All Forum Posts by: Kevin Siedlecki

@Brittany Fife - Save your money! If you put it towards the loan, all you are doing is trapping it in the equity, requiring you to do work and spend money to take it back out. If you save it in a cash account, you can just use it immediately for your down payment. At today's interest rates, paying extra principal for a year or so is just not going to make enough of a difference to justify trapping your money in equity, especially in a market that many expect to correct soon. If that happens, and your property value goes down, you won't be able to take any or all of that cash out. If you have your money in cash, then the short-term fluctuations in the market don't matter at all. In fact, your cash has more purchasing power, and your other property is still making money, so you're golden. 

@Stephanie Cabral - Anything over 2% in CT is probably not a great neighborhood. I wouldn't want to invest in the neighborhood you're describing, but that's because I want more of a hassle-free area, even if it means slightly lower returns on paper. I'm also not high on the long-term outlook of anything more an a few miles from Yale, since basically everyone else is fleeing the state.

@Wendy Oliver - @Charles Elmer is correct. The only caveat is that you might have to wait 6-12 months before you can refi, even if you buy it cash. I'm sure you can find a bank to do it sooner, but that might be the first answer you get.

@Matthew Bennett - and for some help thinking about what expenses look like, take a look at my blog post on understanding the numbers:

https://www.biggerpockets.com/blogs/6815/45137-my-...

@Matthew Bennett - 60% COC ROI is a red flag. Nothing really does that well, and if it did, an experience investor would have snatched it up before anyone else heard about it. So we need to tease out the numbers a little. What have you included in your expenses? Are you sure the tenants are actually paying? What class of neighborhood is it?

I'm also not getting the same results you are for COC ROI or Cap Rate. If the $417 includes your mortgage, then I can only calculate COC, and I'm getting 54.7% - which is still unreasonably high. If it does not include the mortgage, then I can only calculate cap, and I'm getting 13.9%. So something does not add up here.

Post again with your expenses broken down by category so we can look more closely at this.

@Kevin Bynum - It depends on what you mean by "function," and what kind of activity your business is going to do. Right now, my rental business can function without me - if you consider making money on a current portfolio "functioning." All that takes is paying a property management company to run the day-to-day. If I chose to, I could go months without talking to anyone or thinking about real estate.

That's not my idea of my business functioning, though, because part of my business activity is acquiring more property to grow that portfolio. I don't plan to get big enough to have that part of my business done by someone else, nor would I ever trust anyone besides myself with such big decisions about my money. 

Hope that helps. Please follow up and let us know what you're planning to do. I'll be curious to hear what systems other people have in place for getting their business to function as much as possible without them.

@Mark S. - This doesn't look like a horrible deal, but I'm going to point out the negatives and potential negatives I see, just so you have that perspective to consider before you make your decision.

1) Your low-end COC ROI is 5.2%. That's not very good, especially when it's on such a cheap property and there is no loan being paid down. If the $153k was a down payment on a $600k building, and you were also getting $600/mo in principal pay-down, that would make it more attractive.

2) $8,000 is a low estimate for closing costs and rehab combined, plus you have the roof to worry about. What kind of rehab does it need? 

3) Is the syndicator's 10% in the property itself, or in the LLC I'm assuming he's setting up? If it's the LLC, then the syndicator will also be taking a part of cash-flow, dropping your ROI even further.

4) However it is structured, knowing the ARV is important here, too. If you're giving up 10% equity, does that mean you are losing 10% of your investment, or does the ARV cover the syndicator's share?

5) What are the exit strategies? If you don't have specific agreements up front about the conditions that will be met in order for you to sell and refinance, you're setting yourself up for trouble. Consider this scenario: the house does not appreciate, one or two of the investors (or the syndicator) want to cash out after 2 years, and the ARV did not cover the syndicator's 10%. That means when you sell, pay 6% for a realtor, closing costs, holding costs, and then 10% of the net to the syndicator, you've probably lost money. Protect against that by having specific agreements in place for selling and refinancing.

That's my two cents. Good luck!

@Todd Magin- the whole thing can be rented out. In my experience, the only difference between investment and owner-occupied is I have to put 25% down instead of 20%.

@Billy Holt - You are right. For anything with 4 units or fewer, you can get a residential loan. If lenders are telling you otherwise, they aren't the right people to work with anyway. Keep calling around. 

@Eric Rodriguez - I'd say you should learn more about real estate investing. Something you're paying for out of your salary is not an investment, it's a liability.