All Forum Posts by: Drew MacDermott

Bill,

I am wondering if you meant for these two thoughts to be together?  Do you mean with a local loan servicing company they won't need to charge points, etc. because they are not a large banking institution regulated by red tape?  You had a great point, too, about not paying more for a home just because you are using seller financing.  Thanks!

@Erik Schubert In a seller financing situation, the down payment is what you and the seller agree upon.  You have infinite combinations of down payment/interest rate in your arsenal but you need to find out what the sellers needs are.  Can they defer the gains over 15 years, as you mentioned?  Can they do this with no down payment?  2000 down? 5000 down?

@Richard C. That is a great strategy for working on your business, not in it.  Thanks for the response!

On the First of November, a tragic fatal fire occurred in a duplex in Portland, Maine, the city I most recently lived in.  Early that morning a fire broke out and 6 people passed away.  I did not know the individuals myself but they were part of the area restaurant industry and were known by many others.  I have been following the story the past few weeks and wanted to share this most recent article, if the link does not break after posting.  

Summarizing the article, City officials have now cited the property owner for violations at at another apartment buildings he owns and are requiring him to address fire safety concerns there, due to continuous tenant complaints.  There is a grey area because according to local codes, small apartments like this duplex are only required to have "safety inspections" conducted when complaints rise.  I am not quite clear on what this means but due to the fatal fire, the Fire Chief is also walking through inspections with code officials in the owners other properties.  Allegedly there were, and/or are, less than adequate means of egress as well, including boarded up emergency exits.  It seems to me like the owner will be at least financially responsible to the victims families due to his alleged negligence.

As we come to the end of the year, have you taken time to inspect and replace fire, smoke and carbon monoxide detectors?  Do you have multiple emergency exits for your tenants?

Don't let this tragic story happen to you. Save a life! 

@John M.  You are correct, the town may include trash bins for every property and have the regional trash company stop by your house, paid by your property taxes.  When I was in college, a few landlords of 2-3 unit buildings did have one of those commercial trash bins, where a truck would empty it once or twice a week.  Again, its an added cost.  Might as well put your tax dollars to work!

Thanks for the reply.  

In flood prone areas, you will need to account for flood insurance in your estimates as well. If you know for certain the property, or at least the physical house, would not see water during a 100 year storm, you could have a survey done as part of the inspection to confirm the elevations throughout the property. Take these elevations and compare to FEMA flood maps to have the flood insurance requirement removed.

The online county assessor's maps are never very accurate.  They are essentially tax map lines which are rounded based on the assessor's findings (Source: I work with Surveyors all day long).  You will most likely have to hire a surveyor to survey the property if you want a stone cold Square Footage.  During their research he/she should be reading the deed and other boundary information in order to compile a boundary survey for you.  If the surveyor confirms your number, you then have a case with the assessor to lower your taxes or to go back to the Auctioneer to dispute.  Speaking of the Auctioneer, what was the square footage provided by them before you bought the property?

I have never been in this situation, so perhaps other BP members can weigh in as well.

Hello, BP!

That's right!  I have created a quick and simple tool for you all to use to evaluate both single family and multi-family properties in only one minute!

I have read many blogs and forum posts regarding the infamous 50% rule and have been working my own spreadsheet.  This one lets you analyze multiple purchase prices at once after inputting the number of units, average rent, estimated expenses (40%, 50%, etc), and a down payment!  The result is shown in a table as the total monthly cash flow, which is then highlighted based on a minimum cash flow per door.

I'm sure something has been forgotten or has an error, so I would love any and all feedback you have.  Click here to take a look and see what you think!

Regards,
Drew

@John M. After all expenses and debt service, I prefer to look at properties with a minimum of +$150 per door (+$300 cash flow for a duplex).  Any properties below that threshold are thrown out.  The percentage down and interest rate vary for each lender, but in general if you want to put less than 20% down, the lender will be charging you a slightly higher interest rate.  There isn't a 'national minimum down'.  One option is to negotiate the best rate/down payment you can with the lender and run your analysis with those.  A second option would be to ask your family members to loan or gift you half of your down payment.  This way you are still giving the bank 20% but you are only paying 10% out-of-pocket. 

In your specific example of quoted rates (5% conventional, 3.5% FHA), you will be paying Private Mortgage Insurance (PMI) for the conventional loan until you achieve 20% equity. You will need to contact the lender to find out what the PMI cost is for that loan. An FHA with requires PMI for the life of the loan, or at the end of 11 years if you have greater than 10% equity ("LTV less than or equal to 90%.  Annual MIP will be collected until the end of the loan term, or 11 years, whichever occurs first.", source: HUD.gov)

Call your local Water Utility and ask what the average water usage/cost was for each unit.  Will you also be paying for lawn care, trash removal, or any common electricity?  Account for these if necessary. 

In your analysis, it would be in your best interest to account for Property Management (10%), even if you are moving out after a year and managing yourself.  If you decide to move out-of-state or purchase 2, 3 or 10 more properties and don't want to manage on your own, will you have enough cash flow to cover a PM at that point?  

Are your "Repairs" accounting for monthly maintenance?  Do you have cash to put up for bringing units up to rentable condition if needed?  There is an FHA 203k loan program where you could get repair costs rolled into your loan.  You will have more hoops to jump through, however.

Best of luck!

@Neddrick G. Best of luck!  Keep us updated on how the purchase goes!