Buy And Hold Single Family Home With Mortgage
With the current market strategy "Buy and Hold", you buy an investment property and hold on to it until the market is in a position in which you can sell for a hefty profit. There will be houses though that you might want to hold on for longer.
Our key focus at this point is to invest in properties that will cash flow.
This means the monthly Rent income will cover the following:
- Home Warranty Insurance
- Home Owners Insurance
- Real Estate Tax
- Home Owners Association
- Mortgage payments
- Property Management
AND after taking all of this out you still end up with a monthly income(cash flow).
Cash flow is however only part of the deciding factor for us to put in an offer. Other pieces to this decision are:
- Location, Location, Location
- Population growth
- Income area (e.g. if all houses around are 1 Million $ houses you won't be able to rent yours out)
- Amount of fix-up costs (rehab)
- Market price
Real Estate Investors use a 1% rule, which is not what we are using, but it gives you a quick assessment if a house is worth investing or not. That rule basically says that if your monthly rent is for example $1000 that you should not pay more then $100K for a house, otherwise you will not be cash flowing on this investment.
Lenders make it currently fairly hard to get a loan for an investment property. In addition an individual is limited to 10 mortgages to hold real estate.
Enough said here is an example for 1 Single Family Bank Owned home in Texas:
- MLS (Multiple Listing) Asking price: $99,000
- Price paid: $85,000
How does this pay for itself?
|Rent Income Monthly||$ 1.220||100%|
|Mortgage ($68000) Monthly Payments||- $ 407||(33% of monthly rent)|
|Home Warranty ($450) Monthly Payments||- $ 38||( 3% of monthly rent)|
|Home Insurance ($1023) Monthly Payments||- $ 86||( 7% of monthly rent)|
|Property Management 10%||- $ 122||(10% of monthly rent)|
|Property Tax ($2550) Monthly Payments||- $ 212||(17% of monthly rent)|
|Sum||$ 355||30 %|
|To be on the safe side additionally set aside 6% for vacancy allowance||- $ 74||( 6% of monthly rent)|
|10% for other unexpected expenses||- $ 122||(10% of monthly rent)|
|Monthly net income||$ 159||14%|
This example shows you that JBW Investing only invests in safe and sound opportunities.
Imagine you wouldn't have the loan payments in the example above. If you want to take part in this opportunity please contact us and we can discuss further details.
You may ask about the upfront money we needed for this deal. At closing we paid $20.701. That number included:
Home warranty insurance for the first year
Home Owners insurance for the first year
Property taxes for the remainder of the year
Mortgage broker fees
Mortgage Down payment
In addition to that we spend about $3.000 in Rehab costs to get the property rent ready and a one time fee for Property Management of $1000. That totals to a sum of $24.701.
To summarize this in higher level numbers:
Total Annual Operating Income
(Monthly Rent * 12) - Vacancy
Total Annual Operating Expenses
Insurance + Other expenses + Property Management + Reo Tax
NOI (Net Operating Income)
Total Annual Operating Income - Total Annual Operating Expenses
Total Annual Loan Cost
Monthly Mortgage payment * 12
Total Annual Net Cash Flow
Total Annual Operating Income - Total Annual Operating Expenses - Total Annual Loan Cost
Monthly Cash Flow
Total Annual Cash Flow / 12
NOI / Price paid for house
Cash on Cash Return
Cash Flow / Down Payment (20% of $85,000 = $17,000)