First time Investor-I have a few questions, can you answer them?

Question

Hello everyone, first off I want to thank everyone ahead of time for any insights and advice that you guys can give me. My name is Emrah and I am 21 years old. I want to expand what I do and I want to start investing in Real Estate because I have a strong appreciation for it and at this day in age, I feel like its a smart choice. Currently, I am looking at a property near me that is worth $79,000, the property is fully renovated and is located near a College. It is a multifamily home (2 Units) with a lot of potential. From these 2 units, I can potentially rent them out at $800 each bringing me in at $1,600 a month. I was only thinking about putting down a $5,000 down payment as well with a 15 year loan at 4.062% interest and an estimated $4,000 closing cost. My calculated mortgage cost would be around $1,217 a month, with other expenses like property management, garbage, etc. Bringing in a total of $1,600, that gives me $383 in cash flow per month. I am just starting out and learning all of this and I would like to start with a smaller property to get my feet wet. Also, I am still learning all of the calculations and I am trying to figure out what numbers I need to look for. Below, I have attached a link of the property so that you may take a look as well. If at any point I made a mistake in the calculations please let me know as I would love to correct them.

https://www.zillow.com/homes/for_sale/apartment_du...

Thanks,

Emrah

Brian Adzadi · Answer

@Emrah Latic

People like you are what makes me believe there may actually be hope for the coming generation. Good for you kid. I wish I was as prudent as you when I was your age.

Anyway, the house looks great and the numbers look right. I just have some questions and suggestions for you.

Since its near a college, how easy is it do you think turn it into a rental for college students. With college rentals, you can rent it by the room instead of by the unit. So its looks like it is 3 beds in each unit. You can either charge $300-400/per room, so with one unit alone you are renting it for a minimum of $900. College kids tend to rowdy and careless but you have a property manager to take care of. Just know that since each college year brings in new students, there is a high turnover rate and its up to you how well you can handle that.

Another thing is why are you taking out a 15 year loan? Why not a 30 year? Although the interest will be higher, your monthly cash flow will be even higher. You don't want to always pay off your property so quickly, because once you do its no longer a liability but now an asset. Uncle Sam loves taxing you for assets.

So if you can turn the property into a college rental and a longer mortgage term, trust me, the cash-flow will be insane.

Happy investing.

Zac Burke · Answer

A 15 year mtg would be roughly 560/month. Probably about 300 for taxes. (I have the same style house in south Utica and taxes are 3600). insurance roughly 100, probably a little more.. Water is going to run you roughly 50/ month. 5% vacancy-80..5 % repairs-80.. Roughly 10% for a PM-160.... And if you can find a bank to loan you at 4% on an investment and only 5% down definitely let me know... You could do FHA and say you live there... You probably want to run more like 10% for repairs if you don't have much saved, build up your reserves quicker.. And the bank is going to want to see some decent money for reserves.. I'm coming up with 1410 for expenses.. Stretching it out to 30 years would help your cash flow for sure....... If you're considering student rentals there is a house on downer for roughly 50k,  if I remember correctly.. I think 900 something.. 3 bed 1 bath.  I believe it has all new mechanicals like electric, hvac etc. Your insurance would be cheaper because the house is half the size of that 2 family. And your property insurance would most likely be lower. You are more likely to have to put down 20% on a investment property.. With that house you're only looking at 10k..less if you talk them down. 50k mtg over 30 years is super low.. If you could get 3 UC students in there for 500 each your gross would be almost as much as the 2 family... Granted your going to have to pay heat, electric and wifi.. As is the norm for college rentals but there looks like a good amount of room in those numbers.

Emrah Latic · Answer

@Patrick Liska I already have all of that calculated in to the price. It is my first property and I am decently handy so for the first one I can take care of the property myself. That being said, even though I will take care of it myself I still added property management costs in there so that if there is a change in the future it doesn't impact me as much. PMI and the rest are all included with tax and insurance calculated as well.

Emrah Latic · Answer

@Brian Adzadi Thank you for the kind words! I'll be honest I struggled when it came to saving up and lately I have a small amount saved up which is great but at the same time if I was a bit smarter earlier I could have more. But we live and we learn now it is time to make a change. I didn't even think of it that way, I just looked at it as getting a shorter term for the mortgage and getting it paid off asap would be the better route. I will plug in my numbers again with a 30 year term and look at the difference. thank you for the advice!

Emrah Latic · Answer

@Eric Telese Yes, I do live here and there is a high demand for off-campus housing. Majority of the homes in that area near the College are all rentals to students. I feel like it is a great area and for the students, it's a great way to escape those $4,000-6,000 dorm expenses.

Eric Telese · Answer

@Emrah Latic

Do you live in Utica? I have been briefly looking at the market. Is there a high demand for off-campus college housing here? What kind of tenants are you expecting to attract?

Patrick Liska · Answer

Emrah,

You may want to go through your numbers again. 1,600/month income with a 1,217 mortgage leaves you $383. you still have- PM @10% ( $160 ), utilities ? ( +- $60 ), garbage ( +- $25 ?), water sewer ( +-$25), maintenance for property- lawn and snow ( +-$100). that's $370 right there. will there be PMI that you will have to pay on the mortgage ? I am also assuming the mortgage includes taxes and insurance payments. the property does not seem to bring you enough money. if you can rent to students as @Brian Adzadi mentioned you may be able to make some money, if you can charge closer to $400/ room.

First time Investor-I have a few questions, can you answer them?

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