All Forum Posts by: Dave Kennedy

Jon, thanks for going into detail with the analysis. That all makes sense.

I realize it's not an investors dream. Its actually my sister looking for a house to live in an rent out the other bigger unit. I am trying to get her to understand she needs to purchase with the exit strategy in mind. She needs to buy it at a price so when she moves out its still an attractive deal to an investor that wants it for cash flow.

Interesting Peter, I didn't realize the requirements were that strict from a lender.

You'd think if all expenses were covered, plus you $100/unit desired cash flow then they would lend you on the amount of cash left over.

I didn't realized you needed a commercial loan for a 2 family. I thought that was only available after 4 units or more.

In regards to the second part of my question. What if you realized there is substantial renovations that need to be done. If you got a quote of 20k, would you simply just reduce the asking price by that much and support that reduction by sighting deferred maintenance?

Thanks, again!

Peter, thanks for the response.

Why wouldn't $1500 cover Principal and Interest only?

If I plug in $1500 PMT, 6% Interest, 360 N(12 payments for 30 yrs) the PV comes out to 250k.

Maybe I wasn't clear but that $1500 is not total rental income its after I deducted all expenses (including desired cash flow) before principal and interest is paid.

Lets assume you have $1500 in cash after all opex (maintence, taxes, utilities, insurance) is deducted. $100/unit income also deducted.

What are you willing to pay? Do you just plug it in according to debt terms?

$1500/ mnthly payments
30 yrs
6.0%
= 237k loan value.

If you are putting 10% down then the maximum offer is 237k/.9 = 263k.

Am I doing the math right?

Also, what if you expect the property needs some work. Update kitchen and baths. Lets assume $20,000 in renovations.

Would you deduct that from your max offer and call it "deferred maintenance"

So 263k - 20k = 243k is maximum offer

Am I on the right track?

Thanks!

To the folks that have actually purchased these FNM REO's, are you renovating them or simply just closing with a buyer lined up (no renovations needed).

Where do you find your buyers and how do you line them up to buy a house, you don't even own(yet)? What kind of marketing are you doing to get looks at a property that you haven't even closed with the bank on yet?

Thx!

I suppose the areas that I would feel comfortable living with my tenants are likely not great cash flowing deals.

My parents started in a 3 family for 7 years, as the owners with 2 other families living there. It was not the nicest neighborhood but it was a great stepping stone for them to purchase the house they still own today, which at the time was a brand new developement 20 years ago. Neither of them made a great salary but it seemed like the multifamily really set them up for life. They held it for about 15 years, even after we moved out when I was 5.

Eventually they cashed out now they own their main residence (500k-550 house free and clear) and have a lakehouse in Maine with a small mortgage(they built the house). Neither of them are 60 yet. I'd say they planned well.

I'm hoping to get a similar start with a multfamily...but I'd eventually like the have a portfolio of them i can retire safely on.

Another question....how accurate is the 50% rule. I know you guys use it as a quick screener. But given the purchase price that it yields, if you were to buy at that price do you normally get more then $100/door in reality?

If you were living in the house in one of the units does that change the formula or do you always look at it from a cash flow view. Would you just assume at some point you want to move out and you would have 2 tenants...it has to work on those numbers, correct?

Agreed Jon....at the price of 350k its not even worth looking at as an investment.

It's hard to believe but like you said, someone will buy their story and take the bait. As you said if you put 20% down its seems like the mortgage payments would be covered by rents of $2,400 and thats probably enough for someone to hop on it, not fully understanding all the other expenses that go into owning a multifamily.

The appreciation bet is not where I want to be in this economy, even if we have seen a 20-25% price reduction since the peak around here.

Thanks guys! I did the same analysis and was trying to explain to a friend why the asking price was way off. He disagreed with me, saying the price was way to low.

I just wanted to confirm I was close to the right path with my analysis.

The asking price on this 2 family is 350k btw....lol.

Thats what happens when you are just outside Boston. I'm not sure who would purchase it at this price, but they are fairly consistent with the pricing in the neighborhood.