All Forum Posts by: Mark Douglas

@Vincent Crane Im new to FHA loan house hacks. Im interested in doing that but what are the requirements if you user the FHA loan when it comes to buying a quadplex? Do I need to live in the house throughout the life of the loan? Do you know somewhere I can go to get more details about?

Thanks!

Another thing to think about is where else can you get reserves.  If you are nervous about depleting your savings think about how you would handle any unexpected repair.  Look at your 401k if you have one (will you be able to tap this for a loan if the furnace goes?).   Do you have family that will/can help you if  you need  assistance over the short term. 

After you take occupancy you can pay previous rent amount for your unit into a reserve fund (you are paying rent now). If you don't have a plan you are comfortable

to meet unexpected expenses with wait until you have some way of meeting these repair costs. Otherwise weigh if you used these or other options  you could sleep at night if you did buy now then consider going for it.  You are always going to be a little nervous on the first go round.

 As for making a lower offer what is the harm in trying?  Figure your expense and what you makes it work for you.

I think your instincts are correct. If you can get this done for $165,000, you should be very comfortable (providing you don't pay gas/electric)...

You think you can get it there?

You will for sure want to check the age and condition of the roof and the hvac systems.  They may have replaced the roof since it was built due to hail/wind damage.  If not, you are correct in that it is likely near the end of its useful life.  The HVAC systems can add up in a hurry if they are 20 years old and have never been replaced, especially if there are furnace and central air units for each unit.

@Mark Douglas

This is a solid buy. Your ROI is rather awesome honestly. Even better at 165k. I'd start even lower :)

Here are the numbers as I see them at 180k price tag.

% Down Payment 3.50%

Down Payment $6,300

Remainder of closing costs $5,500.00

Total Due at Signing $11,800

Mortgage Rate 4.25%

Length of Mortgage in years 30

Monthly Mortgage payment $854.50

Taxes $300.00 (made up, but PITI is $1254 total)

Sewer and Water $133.33 (in most MFH the owner pays ALL of this expense)

Trash $- (is this included in your taxes?  I.e. City trash?  If not, plan on another $100/month.  This kills the deal.)

Heat/Utilities $- (only shared utilities: porch/cellar/hallway lights)

HOA $-

Cap Ex and Ops $200.00 (given the comments on the roof and HVAC, save AT LEAST this much)

Insurance $100.00 (made up, but PITI is $1254 total)

Mgmt Fee $172.50 (figure this in now.  If you don't you will handcuff yourself to a bad deal down the road.  Even if you self manage, pay this amount OUT of the property's account each month so you get used to accounting for it.  Given what you've said, I'd put it in your personal account for some piece of mind)

Vacancy $139.73 (8.1% represents 1 vacancy per unit per year)

Total Expenses $1,900.06

Unit 1 $575.00

Unit 2 $575.00

Unit 3 $575.00

Unit 4 $- (this is you.  Later this will be another rented apartment)

Total Revenue $1,725.00

Cashflow/month $(175.06) This is your portion of the costs to bear.  You were paying $750, now you are paying $176.  Win for you.

After you Move out, or why this place is worth buying:

Monthly Mortgage payment $854.50

Taxes $300.00

Sewer and Water $133.33

Trash $-

Heat/Utilities $-

HOA $-

Cap Ex and Ops $200.00

Insurance $100.00

Mgmt Fee $240.00

Vacancy $194.40

Total Expenses $2,022.23

Unit 1 $600.00

Unit 2 $600.00

Unit 3 $600.00

Unit 4 $600.00

Total Revenue $2,400.00

Cashflow/month $377.77

Cash on Cash Return 38.42% (Wow, but only part of the equation :) )

@Mark Douglas - Don't forget to ask for closing credit(approx 3%). This should help with the closing expenses. Good luck!

followup to a previous question - what are the expenses on it? Those are going to make a big difference - if your at $28 cash flow before adding expenses, it could be a major red flag - at the same time - living rent free has it's value too - that's $500+ a month that you don't have to pay in rent -  it may end up being a wash. You should try to get a handle on the expenses of it to be sure there aren't any big surprises. If you do get it - be sure to start saving up a buffer for major expenses in case of deferred maintenance. Would love to see all the numbers on this one. On it's face, it seems worth a more thorough investigation. 

@Mark Douglas you have some top notch advisers helping you out here.  I don't know your market.  In my area if a property cash flowed at all on just 3 out of 4 apartments, it would be a good investment.  I cannot speak to what is good or bad in your market.  Good luck.  

If you're cash flow positive on only 3 of the 4 units being rented AND you're only putting 3.5% down (so your principle repayment is high), the numbers on the deal say, "Go for it." Your cash-on-cash and IRR are high.

Now, whether your estimates are correct, or whether this particular property is a good deal relative to others in your market, or whether you're ready to deal with these new tenants, or whether you've got appropriate liquidity to handle cash needs after buying ... Those are all independent questions.

Definitely...working on getting comps for the area...to me, it's overpriced.. Also rents seem low.. These are 2/1s for $595.... I'm paying almost $700 for 1/1 (I'm closer to a major city but still..) We'll see what the comps look like.