Where can I find a list of example deals for 3.5% down multi?

Question

About to make my first deal but I've never done one, so I don't even know what a good deal looks like. With 20% down, it's easier, but when you only have 3.5% down, I need to set lower expectations with a FHA loan deal, but I don't know what that looks like. Is losing $300/mo OK, considering limitations of such low downpayment? What exactly would a bad deal look like? I know it's relative but some example deals would help. Something that shows a few 3.5% down deals, with all the basic numbers.

I've heard things like $200/door is a target but not sure that applies to a 3.5% down deal. Also, Any house I buy, I'll have $3000+ in deposable income, so technically I don't need profit. Building equity alone is good. I'd LIKE profit as I need to build another down payment for next deal, but it's not needed.

I actually planned to pay $1800-$2000 additional mortgage payments for faster paydown. So basically I would live like a tenant. Paying what they pay or more. Plus keeping a $12-$15k reserve.

Been searing online but not seeing 3.5% deal examples.

Michael Dumler · Answer

@Orlando Goodon seems to me you have your ducks in a row and reserves set aside. You're asking if it is still a deal if the property cash flows negative at $300 per month? I would weigh in the lost opportunity cost, do you know of any such individual paying $300 a month in rent? Probably not. That's essentially what you're addressing, but with the concern of building equity and putting your capital to its highest and best use. On one side, you're paying down the mortgage and building equity into the property, but when you run the numbers your ROI is nonexistent. Why? Because the property does not cash flow. Do not get caught in the trap of thinking that a higher downpayment will lead to a greater CoC return, that's not how it works. Do you have a deal? Technically no. Do you have a primary residence that will get your foot into the door of real estate and help you learn the game of investing and all that is encompasses? Technically yes. Hope this makes sense and helps!

Michael Dumler · Answer

@Orlando Goodon it's certainly an art and a science. You can try to calculate and control every variable factor and expense, but that is also how a lot of newer investors get caught in the analysis paralysis phase. With that being said, you definitely need to account for all monthly mortgage expenses including INTEREST, principal, and insurance. Many investors do not necessarily consider calculating appreciation given it is somewhat of a speculative measurement. If we take the current assumption that your property is indeed not a deal, then it would therefore make sense to pay off the mortgage as quickly as one can. However, if the property is in fact a cash-flowing deal, you ideally want the asset to pay for itself over time. This brings up a whole new debate and leads into the conversation of utilizing a 15-year mortgage vs. a 30-year mortgage. Keep in mind, in addition to annual appreciation, you often experience annual increases in rent that could technically be calculated as well. Trying to determine future appreciation, inflation, rent increase, tax depreciation, etc. becomes a bit nonsensical and is well outside of my wheelhouse.

Orlando Goodon · Answer

Thanks so much for the tips. For now, my new target is the cheapest houses with highest potential rent. Apparently FHA has fixer upper program. If I can find something that needs help cosmetically but is solid structurally, I can get a really low price, then start enhancing. Meanwhile I can attack the mortgage aggressively.

Orlando Goodon · Answer

I see what you are saying. Helpful. I think one BIG factor I missed is INTEREST. Just paying the minimum mortgage payments is going to get eaten up by interest. So I have to factor in, cheaper house means I can pay down faster, which cuts interest and might even build equity faster? I mean eventually it would have to. If I pay double the morgage or triple or 4 times. At some point I'm going to pass the guy with bigger house that is flat and only paying minimum. Not sure how to calculate that threshold. Just to be clear I'll make extreme example. If I buy a $200k house and pay $100k a year in mortgage payments, I'll be WAY ahead of a guy with $1M house that only pays the minimum. I'd say, I'd pass them in less than 6 months as you can't build much equity in just a year if you do nothing other than pay and pay mortgage. However there is appreciation. If guy with million dollar house only gains $5000 in equity in first year but house value goes up $30k, that can help even the field with a smaller house that is being paid down faster, right?

I think I'm going to have 10 more spreadsheets tonight. lol