All Forum Posts by: Jeff Dimmler

Thanks all for the responses. I have since decided to pass on this property. It looks like a good investment, however, it will prevent me from further investments in the future since so much money will be tied up. I think going with a cheaper SFR is a more comfortable and safer way to start. I really appreciate the advice from everyone! The search continues!

@CJ M.

Having that much tied up into one property is a concern as well. Ideally we would find a place to BRRRR, but it seems really difficult to find because everyone is looking for SFH and MFH to BRRRR. The plan for this property would actually be to have a private investor pay a good portion of the down payment (someone we know is interested) and I would do all the work on it so we would be partners.

As for the ARV, I'm not really sure what it would be. There aren't many triplex's in the area and I'm not sure how I would find out what it could be worth with more modern upgrades. I tried to be conservative with my numbers so that's why I kept it like that. The $162,500 is also a few thousand over asking, again to be conservative with my numbers. It seems like the bones are good and some big ticket items are done such as the roof (5 years old) and updated wiring throughout. If I wanted to keep rents the same, I wouldn't have to do much in the units (painting and spackling which I would do). If I modernized the place a bit I think rents could increase to around $1,000 per unit and would be around $5,000-$10,000 per unit.

I feel like the investment would be a good one, but having money tied up and it being an older property has me worried.  This also all happened so fast and I'm not sure I feel confident that I have everything together enough to be ready.  I'm not sure if that is because I'm not quite ready yet or if it's more of me being scared about doing my first deal.

Anyways, I appreciate your response.  You brought up some good points!

So this year I would like to purchase my first investment property.  I have been looking in Pottstown, PA and Norristown, PA mostly.  I found a deal that seems to be a good one.  Here is the info on the property.

** Unit Information **
Total Units: 3
Total Square Footage: 0
3 Units: 2/1 (0 sq.ft., $850 Rent Per Month)

** Purchase & Rehab **
Purchase Price: $162,500 ($0/sq.ft., $54,167/unit)
After Repair Value: $162,500
Purchase Costs: $4,875
Rehab Costs: $5,500
Down Payment: $40,625
Total Cash Needed: $51,000

** Financing (Purchase) **
Loan Type: Amortizing
Loan Amount: $121,875
Loan to Cost (LTC): 75%
Loan to Value (LTV): 75%
Loan Term: 30 Years
Interest Rate: 3.8%
Monthly Payment: $568

** Cash Flow (Monthly) **
Rent: $2,550
Vacancy: -$255 (10%)
Expenses: -$1,157 (50.4%)
NOI: $1,138 ($379/unit)
Loan Payments: -$568
Cash Flow: $570 ($190/unit)

** Returns & Ratios (Year 1) **
Cap Rate (Purchase Price): 8.4%
Cap Rate (Market Value): 8.4%
Cash on Cash Return: 13.4%
Return on Equity: 14.3%
Return on Investment: -12.7%
Internal Rate of Return: -12.7%

Rent to Value: 1.6%
Gross Rent Multiplier: 5.31
Equity Multiple: 0.87
Break Even Ratio: 67.6%
Debt Coverage Ratio: 2
Debt Yield: 11.2%

The only thing that worries me is that its an old and dated place.  I'm a handyman and my mind wants to fix a lot of things, but 2 units are currently rented and the 3rd has had many applicants according to the property manager.  So to get them rented wouldn't require much work at all.  Also some big ticket items have been done; the roof was done about 5 years ago and it's all new wiring throughout the building.  I believe with some modern upgrades each unit could rent for around $1000 as well.  Let me know what your thoughts are on this!  Should I take the leap??

@Brent Coombs I get what your saying and that makes sense.  I'll just continue to look for the right place and decide when that time comes.  Thanks for your insight!

@John Knisely I went with a first time home buyer conventional loan, so I will be able to pay off the PMI sooner. Once I pay off 20% of the loan, the PMI comes off of the loan automatically. I know that with an FHA loan you need to pay off 20% of the loan and refinance to get it off.

@Steven Curran Thank you for the contacts! I will definitely be getting some more information from them.

@Brent Coombs I have a few options that I am weighing out currently, I could stay in my current home and buy a multifamily investment property after saving for probably about a year.  Or I could do an owner occupied loan in a multifamily home.  At this point, I am not sure which would be easier/more efficient in the long run.

Also, in response to your cash flow statement, 1.  I paid a little under the market value; 2.  The property needed/needs some work and updating that will improve the value (lots of 80s style); and 3.  I think Phoenixville will appreciate a lot, they are still expanding and updating the area and have been for the last 5-10 years.  So I went into this thinking that the property value will increase a good bit over time.

Originally posted by @Brent Coombs:

Originally posted by @Jeff Dimmler:

Thanks for the posts everyone! Steven, could you connect me with your lender since you're in the same area as me? I didn't realize that could be an option as well. I'm certainly wanting my next property to have more cash flow, so I'm looking in some cheaper areas as well.

If you're looking for cash flow for your NEXT property, how does that relate to you moving from your current primary?

ie. You'll still have to live somewhere, and I don't really see this one being self-sustaining after just two years.

Cash flow (mortgage paydown) is a very SLOW way to increase your "equity". Three quicker ways are: 1. Paying a LOT less than market value to begin with; 2. Buying properties that have value-adding opportunity (and then adding that value for less than its cost); and/or 3. Buying in markets that are LIKELY to appreciate rapidly! All the best...

Thanks for the posts everyone! Steven, could you connect me with your lender since you're in the same area as me? I didn't realize that could be an option as well. I'm certainly wanting my next property to have more cash flow, so I'm looking in some cheaper areas as well.

Hello BP!

I just started my real estate venture by purchasing my first property this past July!  I am 26 years old working as a Health and PE teacher in PA and I really enjoy it.  We actually have a high and low ropes course on campus so I show kids how to get out of their shell and try new things.  Many of the students I teach have never rock climbed or gone on a hike so it is very rewarding to see them succeed and enjoy new things.

I don't make a whole lot (only 2nd year teaching in a private school) so I decided to purchase my first property as soon as I could.  I got on here towards the beginning of 2017 and learned so much!  I found myself on here and realtor.com almost everyday until I found the right place in the area I wanted.  I plan on continuing to teach for a long time and investing whenever I can.  I would live to purchase my next property within the next year, hopefully a multifamily this time!  Lots to think about with where I want to go, either stay in the same area and house hack, or straight up buy an investment property near Philly area.

Originally posted by @Thomas S.:

What advantage do you see in paying down a mortgage ?????

I only put 3% down so I would be able to get rid of the PMI faster thus giving me more cash flow when I rent it out, but I think it may be more beneficial to save and reinvest sooner.

My loan is 4.125%