All Forum Posts by: Jeff Prather

Hey, I'm coming to you all for some opinions and advice. I was talking to a local REIN networking contact who's opinion I value and received some advice. Here is the background info and advice:

I'm a newbie investor (3 months of reading/surfing bp) with no properties under my belt. I'm renting a town home in Green Hills (half way through my 2nd year of leasing the property. The zillow Value around $300,000. The owner lives out of state. She has owned it for 10 years and has a mortgage. I pay $1,700 per month. Market rent is $1,800 - $1,850 and climbing (based on nearby rentals and based on rentometer.com). 

The advice I received was to approach the out of state owner to try to lease option the property even though it wont cashflow. My friends argument is based onthe fact that its a very desirable property - good location in green hills - its a nice property in good condition. I pay $1,700 and the PITI + HOA will be around that same amount so, again, it wont cashflow (my goal as an investor is to cashflow $200 per door per month and build passive income). I understand buying based on appreciation is speculative and doesn't get a lot of love on BP, however that's why I'm asking you Nashville investors specifically. We've had a ton of appreciation already. But net population inflow is still high. The unit has increased in "Zestimate" from 2015 to now form about $285k to $300k. In summary, does the advice make sense or am I right to question it?

p.s. I would also appreciate any advice on how to consider repairs and CapEx. There is an HOA so roofs and exterior are covered there and as far as interior, in my 1.5 years its been nothing notable. It was constructed in the 80's and seems in very good shape.

Lastly, I really love living here. Its a perfect location for my commute and social life. My alternative plans are house hacking a duplex - through my analysis, it appears I'd have a lot easier time doing this in suburbs that are further out - spring hill for example. Additionally, I could just continue to rent and then invest in properties that don't live in. 

@Sean Kelly

Still want to know how to determine my budget. If that is what kind of loan could I qualify for? the answer is a pretty nice one. My wife and I have a good income between us and both have excellent credit. Could probably get a loan of 400k. I'd need time to save up substantial down payment on that size of a loan though. All of the deals I hear about on BP seem to be on more modest properties varying from 30k to mid 100k's. Can more expensive properties cashflow like these modest properties?

There is now way I'd want to take out such a large mortgage for a single family just to live in with no income coming from it. I'd only consider it if the numbers worked on on a multi family to cover my living costs or at least most of them. On a mortgage that size, I'd expect just PI payments to be over $1,650 at 3.75% interest. With TI maybe over $2,100? This brings me back to the same question I posted to another member of the thread about partial house hacking. i.e. covering a majority of my living expenses but not all via renting out half of a duplex. Is that a viable strategy?I'ts very hard for me to imagine half of a duplex renting for enough to cover over 2k per month. Maybe more like $1,300?

 Cody, Sorry in advance for the lengthy post below. I hope you truly like helping out clueless newbies because I'm asking a lot here! Thanks for your feedback in this post and your following post about the podcasts and REIN. The podcasts are perfect for my commute so I've 15 or so episodes under my belt. I went to my first REIN this week and have followed up with some of those folks. Here are a few follow up questions for you. 

1. When you say more affordable area, can you point me in the right direction? 

2. Would an imperfect house hack still be a successful strategy? By that I mean. Lets say when I rent out half, it covers only 2/3 of my PITI and I'm left paying a few hundred dollars monthly for living expenses. My initial though is that I'm still saving over a thousand a month from what I pay now and I'm gaining equity. Do you have advice on other things to think about? Does your advice change if my career could take me out of town in the next 2-5 years? My thought is I'd just start renting the other half and would have 4/3 of the PITI in gross monthly rents- I'm guessing that doesn't satisfy various rules of thumb (that I"m still learning about).

3. I have already made a couple of contacts from the REIN. One is a mortgage broker and another an investor/agent. Is it wise for an investor to use a broker? 

The agent started talking deals with me. Here is my analysis - any feedback is appreciated. 

With the Agent, I discussed a deal that was a 85k condo (obviously not fitting my house hack plan but more so the pivot to other areas plan) in Hermitage with a tenant (lease through May) paying $985 per month. Using $21,250 down (25% is what he said is required of an investment property) a mortgage at 3.75% of $63,750. I calculate a PI payment of 295. I haven't included TI as I'm going to run the 50% rule at first and I think those are included in the rudimentary calculation of the 50% expenses. I watched Brandon Turners video on the 50% rule and he mentioned multifamily specifically so not even sure if I'm applying it right here since this is a condo. Anyway, I take half of the 985 as what I have remaining after expenses = 492.5 then take out PI of 295 to leave $197.5. to get annual return, x 12 for $2,370 and divide by down payment of $21,250 for a 11% annual return. Seems mediocre to me. This is literally my first deal analysis I don't mind at all if you tear it apart and show me how its done correctly. 

Here I'm attempting to estimate actual expenses. I do already know it has a $120 monthly hoa and 10% property manager (98.5). I could use some help on the insurance, taxes, water/sewer, and any other fixed costs but I'm going to use $75 per month as a place holder on insurance, 70 for taxes and $35 on water. Net income is now 985 gross rent - 440 PITI - 120 HOA - 99 rounded prop manager -35 water. Now we're at $291. Next I take out 8.3% vacancy, 5% repairs and 5% capex (built in 2012). Thats 18.3% of 985 which is $180. my 291 - 180 is $111. Annual return x 12 of 1332 on 21,250 down is 6.27% so not great.

I'm just starting out. I'm in Nashville and am interested in buy and hold small multi-family. Ideally I'd buy a duplex, live in one unit and rent the other to cover my living expenses. I'm keeping my 9-5. To put it honestly, I'm picky about the place I live in terms of location and living in a decently nice place - doesn't have to be luxury but not run down. Regarding location, I'd live in any of the nearby neighborhoods like 12 south, Greenhills, 8th & Wedgewood, and maybe as far out as Brentwood. If I could successfully cover my living expenses while the other unit is rented, I wouldn't be too hurt by occasional vacancy as I currently pay $1,700 in rent monthly. Is the purchase price in these areas cost prohibitive to employing the strategy? 

What else would y'all need to know to help me?

Would it make sense to pivot and just go for single family or small multifamily in more affordable areas and just keep my present living situation?

Lots of good advice. I appreciate all of the responses. Looks like my next steps are to get involved with REIN and to keep reading up. Thanks all!

My name is Jeff Prather. A fried told me about the BP podcast. After listening to several episodes, I was hooked. I'm brand new to real estate investing. I'm in a learning phase with no properties in my portfolio. I want to start taking action quickly so that I don't become one of those who "never get started." 

My first question is about my market. I'm in Nashville, TN and have been for 5 years. Real estate prices have been booming here for 5 years. Any other Nashville investors with advice on whether or not the Nashville market could be peaking?

Other advice is appreciated too.