New Investor! Looking for advice

[Brendan M.]

Hi Everyone, 

I have yet to buy my first property and I am in the process of looking at properties in order to make my first purchase! I am currently located in Chicago and I am looking to buy my first property in the area using an FHA loan and living in it while renting out the other units. I am not against putting money into the property but I don't want to put more than $50,000 into the property if it's my first property. I also have no problem putting sweat equity into the property as I do want to learn how to care for and repair property as well. This should lower any costs but again this would be worst case scenario. I am seeing multiple opportunities at lower price points.

With that being said, I am looking up to $300,000 + $50,000 in repairs for this purchase (duplex or greater, ideally 5+ BR). This would be the very top end range of what I'd be looking. I'm trying to get the worst case scenario and work from there.  In the areas, I'm looking to buy, I'm figuring a rent rate of around $700 per BR (trying to be conservative). With that being said, these are the numbers I'm getting. I'm trying to prepare for the absolute highest cost point but I wanted to get your thoughts. Is there anything I am missing? Please feel free to share thoughts. 

All are annual. 

Total cost - $350,000

Down payment (FHA and closing costs) - $18,000

Rental income - $33,600 (4 BR that other's are living in, and mine)

Vacancy cost - $3360

Taxes - $5400

Debt Service - $18,000

Property Mangement fees -3360

Mortgage Ins. - $2400

HO insurance - $1200

Repairs - $2000

Total expenses = $35,720

Total income = $33,600

Annual Profit = (2120)

CoC = - 11.8%

My thoughts are that I'm only living in this place for 1 year and then moving into a new place. Also for the -11% return on cash, that would basically be a rent so I'm not too concerned with that. If I wasn't living in this property, than obviously that's a HUGE red flag. Since I am living in it and this is a thought exercise I am not worried about it. I will be living with friends in the apartment I am living and plan on having them sign an agreement and being upfront with expectations. I also am finding apartments for much less than the $350,000 I am quoting but want to work down from there so I know what to expect and any thoughts from you guys if I am missing something or need to plan for other things. I was also thinking of putting closing costs as a credit since I might not be that flush with cash depending on cost of house. I am pre approved for up to $350,000 so financing isn't an issue. 

Please let me know what your thoughts are. I appreciate it!

[Edward Rhoads]

I would not take a loan that has mortgage insurance.  It is a pain to get rid of and does not add to your bottom line.  It is insurance for the bank not for you.