First Time Homebuyer Interested In Riverside, Illinois area. Many questions and a math check.

[Kasey Ryan]

Hello there Bigger Pockets community!

Kasey Ryan here, I introduced myself a bit ago on the new member introductions forum. I've been doing more research, and have come to a point where I'd like some more exact numbers to crunch. My post became longer and longer as I got into it so I'm going to post my specific questions on the top right here. If you don't mind reading my extended blabbering below the questions, then please have at it :).

Any and all help greatly appreciated. I take criticism well; if something seems very flawed,  please don't hesitate to tell me.

A) about how much the property insurance would be on a 4 unit in Riverside, Illinois (while were talking about it, just in case, what about a 2 or 3?)

B) about how much the property tax would be for a 4 unit in Riverside, Illinois (what about a 2 or 3?)

C) If the "50% rule" includes property taxes or if I should account for those over and beyond the assumed 50% of then operating expenses

D) If the "50% rule" includes FHA mortgage insurance premiums or if I should account for those over and beyond the assumed 50% of rent operating expenses

E) I've seen online (rentometer) that average rent is 876 for single bedroom, but does anybody have some real numbers/experience/insight/etc. into how that accurate this is? Also,

F) Having never rented to anybody before, how easy is it to get the actual renters? Does riverside have a lot of renters? Is it worth getting somebody in faster and more long term if I make the rent 800? What about the places I see on there renting for 1000? Are landlords really pulling in 1000 when equivalent properties (single bedrooms) are renting for 800? If I could truly pull in 1000 a month for each 1 bedroom unit then I could afford a much larger mortgage and still break even...

G) Crunching the numbers I've been estimating for now (which I don't really trust, hence my post here) it seems that I should aim for a mortgage of about 210,000 if we assume that the FHA Mortgage Insurance and property taxes are included in the 50% rule. And that if the Mortgage insurance is NOT included in the 50% rule that I should aim for a mortgage of about 180,000. I've posted my math related to this point at the bottom of the post.

If it turns out that the property tax is not included in the 50% rule, then I have no idea how to begin doing the math...

All of this though, is again based on estimates that I am not so confident in, especially the rental income that I can expect from Riverside, Illinois (I've been using 850 so far as my estimate and working backwards from there to figure out how much house I can afford.)

To give you an idea on my strategy for right now: I want to use the FHA (maybe a 203k but I'm not sure if I should get into rehab's yet???) to purchase a property with 4 units. I will rent 3 of the units out, and use that rental income to pay for operating expenses and the mortgage. I do not need to make the property cash flow because I will be living in one unit. Having a "free" place to live will be cash flow enough for me. I would even be happy with a slight negative cash flow (paying out only 200 a month, for instance, instead of rent, or a full monthly mortgage payment.) This is because I am really just starting out. I'm 24 right now, recently graduated, and just now (on September 1st to be specific) starting my first salaried position after college.

End of main section.

Start of blabbering section and the math I used for point G) above.

I like the 3.5 down on the FHA and the fact that you can use prospective income from rent to help qualify. I've saved up some money for a down, and I'm in the process of getting a pre-approval from a couple banks that offer the FHA.

My girlfriend and I are interested in the Riverside, Illinois area in particular, so if anybody has some insight into that area it would be very helpful!

In my research I've come to find that the FHA loan has some hefty mortgage insurance that must be paid monthly (1.3% loan) as well. In addition to a one time 1.75% upon closing. This is in addition to the regular property insurance. In addition to property tax. In addition to the mortgage itself. With all of that cost, it seems like it would be hard to cash flow, or even hope to break even, with the homes I've been seeing thus far. (Still looking for the right deal, I know the majority out there simply will not work.) However, I realize that I really do not know any good idea of what numbers to run when estimating a deal. This is why I have the list of questions written above, I think that information would be most helpful to start getting a better analysis framework going.

The math I've done for G) is below:

Assuming MIP and property tax are included in 50 % rule, it seems I should aim for a mortgage of about 210,000

3 units at 850=2550

Assume 1275 for operating expenses (vacancy, evictions, utilities, advertising, tenant damage above security deposit, mortgage insurance, property taxes, regular insurance, repairs when things break down, etc...)

Assume 1275 to go toward the mortgage

Assume 6% mortgage at 30 years with a 210,000 loan=1259 monthly

If we assume that MIPs are NOT included (but property taxes are) it seems I should aim for a mortgage of about 180,000

3 units at 850=2550

Assume 1275 for operating expenses (vacancy, evictions, utilities, advertising, tenant damage above security deposit, regular insurance, property taxes, repairs when things break down, etc... bot NOT MIP's)

Assume 1275 for both the mortgage and the mortgage insurance

Monthly MIP 195 (Annual 1.3%-2340)

Assume 6% mortgage at 30 years with a 180,000 loan= 1080 

Monthly recurring total for Mortgage and MIP=1275

Does the math seem to be somewhat on point? Am I missing anything huge yet? Or making any little mistakes I may want to account for?

Sorry for the long post, I'm editing it now to put the real questions at the top and leave the extended blabbering for those of you who feel like reading the full thought process.

Thank you!

-Kasey Ryan