All Forum Posts by: Eric Bate

Hey Guys!

This is my first time posting an analysis on here, so please let me know if I'm on the right track.  It's for a duplex that I plan to live in, but in my calculations I'm renting every unit (so, as if I've moved out already).  Should I instead only calculate for the unit I plan to rent out?

Asking Price: $159,500 (=$31,900 @20% downpayment)

Total Rent/mo (est. according to Craigslist and Rentometer): $2,000

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Principal + Interest (@20% down, 20yr fixed, 3.54%) = $743/mo

Property Tax = $213/mo

Insurance = $45/mo

Vacancy+Maintenance+Management (I'm guessing 25% of rent) = $500

Total Expenses = $1501

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Cap Rate = (2,000rent - $500vmm) x 12mo / $159,500 = 11.3%

CoC = (2,000rent - $1501expenses) x 12mo / $31,900 = 18.8%

So, how am I doing?

Hm...

Maybe I should file for an extension in order to get this figured out.  Get some more opinions, and find an accountant who can guide me through this.

I haven't located a property yet. First I'm trying to sit down and figure out what I can afford. I'm planning on house-hacking a MFR, so living in one unit while renting out another. At the moment I pay close to $1000/mo in rent, and I'm still able to put 10% of my income into savings. Once I get out of my apartment, that $1000 could go straight to mortgage instead of rent (though I'd rather it go into savings, as much as possible).

I'm in the market for my first property.  Just got off the phone with a mortgage lender, and he suggested I don't go super aggressive with deductions this year (I'm self-employed as a musician, and most of my "jobs" are either cash or 1099 independent contractor).  The more I make on paper, the more of a loan I can get approved for.

I haven't sat down with my taxes yet, but I make roughly $20-30k/yr before deductions.  I have $50k sitting in the stock market that I plan on using as downpayment.  Is his advice sound?  Should I deduct nothing so that I can qualify for a higher loan?  Or should I deduct as much as possible?

Thanks guys!

Eric

@Bruce Runn How would I go about getting a loan like that?  I'm still trying to figure out how I'll finance this deal, and what kind of a price range I can start shopping around for.

@David Huynh That does sound like a fair point about the extra 16.5% being able to fetch enough to cover the PMI. I'll have to take that into consideration when I actually sit down with a property to do the math on it.

@Cory Binsfield Thanks for your input. A friend of mine almost had me convinced last night to bid on a small 1BR/1ba place in need of some work at auction. But I think the MFR route would be smarter. I just hope I can find a place and afford the down payment. A lot of the deals seem to be in bad neighborhoods.

Thank you all for responding!  It really helps to have some input on this stuff, since there's such a sharp learning curve for a newbie like me.

What I'm pretty much seeing is that I should get either an FHA or conventional loan (though I haven't seen any consensus on which is better), and put down as little as possible in order to secure a 4-plex. Then rent out three of the units and get the cash flow going. I can see how options 3 and 4 in my original post are complete duds. Strike 'em from the record.

Once I get my 2015 taxes done, I'll set up some appointments with lenders to see how much I can get qualified for.  After that, I'll have to find a real estate agent to help me find a place.

Is there anything I'm missing, or anything I've gotten wrong?  Anybody see any pitfalls I might be walking into?  At what point should I shift from reading up on properties and financing to studying how to go about becoming a landlord?

Thanks guys!  I'll post back later tonight when I've got more time.

Eric

Thanks for your replies, guys!  @Sam Sharma, your first idea really does sound pretty good. I didn't know the FHA loan would let you put down so little. I'll have to read up on Hard Money loans and see what that all entails.

@Account Closed, that house does look beautiful.  I'll keep an eye on it, but I don't think I'll be able to move quick enough to buy just yet.  The main question I would have about that loan — how much is the interest?

Question for you guys, since you're all in the Twin Cities: Is it reasonable to expect that I can find and close on a place by the end of August if I start meeting with banks and real estate agents this week?

I've got $50k to work with, and I need a place to live in the Twin Cities (Minneapolis or St Paul).  Here are some of the options going through my mind:

1. Buy a SFR and get roommate-tenants off Craigslist. (Buy-and-hold)

2. Buy a duplex.  Live in one side, rent out the other.

3. Buy a cheap place in cash just for me to live in (probably not in a great neighborhood... not looking forward to that).  Then get a home equity loan to put a downpayment on another place, which I would rent out.

4. Continue living in an apartment, but use the $50k to get into buying-fixing-and-flipping as a side gig to build up more capital.

Is there really much of a difference between options 1 and 2?  Lately I've just been focusing on duplexes for house hacking, but I'm trying to expand my thinking here and see if there are any better options.

I'm paying about $1000/mo in rent right now, so once I've got a place that pays its own mortgage and expenses, I could start building up capital a lot faster than before.  My long-term goal here is to have a place of my own plus rental properties to supplement the income from my music.

Thanks!

Eric

@Keith Albrecht

How did your search go? I'm starting my search for a MFR in the Cities, but I'm not too familiar with the residential parts of St Paul. Any advice based on your research and experience?

Same here — looking for MFR in the Twin Cities Metro. It's a lot scarier shopping around for a first house than shopping around for my first boom box when I was a kid. What do you think of all these cheap houses in North?