All Forum Posts by: Jerry Ellis

The answer to this question is out there I'm sure but I couldn't find it. 

So my question is regarding owner financing and how it effects conventional loans. Specifically, how the banks view them when considering conventional financing. So if I buy a property using owner financing, will the bank treat that liability the same as if it were just another conventional loan for a second property?

Jerry

I have found that even with selecting multi-family that you don't always get everything. I will often look at everything but narrow the search by price range and or location. Scanning all the listings looking for multiple mailboxes, lots of cars, multiple doors will sometimes yield results.

Hello and welcome! Maybe I'll see you at a meetup.

It seems like cash to make deals happen is one of the biggest obstacles folks face. I know it's mine. Your retirement is also very important so I'd suggest that you save somewhere around 10% of your income for that. Diversification is not a bad thing.

Lots of choices are available after that in terms of what to do short term.

Jerry

@John Leavelle

It's a triplex. I've been looking at a number of properties, one of which is a duplex so I think I just misspoke. I was tired when I composed the post. The triplex was built in 1986. A duplex I'm looking at and mentioned was what has been remodeled. Sorry about the mix up.

And I agree that my time is worth something. My thought with self-managing is to learn the business and then once I acquire more properties and am ready to transfer those responsibilities, I'll be in a better position to hire someone as I'll know what the work is like. It's a good idea to plan for it in my numbers though.

I have run across a number of properties with similar cash flow results. I've built a spreadsheet that I can drop info into so in five minutes I have a comparison. I'm also scheduling visits to some of these properties so that I can get a better sense of values and rents which will help me to recognize the diamond in the rough.

I have a single family (3 bed/1 bath) that I'm scheduled to see that is priced at $18,900 but I'm certain it needs work. The neighborhood is full of similar houses and as far as I can tell sell in the $50-60k range. This would probably be a BRRR.

One unit is vacant but the other is rented. I can't recall if I was told which. The house was built 1949 then converted to a duplex at some point. It was remodeled within the last few years.  I'm going to go look at it Saturday so I should be able to answer questions such as utility metering.

I've been looking at properties and crunching numbers. I feel like I'm missing something so I'd appreciate someone looking at this example and providing feedback. Note that I don't know for sure about the closing costs as I’m still shopping lenders and I haven’t gotten quotes to mow the grass so I’m estimating some of these numbers as well as a few others.

Units 3

Rents $425, $425, $450

Purchase Price $75,000.00

Yearly Property Tax $1,379.00

Monthly expenses -

Insurance $80.00

Property Tax $114.92

Landscaping $50.00

Water $100.00

Vacancy 10% $130.00

Maintenance 10% $130.00

Cap Ex 10% $130.00

Will self manage $0

Expenses Monthly Total $734.92

Cash Flow $565.08

Cash Flow (After Mortgage) $261.07

Loan Amount $60,000.00

Down Payment $15,000.00

Interest Rate 4.500%

Length (Years) 30

Monthly Mortgage Payment $304.01

Closing costs $2500

2% Rule 1.73%

50% Rule 56.53%

Cash on Cash Return 17.90%

As I recall, when I bought my residence there were only a few things that needed done. Peeling paint was one and I can't for the life of me remember the other but it wasn't major. Your situation will be different of course. 

I negotiated for the seller to pay for those repair costs. In my case, the seller was anxious so it wasn't hard. You can get questions answered by the source for free:

https://portal.hud.gov/hudportal/HUD?src=/i_want_t...

I doubt they'll be able to tell you how much money you'll need, but they should be able to help you identify what's needs done and then from there you'll be able to figure out the repair costs.

I guess my desire to know purchase price and remodel cost has to do with the negotiation process. My goal of course is to get it as cheap as possible and even though this may be a business for the seller, they still may be driven in part by emotion and their desire to not lose money on the deal. So I would argue respectfully of course, that from the negotiation standpoint what the seller has invested will influence their decision making and therefore is relevant.

 So a $10, $100, or even a $1,000 offer would be a waste of time and fall into the ridiculous category. Where is the line? 

JLE

So I'm looking at properties and find a single family converted to a 2-unit. If I've interpreted the county's tax website correctly, it was sold in 2011 for $13k. Looks like it's been rehabed and the listing price is $64k. I need to confirm but I think the rents total $1100 per month, taxes are $932 per year, mortgage at $243 per month, and I'm estimating expenses at $517 per month including cap ex and maint. It cash flows better than a couple of different tri-plexes I was looking at for $40k less.

I don't have experience estimating the cost of a remodel so I don't have a feel for how much they have in it. I suppose I could go take a look at it and then go to Home Depot and estimate materials. 

Or, I could forget about trying to figure out how much they have in it and just make an offer. Would $50k be ridiculous?

~Jerry