All Forum Posts by: Cole Swartz

@Cole Swartz

Thank you for the objective thought. It has been very hard to decide which road to travel when dealing with personal debt versus investing. Through talk with my wife and just our comfort level we have chosen to play it safe and continue to attack our debt. That has been our goal for a long time. While doing that, I will continue to study my market and build relationships. In building these relationships I'm learning how I can add value to those around me. Maybe one of these days prior to our debt being paid off, I'll be able to do a partnership deal. Less risk, less reward still equals a deal!!

-Donnie

@Immanuel Sibero @Ben Leybovich @Joe Villeneuve @Ned Carey

Thanks for the replies. What I am taking away from this is that the purchase price is a function of the rents for commercial property, and the price I should be willing to pay for a commercial property can be "reverse engineered" using typical cap rates for an area and the NOI of a property. While a 1-4 unit place has a price that has more to do with the quality of school districts, curb appeal, etc. Is that right?

Calculate the cash flow and expenses as if you were buying the property and intended to rent out both units. See if it is a good deal or not, figure out what your cash on cash returns would be after including all debt servicing, fixed costs, an allowance for maintenance\repairs, capex, and vacancy. If it's a good deal after figuring all that out, it will still be a good deal if you are living in one unit and renting the other. The difference is instead of the money being paid in the form of positive cash flow, it will be paid in the form of cash savings (you live rent free or almost rent free).

Thanks @Joe Villeneuve and all for the responses 

I like the flip strategy but this flip has a very limited spread and a better rent-ability, and I'm reluctant to lose that as passive income appeals to me. MLS deals in the area are limited as the market is hotting up rapidly. Cash buyers are getting the fixer uppers that won't qualify for conventional finance and I have a way to go to build a network or team.

My main goals are to get in the game, build experience and contacts, and do it WITHOUT losing money. I'd consider that a win. My best case is to also obtain cash flow while doing it.

LOAN SITUATION UPDATE - I've worked with a great agent within Quicken to come up with a strategy. It's not ideal though. My service-industry job is in large part tip-based, which is unfortunate as Quicken (and other lenders) will not count them for Debt To Income (DTI) purposes for 2 years even if accounted for in my W2 paycheck. This now means my down payment needs to be 43% of the loan (62K) to meet criteria. With closing costs and rehab I'd have almost 81k in the deal. Then holding costs til rented (which would be low) which i can meet with my w2 earnings.

The good news is I can re-fi in 6 months at the new ARV of 180K according to reliable comps (135K with new 75% loan) and pull 50K back out. Cash flows at $150, I would have 34K tied up in it and $10k equity.

It's a lot of exposure, just about meets cashflow and reduces my working capital, but it does get me in the game and increases my on paper earnings for a future loan.

Is this too risky? All or bust? I kinda think so, but the numbers do stack up.

The alternative is to just buy as owner occupier and flip it in a year for a reasonable return. But then I wouldn't be able to start my investor career

@Donnie Martens congratulations on taking the steps needed to educate yourself and further your investing career!  Deal evaluation is a great way to get familiar with your area, the expected rents, and the types of available properties.

On the surface the deal seams plausible. With that being said, I would highly encourage you to validate your rents with actual individuals and property management companies as opposed to using Rentometer. Rentometer is just an algorithm and it is not exact by any means. As a next step I would encourage you to get a better idea as to what a 1600 sq ft 3/2 house rents for in this area. Until you know a realistic number for your rent your ROI's, CoC's, and cash flow will be skewed.

Also, if you have enough for the down payment, might I suggest you use that to begin paying down your personal debt, then wait to purchase a property until you close to or fully debt free.  This serves multiple purposes.  This looks very good to a lender and shows financial responsibility which could lead to a better interest rate, increasing cash flow.  Paying down debt improves your credit score as well.  Finally, you'll be able to realize more cash flow if you are not having to use that cash flow to pay down personal debt.

I look forward to hearing more from you!