All Forum Posts by: Connor Dunham

AHFC requires 650 for owner-occupants. They have a first time home-buyer class that's really informative about their programs (its free). They are a local private lender so they make their own rules. Down payments: 5% SFH, 10% duplex, 20% Tri and Fourplex and you can drop PMI after 20% LTV (for singles and duplexes). You also need 6 months PITI in liquid assets. Why are you tying up all of your capital in one property? You could easily get 2 multi-unit properties for that much in down payments.

I purchased my first property back in January. I waited to post until I had a good record of the utilities and expenses. The property is a 3000 sf side-by-side duplex built in 1985 near the university and hospital here. It is a 3 bed / 1.5 bath on one side and 2 bed / 1.5 bath on the other. The layout is symmetric except for the 3rd bedroom is above the garage. I owner-occupy one side but treat the side I occupy (and monthly expenses) like any other rental unit.

Purchase Price:$390,000

Purchase Closing Costs (buyer paid): 7,883.39

Total Price: $397,883.39

Down Payment: 39,000 (10%)

Rate: 4.5%

P&I: $1,778.47

Expenses:

PMI: $ 242.78

Taxes: $454.65
Insurance: $113.19

Vacancy (2%): $68.00 (very good market here)
Repairs (8%): $275.00

CapEx (?%): Not factored in. I read you need 6 months PITI (which I have), but haven’t researched the local costs yet.

Gas: $277

Electric: $28.10

Water/Sewer: $163.31

Expenses Total: $1622.05

Current Rents: $1600, $1500 = $3100

NOI: $3100 - $1622.05 = $1,477.97 -> $17,735.64 per year (including PMI)

Expense:Income -> 52.3%

Cashflow: 3100 – (1622.05+1778.47) = -$300.52

The -$300 cashflow is how the property has been performing since I bought it in February. Since I already have a decent fund for repairs and CapEx, I have been skipping the repairs withholding. Obviously not sustainable long term either.

Total Return for the first year: -3,600(cashflow) + 5,694(equity) + 24,375(6.2% appreciation) + 4,000(tax break) = 31,000

Total paid for property: 46,883.39

Total ROI for first year: (total return/total paid) = 66.1%

There are two things happening in April 2015: Getting a new appraisal to drop the PMI (the market prices here have been growing at 6.2% year over year) and the raising the rent to market rate.

Market Rents: $1750, $1600 = $3350

NOI: $3350 - $1379.15 = $1970.85 -> $24,250 per year

Expense:Income -> 41.2%

Cashflow: 3350 – (1379.15+1778.47) = 192.38 -> 96.19 per door.

There are two projects I have planned for the property in the near future: replacing the 30 year old boiler with a high efficiency one (should knock $100 off heating) and converting the 2bed/3bed configuration to a 3bed/3bed by adding 1 wall, 1 window, and 1 door by splitting the extra large bedroom above the garage. After both of these improvements are implemented the property should perform like:

Market Rents: $1750, $1750 = $3500

NOI: $3500 - $1279.15 = $2220.85 -> $26,650 per year

Expense:Income -> 35.5%

Cashflow: 3500 – (1279.15+1778.47) = $442.38 -> $221.19 per door.

That’s my plus side analysis. My down side (do-nothing) analysis looks like (with rents raised to market):

Market Rents: $1750, $1600 = $3350

NOI: $3350 - $1622.05= $1727.95 -> $20,735 per year

Expense:Income -> 48.4%

Cashflow: 3350 – (1622.05+1778.47) = -50.52 -> -25.26 per door.

Not too great for cashflow if the existing conditions remain unchanged. So, from these numbers it's clear that the PMI, low rents, and somewhat low (10%) down payment are reasons why the cashflow is currently negative. I did know there was a few things that needed to be overcome to get this property cashflowing when I bought it. Any feedback you all have would be great. Also, would you have bought this duplex for a buy and hold?

@Roy N. , @Jon Klaus , @Eric Mauricio

Thanks for the cheers and the up-vote. I've been spending the last 5 years getting educated. I did not have the capital to invest before and it has helped using this site when I need it, but I wasn't using it daily like many of the people here do. Now that I'm actually investing, Landlording and getting started, it seems like a good time to start giving back as well as getting your opinions as I make my moves upwards. I'm finding myself here more and more often.

So, I have been reading bigger pockets forums since 2009. In 2008 I had gone broke going to school out of state and getting a collection on my credit score, it suddenly became very difficult to get loans to go to school (keep in mind, I had no support from my parents and was living on my own). I had been called into collections after failing to pay tuition. I ended up moving back to my home town and got a job doing phone tech support to pay off my collection and try to return to college. I spent a year paying off the debt and figuring out how get back into school with a low credit score, and no outside financial support. I figured out how much I had to work and worked 21 hours a week doing this job while in school (which was mentally taxing - 50 calls a day). I also at this time made a 5 year plan to finish college and buy my first fourplex. That's when I used BP to make a solid plan for the real estate side of things. I also had to manage my time (spent 60-70 hours a week at school and work), get through engineering school (after thinking I wanted to be an architect), and get a solid-good paying job and profession after graduating. I used this time in my life to read books like rich dad poor dad, in the plex, how to win friends and influence people, e-myth revisited... The list goes on. Fast forward 4 years to 2012. I finished college, got my first job as an engineer intern (read entry level engineer), and got married to a like minded, hard-working woman. So, 2012 was a great year. I also figured out my student loan payment was $1200 / month. That's pretty steep, but at least I got something out of that. I read that there are several ways to build wealth ( business, investments, etc..) but the best option for me at this point was to pursue a graduate degree while working and my boss would pay for the tuition. So I have been doing this for the last two years and it's going great, I'm almost done and have increased my worth to my employer and will gain additional pay when I get my second degree and professional engineers license next year. Mean while, my wife and I purchased a duplex last January for 10% down through a community bank ( fourplexes were 20% through this lender). I plan to have it re-appraised in March because our market prices have risen 6.2% since then to drop the PMI (I'll post a deal analysis on this property soon). Glad to say, since I started my 5 year plan and finished it successfully, I've been pondering what my next moves should be. I know I want to do another duplex since the financing through that lender is ead the " how to make a million dollars in 7 years" plan Brandon Turner wrote and thought it was a good base. I had a friend tell me the podcast was good so I've been working my way through that from the beginning (currently on show 33). I also feel compelled to write starting now mainly because I was a utility user before and listening to the podcast has been eye-opening in that I could be doing a lot more with this site. Anyways, if you've made it this far, thanks for reading my intro and story. I'll be posting more to give you all a better idea of what skills I have outside whats on my sparse profile. -Connor

Hi Nathaniel,

Nice start so far. Sounds like you are asking the right questions. What are the opportunity costs? How can I get rid of this debt. etc... I had $85,000 in loans out of school. I'm on year 3 of my ten year plan out of college. It's working pretty good far. I ran the numbers on making the minimum payments (though for my situation it would have been for the 20 year repayment). The fact that the payments are tied to how much you earn puts a cap on how much you may earn 5-10 years down the road to make it worth while. My strategy to get my first down payment and out of renting was to: 

1. minimize my required payments (I used the graduated repayment plan)

2. Optimize my student loan payments so I cover total loans interest while repaying the highest interest loans first.

3. Save as much money as possible for down payment with the income left over.

4. buy mutli-family to owner occupy and build equity.

I'm a little further than those first 4 steps now and it's working pretty good. The reason you want to minimize your payments is to improve your debt-income ratio when qualify for a loan (basically your monthly payment). If your repayment plan is for ten years, make a plan for the entire time; year by year, or month by month if needed. Spreadsheets come in handy.