First Timer needs help

[surya15811]

Hi there,

I need help to make a decision, being a first time buyer, I am very nervous and I want to make a right move.
I am looking at this property that cost $ 275,000, I figure I could rent it out abt $ 1500 + utilities. The tax is $ 1760.00
If I calculate it, the factor comes to 0.065 which will be filtered out, it does not satisfy the formula of 0.8 to 1.0 factor.
If I put down 25% the Mortgage payment would be $ 1210 for 40 years amort. I can see there is a possible cash flow here.
Please advice me.
Thank you in advance.

Sulaeman

 

[NickStewart]

QUOTE (surya15811 @ Nov 9 2007, 03:10 PM)
Hi there,



I need help to make a decision, being a first time buyer, I am very nervous and I want to make a right move.

I am looking at this property that cost $ 275,000, I figure I could rent it out abt $ 1500 + utilities. The tax is $ 1760.00

If I calculate it, the factor comes to 0.065 which will be filtered out, it does not satisfy the formula of 0.8 to 1.0 factor.

If I put down 25% the Mortgage payment would be $ 1210 for 40 years amort. I can see there is a possible cash flow here.

Please advice me.

Thank you in advance.



Sulaeman




Sorry to be the bearer of bad news, but my calculations show that to be a negative cash flow property even on a 40 year amort at that amount of rent.



To find out why, I would suggest that as an exercise you take it to the next step where you go through a detailed analysis of the property and start to budget things like insurance, maintenance, managment, etc. That will give you a better appreciation for why 8-10% is the target to strive for if you can.



Having said that, it IS possible to cash flow below 8% on the cash flow zone, but you need to confirm the numbers by working them through the next step.



You have some options to try to get more rent, or to reduce costs, most of which are captured in this excellent thread:



http://myreinspace.com/public_forums/Real_Estate_Discussion/62-1437-Positive_Cash_Flow_-_Pls_Respond_to_Group_With_Ideas.html



Good luck, and don't be dejected if the property doesn't work. There are lots of properties out there, and I'm sure you'll find one that works better than this one!

 

[DonCampbell]

Hi,

It looks, at first glance like a negative cash flow property.

The only way you`ll know is by completing the FULL Property Analyzer Form which will help you identify all of he expenses. You can find it in your Quickstart Home-Study Program (that you received when you became a REIN Member.

Trust that helps!

 

[LongWayFromHome]

QUOTE (surya15811 @ Nov 9 2007, 03:10 PM) Hi there,

I need help to make a decision, being a first time buyer, I am very nervous and I want to make a right move.
I am looking at this property that cost $ 275,000, I figure I could rent it out abt $ 1500 + utilities. The tax is $ 1760.00
If I calculate it, the factor comes to 0.065 which will be filtered out, it does not satisfy the formula of 0.8 to 1.0 factor.
If I put down 25% the Mortgage payment would be $ 1210 for 40 years amort. I can see there is a possible cash flow here.
Please advice me.
Thank you in advance.

Sulaeman

Sulaeman,
Different investors will have different opinions about what criteria (such as price range, type of property and rental return) that newer investors should be seeking. I have purchased about 80 properties in the last 4 years including 14 in Canada. The deal you describe does not sound attractive to me. I recommend the following:
1. Considering buying several lower-priced properties instead of one at 275K. This has many advantages - spreads your risks, helps you learn more quickly about property investment, more flexibility. Experience can develop your intuiton.
2. Buy only positive cashflow properties. I travel half way across the world to invest in Canada Real Estate. There are so many positive cashflow opportunities in Canada. Don`t know where you live, but fly to (say) Regina, hire a car for 2 or 3 days and go exploring real estate in towns say 1 or 2 hours from Regina or Saskatoon. You`ll be amazed what you find.
3. Be disciplined. Calculate the returns you require and make offers at those levels. Don`t worry what the realtor says or thinks. They may resist your offers and pressure you to increase your offers. Stay disciplined. I expect about 10% my offers to be accepted.
4. Spend time in the towns you are thinking about investing in. Talk to people in coffee shops etc and get a feel for what is really going on in town.
If you want more info, email me directly at [email protected].
Anthony

 

[invst4profit]

Hi, although new here I can tell you the guidelines I follow for considering a property.
I start by assuming 50% of the rental income will go to expences. Expences being
advertising, vacancys, proprty management, insurance, taxes, repairs, maintance,
prep between tennants etc. This is a proven long term stratagy for all rental properties.
The remaining income goes to servicing the dept and profit (cash flow). In considering the
debt service I calculate it based on 100% financing regardless of my cash investment.
Paying down a morgage dosn`t create cash flow it just diverts money from other income
investments so I never include it in my profit calculations. If after all these calculations
are made there is a monthly profit I look deeper into the property.

rental income: 1500/2=750
750-1210= -460
You can expect to lose $460/month on this property and recieve no return on your
downpayment during the time you hold the property.