 7-8 thousands when you only pay 65 bucks or less a month. If you have good experience with a company please share. If not I would like to know which to avoid.
My rentals are newer, but worth looking into.
Irvinecommuter
New member
Compressed-Village said:
Doesn't it depend on a number of factors...especially age of the system/appliance?
I mean $65 a month is $780 a year....$780 covers a lot of repairs. How often do you really need to replace an entire system?
irvinebullhousing
Well-known member
R22 Freon is +- & $100 dollars a lb. A typical refill of a system is about 5 1/2 to 6 lbs. it add up pretty quick.
EPA will phase out R22 Freon by 1/1/2020. Which mean it will no longer available. If you have a system that run R22 they must replace it when the Freon run dry. This worth a gamble to get a warranty. After the 1 year commitment, cancel.
EPA will phase out R22 Freon by 1/1/2020. Which mean it will no longer available. If you have a system that run R22 they must replace it when the Freon run dry. This worth a gamble to get a warranty. After the 1 year commitment, cancel.
momopi
Well-known member
Irvinecommuter said:
Compressed-Village said:
I don't worry about those things. I pay property managers to worry about it. We've never had to evict a tenant, they're usually open to negotiate if you're polite enough.
It's your property manager's job to deal with tenant issues, including eviction as last resort. Your job is to find a good property manager. When I first went to South Riverside County I didn't know anyone. I drove into downtown Temecula (old town front st?) and saw many real estate offices lining the road, so I just walked in and started talking to people.
Ask property managers if they have trusted handyman and contractors who can perform repairs at reasonable rates. How much do they charge for X and Y? Have they worked with home warranty companies and can they recommend one? If memory serves we had First American home warranty from the purchase and kept it, they charged $60 to fix a gas leak.
Positive cash flow is very powerful and enables you to do many things. When your mortgage is $400/month and it rents for $1250/month, you have cash flow to comfortably pay for insurance and property manager expenses. You can afford to tell your property manager to be picky with tenant screening -- it's OK if it takes 3 months to find a good tenant, you can afford it.
Irvinecommuter
New member
Compressed-Village said:
Not sure that those warranty covers things like freon...that's not really a "repair".
irvinebullhousing
Well-known member
Irvinecommuter said:
That is correct. Freon is not cover under warranty plan, I checked. They at most cover very minimal, for the the both American Home Shield and First American only cover $ 10 dollars per pound. But the point that I am trying to get accross is, if the Freon is no longer available because of the ban by EPA. They have no choice but to replace your system. IF they do what they suppose to do.
I have not sign up with any Home Warranty and I read the fine print very carefully.
momopi
Well-known member
You can contact First American and ask exactly what is covered or have them send you the fine print to read. However if you have an old HVAC system and EPA bans Freon, I don't think you should expect your home warranty to replace your AC system for free.
I did have my coils replaced and AC recharged at a rental home about 5 years ago. Home warranty took care of majority of the cost but it wasn't completely free.
In another incident the toilet overflowed and flooded the wooden floors at different property. On advice from my property manager I contacted State Farm Insurance, since we purchased insurance through them. They sent an inspector and wrote me a check to replace the flooring.
https://homewarranty.firstam.com/articles/big-hvac
I did have my coils replaced and AC recharged at a rental home about 5 years ago. Home warranty took care of majority of the cost but it wasn't completely free.
In another incident the toilet overflowed and flooded the wooden floors at different property. On advice from my property manager I contacted State Farm Insurance, since we purchased insurance through them. They sent an inspector and wrote me a check to replace the flooring.
https://homewarranty.firstam.com/articles/big-hvac
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panda
Well-known member
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qwerty
Well-known member
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I like my life too much