All Forum Posts by: Michael Marcoux

A long time ago - I think in 2013 or 2014? - I recall reading an inspiring blog post about how the same gross income would net you much more money in rental real estate than in w2 income, but I can't seem to find it. Does anyone know the post I'm talking about? 

Sure, heck, some of my friends recently got a commercial loan at 3% if you can believe that (they added that it's easier to borrow 2 million dollars than it is to borrow 200k...) But getting a hard money loan at 5% is unheard of, which is what Frank was pitching. 

Given that his goal is "creating a financing platforms as to enable the deficit agents in real estate get funded without no extra cost and waste of time" I'm gonna wager it's a scam.

@Ned Carey, @Jeff B., here's the kicker then: what per unit cost of repairs will banks use when calculating my NOI/DSCR? I'm budgeting $400 a month, but a cursory internet search reveals some banks ask as little as $250/unit/year. I don't assume that's normal though, it seems way to small...And I realize some (most?) banks won't approve private down payment assistance - so I have a lot of calling to do! :)

@Greg B., Getting a conventional loan, at any rate, would require them to verify my income - which would probably preclude me from buying a 200k property, unfortunately. Unless there are "mixed" loans out there that require the low down payments of a conventional mortgage yet consider only the income a property would generate like a commercial loan?

So, here's the (literal and figurative) deal:

2 of my acquaintances have a pocket deal for me. It's a 4-plex in Baltimore with $3,430 gross rent and a NOI of $1,778. Asking price is $195,000. If I could find a 20-year commercial loan that would let me put 20% down @5% interest my monthly payments would be $1,030. That leaves me with $748 a month. So far, so good, but here's the catch.

I only have $15k max I can put into this property. My acquaintances are willing to subsidize the remainder of the downpayment, which, with closing costs, would entail them contributing ~$28,500. Their repayment terms are 5 years @10% interest with no penalty for prepayment which means I would owe them $538 a month. That leaves me with $210 in profit a month (well 610 really, but 400 a month is being set aside for repairs etc.) 

With a profit margin that thin, is any commercial bank even going to talk to me? I would use a conventional loan, but one of the tenants is a business (barber) so I assume commercial loans are my only route. What course of action should I take?

Hi all, 

Talked with a private equity lender a couple days ago. I have only one house flip under my belt and have never dealt with rental properties, so I'm not sure if I can do better than these terms or not. Here's what I have:

- First 3 years are interest only payments, and then it amortizes like a regular 30 year loan with a penalty equivalent to the last 3 year's worth of payments for paying off early. So no balloon payments.

- Variable interest rate starts at 7%, but can go up or down no more than 5%.

- Can be used to purchase up to a 6-plex. Cannot live there.

- Must personally guarantee the loan, i.e. if I go underwater and cant make payments they can come after my personal assets.

Now granted, this would be my first time taking out a loan. I've talked to a few commercial lenders who lol'd at the idea of loaning me so much as a red cent, so I feel like I should take what I'm offered for now. I just wonder if this is too raw of a deal and I should keep looking elsewhere. As an aside, I know I need to crawl before I walk and walk before I run, but it's a lot harder to find smaller properties that are good deals (I recently found an 11-plex for 250k...and a 3plex for 150k!!!) so I'd rather start out large, but this is what I have to work with. 

Didn't win the auction. Ah well. I was able to walk through the house and inspect most everything, I'm no general contractor but I did flip a house before using my own labor so I know some of what to look for...didnt bring a lead paint test kit but probably should have. I could have bid higher but I didnt have the financing lined up in time. Finding hard money lenders/finance sources has proven to be a little more tricky than I thought (not that I started looking yesterday, of course.)

Otherwise this property looks good though, yes?

Hi BP,

New investor here seeking advice from the more experienced. I finished my first flip last year...and just sold it a week ago and broke even, so I'm really hesitant to make another leap of faith. I want to be sure of my numbers this time around.

Short of it is, I'm looking at a 4/1.5 SFH in an area that would get me a solid $800 a month. The property sat on the market for over 100 days at 45k and recently went up for auction. No activity so far, so I'm guessing I could get it for 25k. Considering the property is in immaculate shape and only needs some drywall touch up and paint, I can't help but think this property is a steal.

So before I get to expenses, I have to wonder: is there something wrong with this property? Are there hidden issues I may not have seen? The only issues I can come up with are that it's in a mediocre school district, has an ugly exterior, has an oil heater, and was built in 1900. No lead paint or asbestos anywhere though. 

As far as expenses go, this is what I'm thinking, please correct me if Im wrong:

taxes: 67

insurance: 67

property management: 72 (9%)

utilities (water and trash): 85

vacancies: 96 (12%)

capex/repairs: 90 (@.67/sq ft - I've seen this figure elsewhere on BP, can anyone comment?)

TOTAL EXPENSES: 470

TOTAL PROFIT BEFORE MORTGAGE: 800-470 = 330 month*12 = 3960/year.

If I paid 25k upfront I would have a return of around 15.8%. All this sounds too good for a SFH. What else should I be asking? Do my figures look too generous?

ALWAYS budget for management!!!! I can tell you right now, every landlord I know has needed management at sometime or another for whatever reason (save one - and that's because he uses his son.) Most of the beginners I've known tell me that management gets really old after 5 years and/or when you have more than a handful of properties. It may be fine now, but what if you have 10 houses down the road and you're fielding calls every day, dealing with evictions, finding contractors, screening tenants etc etc.? Landlording can easily turn into a full time job, which defeats the purpose of being one imho. Just something to think about.