Whats A Good Monthly Cash Flow For A Subject To?
What are your thoughts on the minimum monthly cashflow for a subject to deal?
Found a deal where the owner wants out of the rental she already owns, however, mort and taxes are $688 a month, the lease is signed for $800, but is getting a break and only paying $750. a month.
$62.00 a month doesn't seem worth the effort to me, since the owner already told me that the place needs some work.
Also, if the place ends up being worth, say $85,000 (the balance of mort is $65,000), can I get my hands on that equity?
Thanks in advance.
I think alot of people forget that the same common sense rules apply to properties bought sub2 as to other properties. The only real difference in the two deals is the fact that you didn't have to use your cash or qualify for bank financing.
I see most use $200 per month as a benchmark of sorts for cash flow. In reality, this number doesn't work. While $200 per month might be acceptable on a $400 or $500 per month payment, if my payment is 1k per month I am going to want more cash flow.
There are also other things to look at. I have a house that I sold last year for 99k there I was asking 4k down on a L/O with pmts of $900 per month. My buyer wanted a 700 per month payment and offered me 7k down if she could have the lower payment. Of course I said yes.
My pmt on this house is a little over 600 per month so my cf is less than 100 per month. Normally I wouldn't accept this but as I see it, this lady prepaid her rent so it works.
There are other considerations as well, down payment, backend profit, overall equity, your cash position, that would be factored in as well.
[addsig]
it all depends on what the market can bare. Sometimes the existing mortgage payment may be so high you can't pack it with an additional $200. For example, I have a house where the existing payment is close to $1500. The area will not bare a $1700 payment...that is just way to high. So, I made the payment $1575.
Do lose sight of the main thing we after....the equity. There is $60k worth of equity in the house. I'm not going to be so greedy that I make the payment so high just to get a nice cash flow. In this case, I'm not worried about the cash flow, I want the equity.
Know what your maket can bare and stay around those numbers.
Also, sometimes people will want to give you a bigger down payment just to make their payment lower. Are you going to turn them away??? What if they want a payment that is $200 less than the existing payment but are ready to give you 2 to 2 and a half times more than what you were asking down???? Are you going to say no I don't want the money and you can't have that monthly payment?
Get creative.....do the math and set up an escrow account. draw on the account every month to make the payment enough and keep the rest of the money.
What I have found out that there really isn't a "rule of thumb" because every situation is different.
1% of the purchase price tends to work most of the time but once you get over $150k houses, that percentage goes down.
$1500 month payment for a $150K house.
$2000 month payment for a $200k house...????? ha, good luck.
that 1% rule can work but the higher the house, the less you can get. Make the numbers work and stop trying to strech every little dollar out of the houses.
Don't worry, you'll get more houses.
Equity is a great thing to have but when you have -0- cash flow and can't make your monthly obligations, you can't eat equity.
Cash flow sets you free.
[addsig]
I disagree.
The monthly will be at least the same amount as the current payment. if they want it lower, they will give me a greater down payment, part of that down will be escrowed for the payments.
I'm not cutting into the profits, I making the same amount as I would if they were making the full payment or a little less.
And if your relying on one house to feed you, go buy another house....but until you do, use the down payment to eat.
diatribe,
Glad to meet you.
The way I do Subject To deals there are 3 profit centers.
1. The down payment from the buyer, if you L/O naturally you will not make the kind of profit you can from selling with a Contract For Deed or another methods in states that Contract For Deed makes it tougher but not impossible.
2. Monthly passive income from raising the current interest rate a few points. Do not look at rents in an area when you sell, buyers will pay current mortage rates and higher because you are giving them the American Dream.
3. Have your buyer re-finance in around 2 years add the appreaciation for the two year period when you sell this enhances your profit.
So you may not be able to get all three profit centers on every deal, but on the majority of deals you will.
You can average $25K on your deals day in and day out, so if one of the profit centers is not as good as you like, then so be it, you still make money.
Some people doing Subject To deals look at the small picture, you need to look at the overall picture and what is acceptable to you.
John $Cash$ Locke
nebulousd,
Remember also, which I know you are aware of, buyers who put a nice down payment on the property have a tendancy to take better care of the property.
When you L/O a house your chances of having the house re-financed to receive your back end are slim and none and your chance of getting the house back in poor condition are very high. Another major factor is if something goes bad like an air conditioning unit see if the Tenant Buyer has it replaced or will pay to have it replaced, this is a no brainer.
This is the major reason why I recommend selling versus renting.
John $Cash$ Locke
PS: Good Job telling it like it is.
John Locke is as usual correct. Annoying.
However, there was a time when we took whatever walked in the door and some were just break evens. Our thinking was that the increase in population pressure was offset by the inability of our maker (God, Ohmmnnn whatever) to manufacture any more land and that accordingly it was over time a win win situation. If you take it over 30 years it works.
Besides all those Mortgages slowly get paid off and you can play a game of refinance and drop some and clean up the high mortgages on others and suddenly, You are out of hair, testosterones and walk with a limp, but. The banker comes to attention when you walk in the bank and you can drive the hidden no name car with no badges, the ultimate wealth symbol. My favorite collector of real estate drives the top of the top Aston Martin sans badges and a dull non shiny paint job. God am I impressed.
The fun parts of the long distance game are the multiple dwellings. Cause you see the rents on those are almost always going up. You get the big spender in Beverly Hills who wants more space so you put him in touch with a big time designer who has his sexes confused and you take the unit next door to his and expand, You slant the glass in one room looking out so it looks like a bird cage and you charge him about 4 times the value. Oh so much fun. The best is when you can modify a part of the garage under his unit. Enclose it just for him. He pushes a button the door rolls up he rolls in, get out and enters the elevator installed just for him goes only one floor up. Oh the money you can charge. All from a crappy 20 unit built by Gypses long ago that fell into foreclosure cause the owner used a really big management company whose motto was Ein comes Ein und zen Ein.
Even now, having given everything away to my newly wealthy children, I am willing at a very advanced age to (buy close) so many forget that the mortgage is slowly getting paid off and equity does accrue and because of the strange banking customs of this age and time, can be utilized for cash infusions.
Tomorrow I shall limp out of the house get into my 1981 VW diesel pickup truck that threatens no one. Dress in my cheapy suit bought at Sears, have Breakfast at Nat and Als where because of my age everybody calls me Sir and smirks, To Westwood to negotiate with a dear friend who wishes to convert his rather nice 12 unit into a life estate for himself. I shall help him. And frankly dear friends of the younger persuassion so should you.
Helpfully Alter Kocker Lucius
yup, thats why I don't L/O houses.
Everyone has their way of doing business and not all ways work in all markets.
I love L/O and sell most of my properties that way. There are many advantages to a L/O sale but that is a topic for another day. I also like land contracts but will only sell on a LC with a certain % down. Not everyone in my area has that % down.
If you buy right you can assure monthly cash flow on your deals as well as a nice backend.
I still contend that cash flow is a must for this and ANY business and the ones who stay in it long term will have it.
[addsig]
I think most of you missed a key point in the original post. This property is already an investment rental with a tenant under lease.
If diatribe purchases this property Subject To the existing mortgage, he will also be purchasing subject to the existing lease.
As John Locke points out, the monthly cash flow as a profit center may not alway be available on every deal; certainly not this one while the lease is in effect. When the lease is near the end of its term, diatribe can give his tenant notice that he is not going to renew the lease and is planning to sell the property. Perhaps his tenant will become his buyer.
Now, diatribe executes his exit strategy and realizes all the profit centers that the deal will support. If the comps are current and the lease is recent, perhaps the property will appreciate another $5K by the time diatribe is able to market the property for sale. Add another $5K-$10K to the back end if he sells on a CFD.
For a potential $30K to $35K payday, I would be willing to work this property Subject to the existing financing and the current lease. I would be willing to collect just $62 a month for a nothing down deal that has a potential $30K back end profit in a couple of years.
WilliamGA,
I have done Subject To deals from coast to coast, up markets, down markets and in between markets, I did one L/O and only one L/O many years ago.
Until you grasp how to market effectively and get the down payment in any market you will still be doing L/O deals going for the short money and all the problems associated with this method.
Why wait for another day, tell me why you think L/O's aren't a method for the in-experienced until they learn what making top dollar off of Sub 2 deals is all about.
John $Cash$ Locke
John Locke,
I have invested successfully for the past 4 years. Not as many years as you, but then I have only lived half as long as you. None the less, I have a very profitable business that allows me to live a rather nice life.
I am quite happy with the way my investing is going and my accountant can attest to the fact that I do not settle for the "short pay". I live quite well on my investing.
I believe I also market effectively. My goal IS to sell on L/O and I believe I have as trouble free a business as any investor, you included. If my buyers have the needed downpayment, they can buy on CFD, if they don't, they buy on L/O.
One of the purposes of this board is for the discussion of many different views on investing and as such, we can all have our own views.
It is obvious to me (and others) that you have a problem with me posting on this board. You and your cohort take every opportunity to try and discredit my answers to others.
If your is the only opinion welcome on this site, that is fine. If the owner wishes for me to leave, I will. Until then, I will continue to offer my experience to anyone who asks and will offer not "pie in the sky" but actual as I see it opinion.
It really doesn't matter to me if I sell courses.
William Tingle
Whew...
you can cut it with a knife...
I believe both $Cash$ AND William have done excellent jobs in helping those here in the sub2 forum immensely.
True, both do have their own system.
What one may work for one may or may not work for the other.
There is NO "gospel truth" to any one way of investing. One must adapt to their own environment as to how he or she wants to vary the methods of investing.
Just because selling on a CFD may work in one area does not mean it will work in another. Vice versa for L/Os.
It should not matter how we buy and how we sell. There are theories and there are concepts.
The point and goal is to buy houses and sell them profitably all while helping people out.
Both $Cash$ and William have proven track records and have their own personal, set system(s) as how to acquire and sell sub2 houses. We all know that.
Their system(s) is theirs. If we want to use them for our own, we are to use them as "vessels." It is up to us others here to adapt and tweak whatever they have to share to our own system.
[addsig]
DaveT,
I didn't miss the point of the post. I was referring to cash flow "rules of thumb" in general, not in his specific situation.
Sorry for any confusion.
There are differences in the amount that should be acceptable depending on the amount you are paying out each month. All of this means little until you have vacancy, then the meaning becomes clear.
Where I live, people are shopping for a monthly payment whether L/O or mortgage. This is not just my opinion, it is the opinion of every investor in this area.
Maybe coincidence, maybe none of us know how to market properly.
William Tingle
Jason,
I agree totally, 100%.
Very well put.
Thank you,
William Tingle
WilliamGA
Ichabod,
Thanks, I totally agree w/ your post.
I've been following this post for some time along w/ a couple others & really enjoy the views of other successful investors.
As you can see, I haven't chimed in much however, now I feel required to do so. It's important to get the views of other successful investors because they just add to your investment arsenal.
Granted some may have an approach that works best for them however, that approach doesn't necessarily work w/ every other investor & in every situation. The investor must choose which approach to sub2 investing works best for their particular situation & this board allows us beginners to receive these different approaches from very successful investors who are out there doing it day-in & day-out.
I appreciated all off the successful investors helping us rookies out on this site. And, I hope that we can continue to receive their construction & helpful input into the future.
Take Care,
Justin (OH)