All Forum Posts by: DJ Richmond

@Danny Mak Congrats on finding that first deal! There should be a few different loan options available to you. A 3.5% down payment if you're doing FHA, they have a 203k renovation loan that allows you to have up to about $30-35k wrapped onto the loan without much red tape. If you're using Mass Housing 5%, I believe they offer a similar renovation product. Your loan officer should be able to provide some info on the different options available.

It sounds like you got a nice start in your real estate investing career! The numbers sound reasonable. With your FHA loan, did you do the 203k renovation loan?

How did you renovate the entire home for $20k? I assume you did most of, if not all the work yourself (if that's the case, you likely didnt need the 203k). Doing the cash out refi must have allowed you to pull out all your original cash you had invested and some. If you pulled out all the cash here, your cash on cash return is going to be infinite, even if your monthly cash flow numbers aren't strong.

One thing that jumped out with those numbers is your projected rent. You mentioned it being a small home, but when I pull data from the MLS for Peabody rentals, the most expensive single family rental was $2400 and that was for a 1600 sq ft 3 bed/1 bath. The $2500 seems a little high.

Something to be mindful of are your future plans. With this being a single family you've owner occupied, you won't need to pay a capital gains tax on the first $250k of the profit if you live there for 2 of the last 5 years. Once you decide to rent it out for more than 2 years, you'll be subject to that tax, unless you're able to 1031 exchange it. Not sure how you're reporting the rent from roommates, but both could be a conversation for your CPA so you can predict future tax hits/savings with either route.

Hi @Patrick Chafe, its great that you've taken the house hacking game to another level by renting out rooms in your home, its a smart approach! Likely when it comes time to rent it out, your cash flow may not be too strong while renting out a single family home in Massachusetts. When did you purchase this home? You may have a decent amount of equity where you could sell it and redeploy the funds in a multi family property where you can do the same thing, but with far greater cash flows.

@Phillip Dixon There are a couple things to be aware of on an FHA loan. First, you've mentioned you're looking for 3+ units as the 2 families you've seen aren't cash flowing enough for your goals. But, 3-4 units have to meet what is known as the "self sufficiency" test meaning that the rents of 2 of the 3 units or 3 of the 4 units have to meet 100% of your monthly PITI payments. In the areas you've mentioned, there are very few properties that meet that cash flow. The one's you will find will likely need some type of rehab, which is where the FHA 203k renovation loan can be helpful.

Additionally, FHA can be a costly product. While its great that you can get in for 3.5% down payment, but there is also a funding fee (upfront mortgage insurance premium) of 1.75% of the loan value. Most of the 3-4 units in those cities referenced will start at about $750k. That will mean an extra $12,665 will need to be paid up front or added onto your loan balance.

Another drawback on the FHA loan is the monthly PMI is going to be extremely high. Typically its calculated at .85% of the loan balance, divided by 12 months and that will be your monthly PMI. When your loan exceeds a certain limit (I believe $625k) the PMI is calculated at an even higher rate. Your PMI could be in the $600/mo range. This PMI will stay with you for the life of the loan, so the only way to remove this would be to refinance - another expense.

Lastly, you'll be competing against other investors with 20%, 25%, 40%, all cash, etc. Typically sellers prefer those type of buyers over FHA due to fewer hurdles to jump through (ie. appraisal). In this type of market, buyers are paying premiums to use FHA loans.

All that being said, I'm a huge proponent of a first time buyer using an FHA loan cause I think its a great starting option. However, one should be aware of the possible negative effects they could have. I've worked with many buyers on FHA products for their first multi families. I've also worked with other buyers doing conventional and Mass Housing loans. My advice would be to speak with a few different lenders to see what they can offer you. Not every Lender or bank has the same products available to them.

One last thing, I am not a loan officer but I do try to stay as educated as I can on these products. I might not have all the information 100% correct, if not, feel free to chime in!

Thank you @Ian Maxwell and Jennifer for making it out last night! Based off the positive feedback, we'll keep putting these together on a monthly basis. We can keep on track with first Wednesday of the month if that works for everyone!

Hi All! This is a reminder that we will be meeting again this evening at 6 PM at the Fours in Quincy. We will be off to the right side of the bar in the back corner. There should be plenty of space available to mingle and network with one another.

Due to an appointment, I may be running late but expect to be there by 6:15 pm. @George Post Will be there and last minute questions can be directed to him!

Looking forward to seeing you all tonight!

Hey @Frank Rubino, please come by next Wednesday! And yes I do remember you from Pour Yard last summer!

Hi All, wanted to let you know that I have set up another event for next months networking event. The details can be found here.

In January we had a dozen or so people and I'm expecting another good turnout based off the demand and questions I've had from others over the past couple weeks.

Hi All, this will be an informal get together at the Fours in Quincy. This could be a good way for newbies and experienced investors to come together and discuss different investing strategies and learn from one another. I haven't come across many of these in the south shore and there are a lot of exciting things happening around here. Last month, we had about a dozen or so turnout with much demand for the next one. I hope to see you on Wednesday, February 5th at 6 pm!

Hi @Chris Michel, I think part 1 and 3 are the same thing. The UFMIP is 1.75% of the loan that will get added to the loan or paid out of pocket as a closing cost. A knowledgeable loan officer should be able to clearly communicate these questions you have. Like mentioned above, you may want to consult another loan officer if you're not comfortable with what you're being told.