All Forum Posts by: Aaron B.

I spoke with a local banker and he said his bank's policy requires 80% LTV except for first time homebuyers. I imagine banks are allowed to go above 80% ltv, but they probably have to have a strong relationship with the person or call it a portfolio loan. I'm obviously not an expert.

A partnership might make the most sense for me at present.

Hey bigger pockets! I have been an "investor-in-training" for almost a year now, which I am sure could just be a nice way to say that I have not pulled the trigger on buying real estate. Nonetheless, I have been listening to Josh and Brandon on the podcast and reading books whenever I can while evaluating properties along the way.

I found a fourplex with a good chance for positive cash flow. I applied the 50% rule and found that the numbers made sense, and I have been digging for detailed numbers ever since.  I intend to take a look at the property in the near future as I have already contacted a realtor.

I would be extremely grateful if you can spot check my numbers and show me where I might be off-track in my reasoning.  I should preface with the fact that insurance will be the single largest expense since this is on an island on the Gulf Coast.  I should also say that I live about 30-40 minutes from the property and intend to have the property managed for me in as many ways as are practical.

Here are the numbers:

List Price - $129,000

Revenue ($/Mo):

Monthly Rent - $2500

Assumed Average Vacancy - 10% (currently 100% occupied)

Assumed Average Rent - $2250

Expenses ($/Mo):

Homeowners Ins & Home Warranty - $597

Flood Insurance - $67

Property Tax (2.55%) - $274.13

Sewer & Trash - $150

Management Fee (12%) - $300

Landscaping Fees - $100

Financing Costs (5% Interest, 5% Down, 30-yr Fixed) - $747 (PMI=$89)

Total Expenses - $2235

Monthly Cash Flow = $2250 - $2235 = $15/Mo

Yearly Cash Flow = 185

The Cash on Cash Return is pretty low, at about 3%.

With the same numbers as above, managing the property myself to avoid the management fee would yield a 59% CoC. With management still in place and a slightly lower sales price, I'd achieve 7% CoC. I know many people consider that a paltry return; however, I'd consider the experience combined with the passive income worth the effort. Maybe someone could chime in with a suggestion about lowering the asking price to match a specific ROI. The Gross Rent Multiplier is 4.3 at the current list price, if you're into that kind of thing.

I am very excited to hear your feedback!

Sean, I think I was going off of old information. I thought the banks did things differently for 2-4 Unit buildings because they're residential not commercial.  Maybe the distinction only matters if you live in the unit? 

Nick,  the unit is in montrose.  I agree, the rents seem rather high.  Location and high property and rental pricing inside 610 may be the reason for the high rent?

Matt G., I enjoy that you found the property I was talking about without my mentioning the neighborhood or address.

That is sound advice Chris.  Thank you for your candor. 

Again,  I appreciate everyone's perspective! 

I like those criteria Nathan. I suppose I'll have to continue to learn my market and create some investment guidelines myself as well.  Thank you again for your time!

 Nathan, my numbers aren't well presented,  you're right. Sorry about that. I definitely have plenty to learn.

Your point about the rent's being less than 1% of purchase price caught my attention. I assume you are figuring that metric on a monthly basis. What sort of % are you typically interested in when purchasing a multi-family rental? 

Thank you for your advice! 

 I must have old information.  Is the 25% down payment a requirement based on the number of units? Where can i find info about loan limits by county? 

@Chris Stromdahl 

Thank for taking the time to give me your two cents.

If you're OK with my asking,  what do you consider a strong $/door/month number? 

I think you're right that the numbers this deal not great. If you were looking at this deal would you just move on and look/wait for the next deal or would you consider what price would make the numbers work and bring an offer to the table?

2300 Sq ft Triplex

List Price: $600 k

Unit 1: 2 BR $1850/month

Unit 2: 2 BR $1600/month

Unit 3: 1 BR $1100/month

Total Rent: $4550/month

Gross Income: $54,600/yr

GRM: 11

Assuming taxes and maintenance are 1.5% of list, each, then 

Expenses: $16,000/yr

NOI: $38,600/yr

Property Info:

Units appear to have been recently renovated, so there doesn't look like there is much forced appreciation potential besides some landscaping opportunity or just rent increases. The property is well situated to accommodate yuppies working all over Houston or alternatively, college students attending higher education institutions nearby.

Market Thoughts/Demand Outlook:

The Houston market may have a bobble with recent oil price volatility, but other forces will make certain markets in Houston a great investment. Rentals may be a more and more attractive option here as housing prices have appreciated considerably over the past 18 months. 

My Plan:

I plan to own 1.5 million in assets within the next 5 years. I want to replace work income with rental cash flow and I plan to refinance on appreciation gains in order to expand my holdings at a faster yet responsible pace. I currently have no personal capital to bring to the table. 

Unknowns:

The submarket typical GRM.

The rent market's pricing profile

My Question:

Since this is residential property,  I could technically put 10% down with a conventional loan.  I find I can make cash flow with a 10 to 20% down payment;  however,  I've read that margin should be on the order of 15%. To give a 15% margin, I calculated that I would need to put $220k down (>30%). I think this difficult margin hurdle exists because of the high list price. Am I misunderstanding this concept of margin? Or am I over emphasizing it? Regardless,  a private loan on that large of a down payment seems like a rough way to get started. It may even be a prohibitively risky deal.

I'm excited to hear your thoughts.

Andrew, I've got a fairly long commute. Podcasts are a great way for me to learn. Thanks a ton for the personalized recommendations!