All Forum Posts by: Dave Garlick

All,

Working on my first investment property. I came across 2 identical duplexes across the street from one another owned by the same seller.  This is a lower income neighborhood but very family oriented and not rough at all. It's about 30 min from a major city between a hospital and a university.

4 units - 3 bed, 2 bath each.

Purchase Price: $200,000 (total for both units. Conventional loan with 25% down around 5.1% interest)                 

Rental income:                    3,200/mo     38,400/yr    ($800 per unit)

Operating Expense             Monthly    Annual

Taxes:                                         503           6,040

Ins:                                              150           1,800

Vacancy:                                     320           3,840

Repairs:                                      320           3,840

Cap Ex:                                        320           3,840

Prpty Mgmt:                              320           3,840

Other:                                            50              600

Total                                         1,983         23,800

Mortgage Expense:                   814            9,786

Cash Flow:                                   402            4,824

I know it's not incredibly lucrative but as everyone knows, it is a little harder to find slam dunk deals these days.  What do you think?

@Steve Vaughan and @Andrew Johnson Thanks for the info. I suspected as much and am glad to have it confirmed.

I am in the process of reviewing 2 duplexes owned by the same landlord for my first buy and hold deal. I originally went to a local bank to get preapproved and that came back fine for the dollar amount. When I asked if he could bundle them into a single loan he said he couldn't bundle them but his commercial lender could. I've read a little about commercial lending but I'm not all the well versed on the pro's and cons.

If I remember properly, commercial loans are usually short term loans of 5 to 10 years with a balloon payment. Is there any advantage to going this route given the fact I will probably have to refinance before the balloon is due and probably at a higher interest rate at that time?

Are there any other things I should consider when looking at a commercial loan vs 2 conventional loans? 

Dave Garlick

All,

I've been looking for my first rental property and I came across a small duplex in the Midwest that is easily within commuting distance to a big city. They are asking about $53,000 and by all accounts it looks in decent shape for that amount. Newer roof and newer air conditioning. The neighborhood is low income but not a rough neighborhood and has decent schools. It rents now for a total of $1,000/mo.

In looking at the history of this property, it looks like the the seller purchased it back in 2011 for $69,500. It was then listed for $71,500 in the middle of 2015. Since then, the price has dropped every couple of months until it is now $53,000. I can't imagine what they were thinking buying it for that much in 2011. It doesn't come close to a profitable deal at that price.

My questions is, do I need to be concerned that the seller has not been able to sell it. It does cash flow adequately at $53,000 but if something happens and I have to sell it, I'm concerned I may not be able to. I was thinking of offering $45,000 cash and maybe doing delayed financing. Has anyone looked at property that has not been able to sell? What are your thoughts?

Dave Garlick

There are a number of threads on here regarding that same question. I myself have had to consider this. I think the answer varies on a number of things such as your age, when you plan to retire, how much you have to invest, etc. The following are my thoughts.

1. A smart investor will usually try to create multiple streams of income. Stock investing is one of those streams even though it may not seem like it when it is sitting in an account. You never know what life throws your way. When you turn 59.5, you may be really glad to have a chunk of change you can access if life does not go the way you planned in your 40's and 50's. You may be able to even access it earlier without a penalty given various conditions.

2. If your company matches, then the free money is definitely a plus and should be strongly considered. You should at least invest up to what is matched. Of course if you do not plan on being at the company long enough to become vested, then this would not be a factor. However, even the tax deferral alone is a pretty compelling reason to contribute at least something.

3. When you start buying rental houses, lenders will usually want to see 3 to 6 months of expenses saved up somewhere. You can use the money you have in your 401(k) to meet this requirement without having to withdraw it.

4. Most plans will let you borrow against your 401(k). Many have used this as part of their real estate investment strategy.

Overall, I believe it is good to invest at least something in your 401(k).

Dave Garlick

I am a newbie and have been looking for my first deal.

I found a house down the street where I live that appears to be abandoned. In looking up the tax records it appears to have been bought on a short sale back in 2013 for $85,000 and the owner took out a mortgage of $63,000. The Owner on the tax record is an LLC so they must have been an investor. I also see a note that says "Taxes paid by tax buyer" for both 2014 and 2015. I assume the owner has defaulted on the taxes and someone else purchased the lien. Given the area and type of house it is, the ARV on this house would be just under $200,000. I have not been able to walk through it but I suspect it would need a decent amount of rehab.

My questions is...what is the best approach to research something like this? It is not on the MLS or for sale and as far as I can tell it is not in foreclosure yet. I'm guessing the only thing to do to start out is trying to contact the owner via mail? I have not been able to find a phone number associated with the LLC yet. Any other recommendations in vetting out this property?

Dave Garlick

I just bought my first SFH as owner occupied and moved in a week ago. I will be looking for a second home as the loan seasons over the next year. Once I purchase a 2nd home, I will move out and rent the first.

We just had a medium sized rainstorm and when I went out to the garage I noticed water leaking at least two feet inside the entire perimeter of the garage (only about 1/4" deep). Upon closer inspection, I noticed that the 2x4 along the bottom of the garage structure is rotted out in some places. In retrospect I feel my inspector should have caught this but moving forward I'm not sure who I should contact to evaluate this. There is probably a component of landscaping that was done incorrectly around the garage creating a flooding scenario. Also, there is the crack running across the floor of the garage so there is a possibility the cement may have shifted down lower allowing water in. Then there is the damage done to the base of the garage structure itself and I need to know what my risk is and and what it would take to fix.  Would I benefit in contacting a general contractor to evaluate or is there another I could call who may specialize in this sort of thing?

P2P stands for Peer to Peer lending. These are sites that lend money supplied by hundreds of thousands of individual investors who may each apply $25 toward the loan. I am only familiar with Lending Club because I am an investor there. I have not taken a loan out so I'm not as familiar with the loan side. Some others are Lending Tree and SoFi.

It's usually a signature loan and I know with Lending Club you can take a 36 or a 60  month loan. I think the maximum is around $36,000. Your interest rate depends on your credit score.

I am currently a renter getting ready to close on my first primary residence which I will later rent out. I can't imagine living in a place where I spend 1.5 years looking for a good deal only for my landlord to tell me I can't get out of my lease for another 8 months. When you are looking for a house, you can't arrange it so your closing coincides with when your lease expires. That is crazy and unreasonable. I did let them know I was looking and they let me give them a 60 day notice which worked well for me since I wasn't sure when closing was going to be. This gives me some time after closing to finish work on the new house and move during the 60 day notice.

I am very new at this myself. I am just getting ready to close on my first SFR. I think @Scott Trench is right as for your first steps. You may have already verified your ability to get a loan however.

As for me, I listened to every podcast and read many postings on BiggerPockets. I would start looking for your first deal and figure out what you need to make it work. If you have enough left over for your second deal then you can figure out what to do then. Start out one at a time to work through the process and learn what you need to know.