All Forum Posts by: Joe Coyne

I've got an opportunity to purchase a deal off-market, fresh out of probate.  I know the property quite well as it is next door to a rental property of mine.  The new owner of the property (seller) seems willing to do this without a realtor, as am I, mainly so I can justify a lower bid.  I also don't want a listing agent coming in encouraging him to list much higher than my calculated value.  

Am I over-simplifying this by thinking I can write up my own purchase agreement, with contingencies, and then get my broker to initiate underwriting?  And then between the lender, title and the buyer + seller we can close the deal?

What are the downsides here?  Should I be going about this differently? Should we mutually find an attorney or agent to help facilitate the deal?  Any advice would be appreciated.  Thank you!

Also, points.. I know doing a break-even analysis is what they all tell you to do, but any other thoughts on deciding on something like that?

Thank you both... Would you recommend me doing the 30yr fixed @ 4.5% w/ $3-4k closing or would you do a 5/1 ARM @ 3.9% w/ $300 closing? There's a chance I could sell it in 5 years, but maybe not. Is a lower cost now worth the interest rate risk in the future?

Thanks for the reply @Scott Jensen

I need to come up with a considerable amount of cash.

1- To buy the house that I’ll start a family In. Expect to need around $60-70k for that. That’s between 20-25% down. The way I see it, interest paid on personal residence is a cash out the door expense. For a rental, it’s a cash saving expense in the form of a deduction. I won’t be itemizing for the foreseeable future.

An additional benefit is then created. It frees up a high-end rental unit under the same roof as my other rental unit. This will be a cash flow machine.

2- I’ll likely put $10-15k more into this property this year with the goal of raising rent in unit 1 while getting my unit ready to market. So a little cash needed for that.

3- I want to set aside $10-20k for a future investment. Likely stick it in a REIT or fundrise for a couple years while I get my life under control before doin another deal. If I can beat 5% returns then I'm ahead. That I can find.

Most importantly, I feel comfortable leveraging up here and nearly tripling my term because I know I will have the rents to support it and I have a solid, lower maintenance property to make this a nice long term investment.

Hello all at BP,

I have a duplex that I am currently living in half.  I purchased three years ago at $130k and, at the time, I thought a 15 year was the answer - lower total cost at an unheard of 2.75 rate is what resonated with me.  Not the worst mistake I could have made.  Fast forward three years and close to $70k in improvements and now we're looking at a market value (to be conservative) of $225k and equity of more than $140k. All good right? 

My goal is to buy a new home within the next 12-15 months (to live in) and then convert this to a full on rental property.  I thought this would be a perfect scenario for a cash-out refinance.  I can roll the existing note + $80k cash into one and still be at 75% LTV - perfect, right?  At the same time, I reduce my initial investment on this property to close to nothing - thus making each dollar of cash flow higher yielding.

Every lender I've talked to at this point says I'm crazy to give up that low rate and that I should just do a HELOC. For my purpose that makes no sense right?

What I'm seeing now is that I can get a 30 year fixed at ~4.4% but close to $5k in closing costs. These 5/1 ARM's are going for 3.9% and next to nothing closing costs - part of me thinks that's a good idea (especially if i were to flip within 5 years) but part of me likes the certainty of a fixed rate.

What would you do? 

Thank You Dave.  Appreciate the feedback.  Taking this a step further, if I decide to hold this property for up to three years after moving out of it - would this still work?  I understand that personal exemptions can only be used if you occupy it for 2 out of the preceding 5 years.  But what about the rental activity of the unit I'm currently occupying?  Thanks. 

Here's one for the community:

I currently occupy one unit of my duplex, while renting out the other.  I'm considering selling the duplex while it's still 50% personal residence.  I'm looking at a total gain on the property of about $72,000.  I've separately calculated (per IRS guidelines) the gain.  

As I'm a CPA, I'm not going to mess around with fudging the numbers, although it would be quite easy to do so with the improvements.  Anyways, as you can see - the majority of the gain is on the rental property.  The IRS says you need to divide the sales price evenly (if you calculate depreciation on the rental based on an even initial basis, which I do), although I could argue the value of the personal residence is double that of the rental - hence all the improvements made.  Could I alter the proceeds proportions?  Also, since I'm using the personal residence exclusion on the personal portion of the duplex, am I prohibited from using a 1031 exchange on the rental portion?  

Any comments or questions are appreciated.  Thank you. 

Thank you all for your comments.  Turns out an offer went in on this property, so we're back to the drawing board.  In a way, I'm glad we didn't make this deal.  The property had its flaws, railroad tracks being one of them @Don Petrasek. The cash flow/unit wasn't too great either, partly because of the loan quotes we were getting. I didn't quite understand the commercial lending costs. Now that I know, I think we are going to focus on 2-4 unit properties. There's plenty of great cash flow opportunities out there. One I'm looking at now exceeds this 6-unit's ROI by a wide margin. Hopefully I can get inside this weekend and get this one going!

Hey All,

I'm working on a deal right now in the Cleveland area that I'm pretty excited about.  It's 6, 1 bedroom units commanding an average rent of $525/unit (below market).  It's in a great neighborhood and is being listed at a price below market.  Fairly low maintenance and many updates have already been made.  If the payment can be kept under $950, we are looking at close to $750/month cash flow. 

Being new to the commercial property space, I wasn't fully aware of the types of products out there.  As of now, the best one I've gotten (I think) is a 25 year loan with rates adjusted every 5 years, starting with a 4.5% rate.  Another one I've gotten is a 5 year adjuster, 10 year balloon (can be modified at that point) that's amortized over 20 starting with a 5% rate.  I'm assuming all will command a 20% down payment, which is doable. 

I'm just curious what people think about this.  If they know of any lenders that can beat these products. And if a $750/month cash flow for 6 units is considered a good deal in your eyes.  If I can find the right loan product, I may put an offer in this week. 

Cheers,

Joe

Before I really educated myself on everything and knew anything about FHA loans, I bought a 130k duplex, put 20% down, and got a 15 year mortgage. I was raised with the idea that debt is bad and to pay it off as soon as possible. And the fact that I was given a 2.7% rate made it easy for me to move forward with the conventional loan. The problem with that is it drained my savings and will force me to take on partners for my next deal. While I don't think I made a poor decision, I do think I would have gone the FHA 203k loan route, put in my 1 year of occupancy and moved on to the next deal.