Anybody doing real estate?
 

Where you live, what % down payment do you have to give on a triplex/fourplex in order to break even your mortgage payments with tenants rent?

I was speaking with my agent today, and he told me that it will take me 25% down in order to break even every month. Is that reasonable?

yep
and you usually need 25% down by the banks if you are gonna rent it out too.

Fire your agent, he has no idea what he/she is talking about.

I own a bunch of apartment buildings and the most I have ever put down is 15%

DH

lots of variables here.

1. depends on your location
2. whether a property "cash flows" has to consider your personal income tax situation and your other tax shelters
3. property condition
4. existing financing, owner carry back availability
5. current rental market, current vacancy factor, whether city has rent control ordinance
6. number of units and existing rent roll, whether they are month-to-month, or on leases (effects your ability to raise rent and increase cash flow)
etc
etc
etc

that said, you can make some properties cash flow with 0-5% down in some areas, other areas might need 50% down.

work with a knowledgable broker, very few on GFY have experience in this.

yes, i have never put more than 10% dp in any multi-unit bldg.

and, there is a reason MOST real estate agents do not own income property.

deal with a broker who does.

Agree - every package is entirely different and each needs a separate speadsheet assessment for viability - and realtors are not necessarily a source of commercial advice :thumbsup

DH, at 15% down, do your tenants cover mortage+taxes+put money in your pocket every month?

From what I hear, you need around 20% to break even. To get 15% you need to find a great deal. Not sure what you consider being cash flow positive, but really what counts is long term. Short term it's pretty easy to be cash flow positive, but then one day you get a problem tenant, vacancies, furnace breaks, roof needs replacing, etc. One idiot tenant or one problem can wipe out the profits from the past year or 2. These costs needs to be considered in cash flow calculation too.

was thinking about that too... but i decided that I dont know sh!t about that, and to be on a safe side, I might get just 1 condo and rent it out, and see how it goes...

bdjuf, a very simple tip for you: There is very little new rental property being built in Montreal because rental board issues make it very, very hard to make money with rental property bought today. One of my neighbors is pretty big in it, but you need a combination of a cheaper property price, the money on hand to make major upgrades on the property, and the balls to raise rents and fight at the rental board.

This isn't a good place to do rentals. Toronto is a much better market.

Thanks for the sound advice yo

Yes...just submitted a short sale package to the owners bank last week on a single family residence.

Wouldn't that be highly dependent on the market? I couldn't imagine doing 15% in San Diego. Even 25% would be tough I think.

Fairly decent house is $450k. Take off 15% and you're getting a loan for around $390k. What's the mortgage on that, about $2700-3000? The rent on my place is $1850 monthly, it would sell at around $450k.

Take off 25% and you're still looking at a $300k loan. Mortgage around $2000-2300.

Yes with 15% down, you can still have a posive return on your equity.

Whatever amount you put down, you still have $X invested in equity in the property (i.e. the downpayment, monthly equity payments, appreciation, etc.). Saying that you must put down 25% to "break even" makes no sense. You can put zero down on it, invest the 25% elsewhere and still "break even".

When I was married we had a piece of rental property. We had 5% into it and the rent JUST made the loan payments. Where the money came in was the appreciation of the property.

Rent and what someone paid for a house don't always match with each other. Many people LOSE money on monthly rent in areas they know are going up in value. And many people make 100% in rent on paid off properties - some where they might have bought it at 10% of what similar places are currently selling for. The market dictates the rental price, not always the price of the property. Renters couldn't care less what you paid for the house if the one next store is renting for less.

it all depends on the deal. :D

bdjuf wants a cash flow positive property. And I'm 90% sure that DH only deals in cash flow positive property. If the mortgage alone is $2k (not including taxes, insurance, maintenance, management, etc) that means the property must rent for a minimum of $2k, more like $2.3k I would bet.

What part of your statement am I missing? Or what part of my statement are you missing?

This is about cash flow positive properties. Not flipping a house in 2 years because it "might" go up, which by the way is the reason a lot of people are filing bankruptcy right now. Oops.

Your agent probably meant that you "typically" need a 25% down-payment for a coventional loan from a bank!
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Right, but again, you're talking about tying up as much cash in a downpayment as you can to get a "postive cash flow". That's just not always necessary. That downpayment may well be better suited AS the downpayment, or it might make you more money if you invest it elsewhere and use the other investment proceeds to cover any loss you might see in rent.

High downpayments aren't ALWAYS good - there can be more money made elsewhere. It's like people who can afford to pay off their house, but instead, they invest that equity in something else that will bring them a higher return than the interest they'd pay on the mortgage. Same thing with rental property (or any investment).

And appreciation is important in all real estate - if you live in it, rent it out, sell it in a month or sell it in 50 years. Just because you put a higher downpayment on it and the rent covers your mortgage doesn't make it worth more :) And appreciation in an area usually means higher rents :thumbsup

That's what I was thinking - it's more what's required to GET the loan, not make the investment a good deal.

Completely agree.

Then again, not sure what market you guys are talking about. I'm stick with the distressed property market. And i'll tell you that 99.9999999999999% of the real estate agents have no clue about anything when it comes to distressed property / foreclosure markets. It's a joke when YOU have to teach THEM about what you're doing.

The short sale we're working on now is no money down directly with the owners bank. Same was the past forclosure properties.

I won't touch a deal if there's an agent involved..they fuck everything up. You hire agents AFTER the deal is done with the owners to push paper and close the deal..but never involve them in the process....that's what the lawyer is for. Just my opinion though.

Why the fuck would you buy something that takes a 25% down payment to break even???

What if one of the tenants moves out? now u r fucked!

How many properties have u looked at? I suggest looking a little more and finding some people who know wtf they are talking about...

Depends on what price you buy the property at and what you can get people to pay for rent. If you payed 100% of the down payment, you'd not pay any mortgage at all and all the rent money would be profit. Now figure out how much you'd need to charge for rent if you only put a 25% down payment and had to pay x amount mortgage.

no doubt yo,

but I'm putting appreciation aside. only looking at rent received and mortgage/tax payments

Hard to break even anywhere even on a fourplex. But there are a few places. Try Austin, TX you can get a duplex with 5-10% down and cash flow a couple hundred bucks a month.

Yes

Yes

But you can find deals. The crazy thing is your main business makes cash so I would devote more time to that and just buy a really nice property that is cash flowing. I buy commercial real estate with my left over cash. It makes around 18% a year return in the long run. I put 25% down or so.

I used to do real estate full time so i know about good deals etc and finding something 10% below value is not that hard in smaller stuff. As you get bigger it is harder and the real gems of 20-25% off are almost non existent. So on a 250k deal you are maybe going to save 25k after months of looking. If your business makes more then that, you might want to just think about focus.

i rent housing commission, and lick homeless mens nuts....

It usually the opposite simply because there are more potential buyers in the smaller price market than the higher stuff.

Bump up top, interesting thread! I love reading about real estate :)