All Forum Posts by: Michael Franklin

What vacancy rate are you accounting for?

What is your monthly PITI?

I understand you have renovated and replaced many appliances, so your realized M&R and Capex should be lower for the next 5-10 years, but there will be turnover and other recurring costs. $200/mo is only 4.5% of the gross rents.

You don't include property management costs? You plan to manage the property indefinitely then? And there is a finite limit to the number of units you can manage yourself so you will hinder your future growth. Plus, is your time not worth anything to you? At some point, freedom becomes more important than maximizing income, but if you don't account for PM at the beginning, you're stuck.

Listen/read some of Brandon Turner's comments on that through the blog or podcast. He didn't account for PM starting out and he says those properties are the ones he loses money on because they weren't good deals to start with. They were too thin when you look at ALL associated expenses over the long term.

@Barbara G.

In my opinion it is very different than a traditional(albeit, long) flip.

As a few people have alluded to, flips have(or should have) a timeline, budget, and multiple exit strategies established BEFORE the project starts. And, the ARV SHOULD NOT obtained from a Zillow "Zestimate." These are often very inaccurate, especially when considering multi-family properties, and should not take the place of generating "real" comps and thoroughly understanding the details of other properties in the area.

Most flips end with a liquidation of some kind, such as cash out refinance or selling for profit. I gather from your comments that you intend to hold this property, so that "appreciation"(used loosely) won't be realized in a sale price and a 70% refinance (assuming your ARV is close to accurate) won't even get your whole down payment back out of the deal, let alone repair costs.

Final thought: If you have to include tax savings and loan pay-down, and exclude PM expenses and reserves to make the numbers look better, it's too thin. 

Welcome to BP, @Tom Guenzler

Stay involved on the forums and check out the podcasts for tons of great insight into the real estate investing space.

Welcome, @Linda Goodwin

Make sure to check out the podcasts for a lot of great first-hand knowledge.

Welcome to BP. Jump in and get involved. Take advantage of the wealth of knowledge available between the guides, podcasts, and forums. 

Good luck

Be sure to account for maintenance & repairs, capex, vacancy, property management on top of your PITI. You don't want to continue paying to own that property once it's rented out.

And @Joshua Dorkin has a pretty strong case against HOAs.

All the best.

You should be able to call them directly and ask about getting a pre-qualification(different than pre-approval). You simply give them some basic financial info and they tell you what amount you would qualify for if the information you gave them checked out. I pre-approval on the other hand is when you actually submit documents to verify your financial information and they pull your credit and try to approve you for a loan. The pre-qualification is not a firm commitment but it does give you an idea of what should be available to you. Once you get closer to putting a contract in, getting pre-approved is recommended as it shows you're a serious buyer.

Do you plan to live in one of the units?

If so, you can get a 3.5% down FHA loan with a minimum credit score of 580 on a 1-4 unit property. They'll still want to see sufficient income and take a look at your current debt-to-income.

There are other low down payment options that might be available too as well as the traditional 20-25% down conventional loans. 

I haven't done this myself but my understanding is that for larger commercial properties, it's common for the seller to carry back a 2nd. The one I heard quoted most often was 10/20/70 (10% out of pocket, seller carry 20%, bank loan for 70%)

I'm interested to hear what you find out.

I think in many cases the existing leases are binding so you can't force them to sign a new lease, but I would recommend you have your own and ask them to convert to yours. If they refuse, your next opportunity would be when their current lease expires. 

Also, I don't know if you have put the contract in on the property yet, but request estoppel agreements to be filled out for each unit and make sure you get the rent roll and leases to review before closing. 

Establish your screening criteria now, and write it down/document it. (I'd suggest checking out the BiggerPockets guide) 

All the best.

I'm not aware of a policy that covers you when a tenant doesn't pay, but most landlord policies I've seen have "loss of rents" that cover you if there is damage that prevents you from renting the unit.

Were they possibly referring to that?