Financing a Buy and Hold in Rochester, NY

[Mike Dixon]

My uncle is getting up in age and is wanting to sell some of his properties that range from SFH's to duplexes and a few triplexes in Rochester, NY. I'm trying to figure out the best way I can finance this first property with the least amount of money down. Here's some details on the property.

Zillow estimate value $64,500 (not sure how accurate this is?). Assessed tax value is $45,000 this is what I can buy the property for. (is it known that the assessed tax values are lower than the actual market value in Rochester?)

Duplex built in 1925 in 14609 zip code (Rochester, NY)

City taxes $1,900/year, County taxes $1,300/year

Water $800/year (Uncle says he forwards the bill to the tenants but since it's a duplex the bill is in his name) 

Insurance $300/year

Rent income $1,200/month ($600 from each side, is about to go up $25, there are currently tenants living on the property that have been there for 2.5 years)

All of those expenses come out to about $358/month. For example adding another $350/month mortgage payment (I know it's high) would bring my total expenses to about $708/month. So this would leave me about $492/month in cashflow for now. My uncle told me he would manage the property for free as long as long as he is able to (he's 78). Even if I had to pay for property management which I know I will one day and count in vacancies and repairs I think this is a good property.

I have $15,000 I could use as a down payment and get a $30,000 loan (If a bank will work with me because i'm 25 and my business is only 11 months old but I have great credit) but I want to keep as much of my money free as possible. I have an extra $2,000/month I could throw into the mortgage if I get one but don't know if it will be hard to pull 75%-80% equity back out to buy the next property. Or I could give my uncle $15,000 and we could work some type of owner financing out but since he's old he doesn't want to do a long term, but i don't want to lock all $15,000 up right now. Another option that was brought up to me is that I could have someone cosign a unsecured loan (my dad has great credit and he already told me he would cosign) then buy the property. Then do a cosmetic rehab (to raise the value for the bank) and get an equity loan and with the equity loan pay off my unsecured loan.  These are the main options i'm looking at here, please let me know If I'm missing anything and your thoughts on how I should go about this.

Thanks for looking!

[Shannon Sadik]

@Mike Dixon, my suggestion is to put down as little as possible every time you can. This will help preserve your cash longer, especially since it sounds like your grandfather has more you can buy. The minimum most banks require for a down payment for non-owner occupied investment property is 20-25%. There's really no way around that. And most banks don't care if you are just starting out as long as you have the down payment. The only reason why your business' age could be of benefit to you is that eventually in 1-2 years (depending on the bank) they will let you count that rent as additional income which helps you qualify for more money. 

If at all possible, since it's family, see if you can get creative with the deal. I understand you don't want a long term loan with him, but maybe there's something else you can do. The sky is the limit on what lawyers will allow here in Rochester when buying houses. It's all up to the seller and buyer. You haven't responded to questions about owner financing so it sounds like this isn't an option? 

A great option is to buy the house at 70% of it's ARV (with private money) and then quickly refi it. Some banks can do it in around 45-60 days. then you didn't pay much in interest to the PML and you didn't have to put any money down at all. You just have to be sure you get it at a good enough price to make this work.

I question your purchase price. Is your grandfather trying to give you a deal at all? Don't go by zillow or the tax assessment. Neither is necessarily accurate. Try running your own comps or get a realtor to help if you can. That zip code ranges from very very low income properties to good ones, so it's impossible to say just from that.