Hi, we hope to get advice on how to decide the budget for purchasing a rental multi-family home (2-4 units). Currently, there are three of them on the market in a small area that we are interested in, but their selling prices and potential rental income are different. The lower priced home will use about 60% of our max loan approval amount; the middle priced home will use about 75%; the higher priced home will use > 90%. Would it be safer to purchase the lower priced home, in case of situations like vacancies or tenants not paying rent? Thank you and all advice are greatly appreciated!
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
5y
@Brynn R. Yes. I think they stopped breaking them out into separate units, but you can total up the rents for the one input on rents. It has been a while. You will only need to decide whether to use the BRRR or Rental calculator.
Investor · Bloomington, IN · Member since 2019 · 76 posts · 55 votes
5y
@James Z. I think your decision should be based on a few different factors.One of the largest factors is the size of your loan, just like what you're talking about above. However, even if you use up to 90% on the higher priced home. If the numbers work best on that property, and it has a solid cash-on-cash, it might be your best decision. I always shoot for at least the 1% rule in my market. Whatever you end up purchasing I'd make sure you've got some reserves ready and factor in cap ex, repairs, vacancy, loan, insurance, and management. Something else to consider is a rehab. Are these all turn-key? Will one require more maintenance than the other? How long will that take? Ultimately, there's always factors in play that are out of our control. I wish you the best of luck!
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
5y
@James Z. Have you used the BP's rental calculator? Make sure you have all the most accurate assumptions for inputs like vacancy, utilities, taxes, insurance, property management, repairs & maintenance and reserves. Also make sure you have inputed the correct loan information, and then run the numbers. What is most important to you? Cash flow or upside at sale? See which yields the best combination of the two, and that should give you your best option. Also, take into consideration how leveraged you feel comfortable being.
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
5y
@Brynn R. Yes. I think they stopped breaking them out into separate units, but you can total up the rents for the one input on rents. It has been a while. You will only need to decide whether to use the BRRR or Rental calculator.