All Forum Posts by: Brent Coombs

You say you're "not focused on the 1% rule since it doesn’t apply here but cap rate is 7.25%", but I agree with the Responder who doubts your 7.25% number.  You really should double/triple check how you are arriving at that number.  Also, there's good reasons why the "1% Rule" for investors exists in the first place: because below that, you're only/mainly investing for (uncertain) appreciation, because it's likely to continue costing you money annually, not ideal as an investor, right?  That is, unless you pay a huge deposit upfront, something you wisely say you don't want to do.

As for your question about how a financial contingency in the Contract would look like, similar to the wording that you already put in the Contract (but which only allows for a maximum deduction of $10k because of unfavorable appraisal), it would say something like: "This Offer is subject to Lender approval; otherwise, the Contract can be cancelled by the Buyer with no penalty, full deposit refunded".

If you haven't heard of such financial contingency wording, I suggest you add it to your arsenal.  Here's me, thinking it was standard practice!  But yes, Sellers prefer or can insist that you not include such, so, if they get to win in that regard, it's up to you to push for a "no financial contingency" hefty discount! [Which, you haven't done so far].  Cheers...

@Muhaimin Khandaker, silly question: Who does own the land (seeing as you said the "Seller" doesn't)?

Did I miss something?  Arguably, the land will be much more valuable once the project is complete, so it seems to me that the land ownership should be changed first, not last.  Good luck...

@Hady Farag, given that its income will gross significantly less than 1%/m, how do you expect to make money out of it?  Are you relying too heavily on it being "a great and growing part of Newark", rather than what it's worth now?

Are you borrowing the typical 75%, or are you relying on cash flow by borrowing less?

I'm guessing you intend to live in one of the Units, so that the income of the other two Units ameliorate your living expenses?  If so, your monthly outlay might still be more than if you rented the same unit instead, right?  ie. Not ideal (to put it mildly).

So long as you aren't forced to sell, hopefully the area will grow to justify your optimism.  ie.  Paying above the odds isn't the worst mistake in the world, but can act as a steep learning curve - that you should/must learn from.  

Did you put a financial contingency in the Contract (so that if you can't borrow enough, you get your deposit back)?  If so, good.  Welcome to BP.  Good luck...

@Jared Garay, how much does your current living arrangement cost you per month?  

ie.  Where you live will always show negative cash flow per month, for you.

The trick is to invest so that your costs are less than rent (and, you're building equity).

Of course it's ideal if you can invest/house-hack to "live for free" and generate extra income at the same time.  But for many locations, that's just not going to happen.

I reckon your main investment goal should be to find deals/bargains that give you instant equity, even if you're then out of pocket each month.  There are countless threads here on BP that suggest ways of finding properties that can be bought for a lot less than they're already worth.  Welcome to BP.  Good luck...   

@Krystian Kucharzyk, did you completely leave out ongoing repair/maintenance costs?

You certainly don't want to arrive at a fake CoC, right?

ie.  You may end up with your $59,750 outlay returning negative cash flow!

Back to the drawing board?  Good luck...

@Roger Devore, if you can buy it for $98k (and it's listed for all to see), my guess is that $98k is full market value (if not above).  ie. Bargains are usually found off-market, not on.

Are you able to get such a high percentage LTV because you're putting up both properties as security? If so, how much will the income from your current investment suffer?

What attracted you to this negative cash flow property in the first place?

Similarly, why would other investors pay even more than $98k?  Just askin'...

I'm never impressed when I hear of artificial price inflation (market manipulation).  But no, that's not what a bridging loan is.  Most commonly, it's where you might have to pay out the Seller of the property you're buying before you get paid for the property you're selling.  And you'd better hope that your Lender will let that happen via a bridging loan.  The Lender is hardly taking a big risk, because they have your property as security until your Buyer pays up (at which time, the bridging loan is usually paid out, unless you have a line of credit arrangement that continues).  Hope that helps.  Cheers...

@Frederick Karnoski, you mentioned "my family and I".  Do they want to move?

Here's a third option: Refinance / cash out to invest elsewhere, but still live there.  Cheers...

Remember, your income will go up by the amount you can rent your primary out for, so it shouldn't matter if your overall mortgage goes up, right?

Here's my question: Will your current primary become a good cash-flowing investment as a rental, given that you need to refinance it into a non-occupier (higher Interest and/or shorter term) Loan, at 75% Loan-To-Value?  Good luck...

If a large part of your income is tied up in a mortgage on your primary residence, then your DTI could be in trouble. And Lenders are quite aware that even 100% of property income may well not cover its mortgage and other costs (maintenance, cap ex, vacancy allowance, property management, and other expenses not directly paid by Tenants).  Ergo, your own income is very relevant also.  Good luck...