All Forum Posts by: John Leavelle

@Patrick Barker

We really need more info to give a good assessment of you deal.

1. What is his current data; rent, vacancy rate, other expenses, and NOI. Current cash flow? How much equity in properties? Any rehab required?

2.  Here's my quick analysis based on info you have provided:

Income = $86,000 ($600 * 12 units * 12 months)

Expense = ? (50%) $43,000

NOI = $86,000 - $43,000 = $43,000

Value = $43,000 /.10 Cap Rate = $432,000 (his price is $462,000)

3. What Minimum Cash Flow are you looking for? $200 per mo. per unit. Then your Mortgage payment would have to be $1,200 or less based on my ruff analysis above. Even if you put 25% ($115,500) down with a 5% APR 30 note your payments would be about $1,860 per month.

I'm not trying to dissuade you from this deal.  Just saying need more info.

Other than that you might try to get 2 or 3 verses all 6.   Also, if Seller has a lot of equity you might see if they are interested in Seller financing.

Keep digging.  :)

@Caleb Heimsoth

I agree with @Michael Henry, house hacking is what you are probably looking for. You get the benefit of low FHA loan for a primary residence and you first investment property. You can go with 2 - 4 units. What ever you can get into. Live there one year and then do it again with new property. Of course this allows you to move anywhere you want and still maintain your investment properties. Win - win for you.

@Account Closed

This sounds like a perfect opportunity for seller finance.  Motivated seller with distressed property.  100% equity means you should be able to negotiate really flexible terms.  What is asking price compared to market value?  What is their motivation to sell?  Tax burden?  What are your numbers?

@Ebahi Ejerekhile

How old is property? You still may have big ticket items in the near future. I would stay conservative and use 10% CapEx.

Section 8, I would still plan on future possible credit losses (uncollected rent and skips) 5%.  Current renters might not be there forever.

Don't forget miscellaneous expenses (Landscaping, Pest Control, Legal, Accounting, etc) another 5%.

How did you get $600 cash flow if you do not know terms yet?

This is Seller Finance,  there should not be any points.  Your interest rate, note length, and others terms are negotiable.

Agree with what is being said here, be careful, his motivation and terms do not add up.

@Tyson Hosey

You are proposing Seller Financing.  Terms are negotiable.  You want little or no restrictions as possible.  No due on sell clause or penalty for early payoff.  If seller is truly motivated, then, they would not want restrictive terms either.

If you really can get $300 Cash Flow, then, you still have negotiating room to make seller happy.

@Philip Mankins

The way I see it is your best options are:

A.  Use a Home Equity Loan (HEL) based on your current rental 54K in equity.  You should be able to get 100% or more of equity at decent fixed rate, amortized payments, terms of 3, 5, 7, 10, or 15 years.  Your rental property will act as collateral.  You must apply for a new HEL every time you need one.

B. Use a Home Equity Line of Credit (HELOC) that you mentioned. This is usually like an adjustable rate loan/credit card. It will probably have a little higher interest rate than the HEL. However, it is much more flexible. Only apply for it once and use it as you need it or don't use it. When you repay it you can use it again. It has flexible payment terms like 1% of loan balance (like a credit card). The bank can close or cancel the HELOC before you have had a chance to use it. You will need to maintain 10% - 20% loan-to-value ratio of equity in the property at all times. Credit score usually needs to be 680 or above. Again, rental property will act as collateral (unless you use your own home).

Which ever one you use be sure to get new rental property "cash-out" refinanced to get your first rental out of being used for the HEL collateral or pay down your HELOC.

 Your can apply for either at your local bank or credit union and they will set your limits.

You might want to consider using the HEL this time and the apply for the HELOC for the future.

Hope this helps. 

@Nuhan Demirkan, Exactly to the point. My goal is 50 units in any combo (SFH, Small Multi's, or Small Apmt).

@Alan Jones

I have to agree with @Joe Villeneuve and @Thomas S.. The whole idea of investing in Multi-family properties is to produce INCOME. Why would you want to reduce your cash flow just to pay off the loan? Your renter's are paying the loan for you! That money would be better off invested in additional Income properties. Your ROI will be greater.

Finish out the 5th room and increase your return/cash flow.

@Dan Barman

Yes, rental property value is based on current rates and condition for that property and not on comps. There is no guarantee of future increases. Why would you purchase a rental based on speculative value. You would use comps to validate your ARV not current rental property value. If your purchase price is too high it may causes negative cash flow. If it meets your cash flow goals, then, its a good price.

@Jacob Pischer

As a Buy and Hold cash flow investor you need to be concerned with rental valuation as @Kristina Schmitt is suggesting.  Not retail market value.   

Also, find out the rental market rates for that area.  Go to www.rentometer.com to find out.  Enter address, number of rooms, and current rent.  It will give you the median rent rate, high and low end, for a given radius around the property.