All Forum Posts by: Jim D.

I would use an IRR calculation to see what the return is on the money invested. It's a very easy formula to run in Excel. Just type in the expected cash flows for each year, all in a row. For the example you gave, cell one would be -$5000, cell two would be $600, cell three $600, etc. (The $600 shows each year you are getting that much more in rent due to your investment.) The final cell would be the year you sell the property. For that cell, you'd put in the dollar amount of how much more you estimate the house would sell for due to the improvement, like $3,000.

Then just use the IRR formula, highlight all the cells in the row, and it'll show you what the return on your investment was.

Google your state's requirements for licensing. In most states it takes 40-120 hours of training and at least $1000 per year to stay licensed, so it usually only makes sense if you are doing at least 2-3 deals a year.

You'll be able to figure it out. Your mortgage advisor is not very creative it sounds like. Here are a couple suggestions:

1. If your next purchase is a true multi-family (duplex with 2 meters), then you will indeed need to put 20% down even if you will owner-occupy one side. However, if you purchase a regular single-family home with a mother-in-law unit in the basement, you will be able to use a 5% down conventional loan. The key is what the property is officially zoned as.

2. Regarding the problem of having too much debt to income due to your existing mortgage, here is one possible way to get around that. Many banks will consider the rental property a wash if you can show them a signed rental lease to prove that you will have income on it--even if those renters have not yet moved in. What you need to do is find a renter to sign a lease for your house in advance, say for $1600/month. The bank will look at that signed lease and count 75% of that rent income against the mortgage. On their analysis, it will bring in $1200 against your $1300 mortgage, thus leaving you with only $100 of monthly debt. If you can do this, it will free up your debt-to-income ratio to qualify for the next purchase.

I just saw Chris' post, exactly the same idea. Hope that helps!

Yea, FHA is a nice way to get in the game without a big down payment, but it does make your margins a little tighter. I wouldn't give up on it just yet though. If you are able to negotiate a lower price, or see realistic opportunity to raise rents, that could improve the numbers.

I had this problem on my first purchase and the only way I got around it was to get a co-signer on my loan. My co-signer didn't have to put any money in or anything, just had to sign on the loan so he's responsible if I don't pay.

One downside to the 15 year is that with the higher monthly payment, it can potentially make it harder for you to qualify for additional loans in the future if you want to buy more property. Read up on debt-to-income ratios and you'll see why it's advantageous to keep your monthly debt payments lower.

Adding the MIL unit sounds pretty messy given the permitting, parking, and increased rehab costs. 

What about going with option 2, and living with roommates while you are there? Assuming you're ok with that, it would give you the best of both options--$0/m for you, and no big renovation.

Yea, rates are typically between .5 and 1% higher for an investment property. The reason is that rentals are at higher risk of default in a down market, because if you're underwater on a rental you can just walk away from it and lose it. If it's your own house, you have a lot more motivation to keep making the payments because you need to live there.

And by the way, awesome work on getting to this point.

Yea, I hear you. Every time my bank account reaches a certain level, I only get to enjoy it for a short time before waving goodbye to another $20,000. However, I do keep an awesome net worth spreadsheet which is equally enjoyable to watch--eases the pain of never having an impressive bank account.