All Forum Posts by: Michael Kelley

Any suggestions?

I have an off market 4-Plex that I have been evaluating, and unfortunately another investor has caught wind and bid up the price. The property is 4 townhomes 3 bed/2bath/1 car garage/1250 sq. ft. The closest comp rents for $950/month (3 bed/1.5 ba/1 car garage), but I believe these are top market rents, so I have ran my numbers at $850/unit to be conservative. The seller has now said that he will sell to me if I come in at $315k (the other offer is at $310k). These do not qualify for FHA because the property is zoned as individual townhomes, not a 4-plex, but a local bank is willing to do 15% down plus cover the renovation at 5.4% over 25 years. The property needs some work which I have estimated to be approximately $20k. I am not certain if this is still a good deal or if I Just lack the confidence to commit. Also, the property has 3 vacant units, and the fourth has a rottweiler, which will have to be evicted per the insurance company, so I am planning on 4 vacant units, but have not reflected that in my numbers below. I can withstand the cash outlay with my income and other cash reserves though. The current vacancy is due to some poor management changes within the last year. In my market rentals do not stay vacant long. There are typically only 1-2 two rentals available at any given time and are usually rented within 1-2 weeks of being advertised.

The numbers at a glance:

Purchase Price: $315,000

Down Payment: $47,250

Rehab:                 $20,000

Loan: $287,750 (85% LTV + Rehab)

Rent:                $3,400

Vacancy:         $272 (8%, Conservative bc rentals are hard to come by in my market)

Mgmt:              $340 (10%, this will be self managed, but factoring in regardless)

Maint/Cap Ex: $340 (10%)

PITI: $2,300

Before Tax Cash Flow: $148

If I get $950/unit, then my before tax cash flow is at $421/month

The high leverage is killing my numbers, but I cannot afford to put down much more at this time. The kicker is that even if I only got $850/month I could cover my fixed expenses with the income from the other three units, which could make this a decent house hack opportunity. Also, since this property is four individual townhomes it appraises much higher. It appraised for $400,000 back in 2012, so assuming it appraises for at least that, I could have access to additional cash through a HELOC to BRRR or flip a single family home. I have been stumbling around for too long and my indecision is killing me, so any help is much appreciated!

@Michael Kelley Any Suggestion?

Quick question. I have been working with a seller on an off-market, 4-unit building. I was hoping to use a FHA loan to "House Hack" my first investment property. However, my lender said that I cannot use an FHA loan because the building is comprised of 4 individually zoned town homes, meaning they can be sold individually. The lender said that I could do an FHA for the unit I live in, but would have to take 3 individual loans, or one commercial loan for the other 3 units, which is not beneficial to me.

Does anyone know a way around this? Are there other loans that compare to the FHA loan that would allow me to buy all 4 units even though they are zoned individual town homes? Rezoning the four town homes to one individual building is not an option.

Thanks for your time and help!

I have found an off-market Fourplex in my market that I plan to "house hack." The current owner seems to have fallen into this fourplex back in 2012 when he bought it from the bank. Last week was the first time he had been in the property and has left everything to the property manager. He recently had to switch property managers and his current manager has fallen short on promises. Currently two units are vacant, one has not been paying rents for a few months, and the other has a rottweiler. It is in a decent neighborhood and vacancy is very low in our market, so I am fairly confident I can get units rented, but was concerned about the tenant not paying rent and the rottweiler. How should I write my offer? Should I write it subject to the eviction of the tenant and removal of the rottweiler? Or are there other options that some of you may have used in the past?

The rottweiler is in violation of the current lease in place, but no disciplinary action has been taken, and I doubt any will be taken. I plan to offer small dogs and cats (30 pounds or less), but I am afraid a 130-150 lb rottweiler will raise my insurance and reduce the desirability to prospective tenants. I would ask the tenant to find a new home for the dog, but they have been in the property for 7 years and have never been late on rent, which is hard to find.

I believe I will ultimately have to evict the tenants not paying rent, and ask the others to find a new home for a dog, but wanted to ask the BP community for any advice, or to simply use as a sounding board.

@Tim Woosley

A 2/3/4 unit is referring to a small multifamily building with 2, 3, or 4 units (duplex, triplex, fourplex). These smaller, 2-4 unit multi-family buildings are considered residential buildings and qualify for residential loans like the FHA loan mentioned here, or even the USDA loan for rural areas. 5+ units moves over into the commercial space and is limited to commercial loans.

Hope this helps clear things up!

This is me exactly (before you really took action). I have been waiting for that perfect deal to pop up. Looks like I need to educate myself on direct mail marketing. I think I needed to see this, thank you!

@Jeff Brower do you have a link to the thread you referenced on the mini off market mailing campaign?

Although, in pertaining to auctions, you may have trouble closing on a FHA 203k loan in the period allowed to secure financing.

@Kaelyn Hearn I am looking to do the same (owner occupy a small muli-family and rehab). The one thing I have been looking at is the FHA 203k loan. This loan is a variation of the traditional FHA loan in that it allows you take a loan to both purchase and rehab the property.

From what I have seen on BP, it is very important that you have a lender that is experienced with the 203k loan, so ask around. Many say that 203k loans have too many hoops to jump through, but if you can get past the additional nuances of the loan it may be easier than finding a private or hard money lender and then having to refinance later. I hope to use this as a proof of concept of the BRRRR method for myself.

One drawback: If you have a really good deal, then you may be able to pull out more cash than you have in the deal with the BRRRR method, while with the 203k loan you will have to put up the 3.5%. Although I suppose you could refinance your 203k loan at some point too.

@Richard Sherman

 I understand some of the reasons not to build (do you have a link to your article? I am not the best navigator of this site yet). Unfortunately there are not any duplexes for sale in my area (that I am aware of), and none exist in a suitable location for Airbnb. If I found a duplex I could of course do a long term rental, but the returns would be less than that of a short term rental. If I can build a small single family with a detached garage apartment, given my all in cost would be supported by surrounding comps, should I still consider it? Making sure the cost is below comps would allow me to back out if the Airbnb did not produce any revenue.