How am I doing? Should I go into this next deal?

[Jeremy Chaudet]

Hey guys,

I am 23 years old and just purchased my second house in Philadelphia (manayunk, roxborough area). I was wondering how you think I am doing/ if you think I am rushing into a next deal. Since I just purchased house #2, I am low on funds (only have a couple thousand saved up). I came across a deal where I can get into the property with no money out of pocket with some owner financing. The seller has had some trouble selling this property because it is classified as a mixed use property (office on the bottom and residential on top) I would offer $140,000 on the place and not go a dime above that. The office is generating $600 a month and the upstairs apartment in bringing in $1125 a month. Total rent is $1725, utilities are split, tenant pays all utilities including the water.

My plan would be to offer $150,000, with a $10,000 seller assist for closing costs with 20% seller financing in the form of a 5-year 0% interest balloon payment. the other 80% would be a commercial loan since it is mixed use where rates are about 5.5% on investment properties.

the 80% financing loan w/ taxes and insurance would be about $1070 a month w/ taxes, insurance and P&I.

P&I only is $736.90. Using the 50% rule the cash flow of $988/2=$495

The $495 a month cash flow will give me $29,700 in 5-years, $300 under the balloon payment. a free $30,000 in extra equity 5 years from now.

Is this worth it with 0 down and a $30,000 balloon payment due in 5 years?

My plan is to buy and hold- long term. If the office space moves out, I would like to convert it to a residential space (if possible)- I will do my due diligence on this before purchasing. Also, It would be converted into one whole house if needed.

This property also has extra potential for improvement- I can possibly add another bedroom upstairs to get at least an extra $500 a month. From my perspective, this seems like a good deal to get into and start off with for my first multi-unit property/seller financing. Ideally down the road I would like to go into more units.

FYI: The property was appraised for $180,000 in November 2013 based on recent sales comps.

I worked full time in the mortgage industry up until last week for a year and a half- I am going full time for my MBA and have 0 other debt besides my two mortgages.

Here is my financial picture:

House #1:

P&I, Taxes, Insurance= $1050

Rent= $2250

House # 2: (I live in this house and rent out the other three bedrooms)

P&1, Taxes, Insurance= $1010

Rent= $1550

How much debt is too much to have? What is your ideal DSCR for your portfolio?