First time Property Deal? Loan HELP!

[Jessica C.]

So I have been trying to get into real estate investing and have decided to take the dive, I have researched and read various books however its one thing to read something and another to have experience. Thats why I NEED your advice!

I am interested in buying this property it is a 5 unit (4-two bedrooms and 1-studio). It is listed at $125,000, the rents I would get per month are (all units pay their own utilities)

INCOME: rent1 775 rent2 775 rent3 750 rent 4 750 rent 5 400

TOTAL: 3450 a month or $41400 a year.

EXPENSES (all expenses including taxes, not mortgage) =

TOTAL: 999.08 a month or 11989 a year

So far the deal seems good, but the HUGE problem is figuring what to do about the mortgage. Do I go commercial? or Do i use a FHA 203k to convert the 5 unit to a 4 unit to get the lower interest rate and down payment. Or I was also told I could use a collateral loan to get the funds at a lower interest rate and longer term.

In summary I have MAX, 30K to put down. When it comes to a collateral loan my father would take it out for me and he owns enough property to get one (not multifamily). Also to note the units need some work a high estimate is 80K (should actually be around 50K, but you never know what you may run into) I am hoping to get a deal on the 125000 asking price because it is a foreclosure.

Any Advice on loans?

[Ann Bellamy]

Jessica, I love old houses too, which is why I got into real estate investing. Unfortunately, old house = money pit which does NOT usually equal cash flow.

Re financing: As Mike mentioned, and as you can see, we were both easily able to identify this property from your description. And since it's been on the market for a significant time, as @Tom Goans mentioned, there is a reason no one jumped on it. Probably a bunch of reasons.

Re: financing - you are going to have a tough time getting a commercial construction to perm loan, assuming you are talking about convention commercial, unless you have multi-family experience. This property is distressed, empty, with significant deferred maintenance. Not a banker's dream. So you don't have much of a choice, you need to either convert to 4 units and go 203k, which is owner occupied, or find private/hardmoney lenders. I'm assuming you work somewhere in the Boston area, so the commute from Orange to work if you went owner occupied is miserable. So that leaves private/hard money. Good luck with that one. On this property, at any rate.

For several reasons:

1. You don't have experience

2. It's very old and the repairs needed probably exceed your estimate

3. It's too far out for most Boston/Worcester area lenders

4. Your exit strategy will be challenging as well.

I know you already said you were going to pass on this deal, I'm just giving you more information based on your subsequent comments. Not trying to be negative, just giving info.