All Forum Posts by: Michael Wentzel

@Robert Szalay Welcome to BP!

The numbers look good. I would also factor in additional expenses like property management (10%), vacancy (10%) and maintenance (15%). Many investors also add a line for capital expenditures of around 10%. Maybe you already factored them in, but I didn't see them mentioned.

You might also look into local or regional banks for lending. I've used on of the large national banks on a few mortgages and it was like pulling teeth. The local and regional banks sometimes have a bit more flexibility and are more willing to work with investors.

I am here in Colorado Springs, but investing in Pueblo. I hope you can resurrect this deal.

Mike

@Larry Turowski I've painted it twice in rentals. If it is the "wood paneling", the paint goes on easy and it looks pretty good. If it is actual wood, the stuff will suck up the paint like a sponge and you'll need to do about four coats. We're in the middle of a rehab right now where the paneling is the actual wood and I couldn't believe it still looked spotty with four coats.

For a basic, buy-and-hold rental the paint will be fine. If you're flipping in a middle to upper-middle class neighborhood, I would rip it out and drywall.

Mike

Like @Elizabeth Colegrove said, if you are credit-worthy, qualifying for the first loan is relatively easy. Good job starting with the lending. Now when you go out to talk to a Realtor and start looking at properties, they will know you are serious. Getting the lending sorted out can be a big step, but choosing the strategy and the market are equally as important. 

Also, if you are credit-worthy, I would meet with a couple more lenders just to see what they can do for you. Sometimes the bank that you've had your accounts with your whole life isn't the best to partner with you in Real Estate Investment. For over a decade we had all of our deposit accounts and credit cards with one of the big national banks. When it came time to qualify for our second investment loan, they were terrible to deal with. I had $40,000 of open credit card lines with them (zero balances), but they would give me a $32,000 mortgage one a cash-flowing property worth around $60,000. I could have bought $40,000 of Snickers bars the next day, but they would not approve the mortgage. The bureaucracy was insane.

So I would encourage you to meet with a couple additional possible lenders, including 1 or 2 local/ regional banks. 

Mike

@Valeria R. Welcome to Bigger Pockets! Its a great place to learn. I would take some time looking around the forums and listen to a few podcasts if you have the time.

When we talk about investment properties, we are talking about non-owner occupied loans (most of the time). They generally have higher down payments and higher interest rates than when you purchase a home you will occupy.

Most investors are looking at conventional loans (20%-25% down, 15-30 years, with a fixed rate) or a portfolio loan/ commercial loan (still 20%-25% down, 3-10 years, with a fixed rate or adjustable). The conventional loans that are fixed over the long-term are what most investors love. They are generally harder to qualify for and you will be limited to 4 or 10 depending on the bank. The portfolio loans are usually a bit easier to qualify for, but shorter terms make them a bit more risky. You'll generally need to work with a local or regional bank to do a portfolio loan.

If you don't have the money for the down payment, you'll need to rule those options out or find a partner.

One more avenue you could pursue would be to turn your current house into a rental and purchase another house (2-4 units) and move in. It would be an owner-occupied loan which means a smaller down payment is possible. It is a good first step for many people interested in Real Estate Investment.

I would recommend meeting with three lender (1 big national bank, 2 local/ regional banks) and just learn about the possibilities.

Mike

It would be good to know if you're buying it at a good price by knowing the Fair Market Value (FMV). Many investors say the whole deal is either great or terrible depending on the purchase price. Do you think you can get a discount on the $139,000?

It would also be important to make sure all or most of the utilities are covered by the tenants. And whatever is not covered, I would want an estimate of the cost over the last 12 months.

As far as those percentages go, there are a lot of forum posts that deal with the issues from different perspectives. Just do a few searches. Some people will go lower than the percentages I have. Educate yourself and take a guess. In the end you won't have a good idea of the correct percentages until you've held the property for a year or two.

Mke

@Michael Quarles I am in a similar situation. I feel like I should have an LLC with a name so I can have business cards and look reputable. But if you just go with the generic templates Michael Q just shared you could wait on the LLC and official business name.

I'm wondering what others have done. In the beginning, do you just have generic business cards without a business name? Do you do a business card with a doing-business-as (DBA) name? Or do you get the LLC and business name setup and then get the business cards?

I'm sure the collective wisdom of the BP community will have some direction on this.

Mike

@Jake Hartnett Even if you take the take benefit out, you're looking at 11% cash-on-cash return. That's not too bad if it is a decent property and a decent location. 

I appreciate that you put the property management in there. Many people don't and it makes their number look better than they really are. That being said, could you manage it yourself for a year or two to make some extra cash and get to learn a bit about managing tenants? A duplex in a good area should give you good tenants and not too many headaches.

One percentage I might question is the 10% for maintenance and capital expenditures. I put mine at 15%, but I have older properties. I have seen many others on BP argue for a separate cap ex line of 10% in addition to the 10% on maintenance. So you might be a little low there, but every property is different.

If you have the cash, it seems like a pretty low-risk first step. I hope it goes well for you.

Mike

@Joe Fornasiero I have heard all different suggestions on the forums, including the 50% rule. To run more accurate numbers on expenses, I've plugged in 10% for property management, 10% for vacancy and 15% for maintenance for my properties Those are each percentages of the gross rents each month. I have 8 units right now and I'm waiting to see if those percentages are accurate over a 2-year period.

The scary thing is that as you adjust those percentages up and down, you can make your numbers look incredible or dismal. Talk to lots of people and make an educated guess.

Generally occupying a multi-family is a pretty low-risk step into Real Estate Investing. You'll learn a lot, save on your monthly housing expense and probably make some money on top of that.

Mike

@Rick Fonseca Welcome to Bigger Pockets! Lots of good advice here. Read the BP Beginners guide and do plenty of reading on the forums. I would also listen to some BP podcasts and some other Real Estate podcasts. Get to know your possibilities.

Then get off your butt and start investigating a market. Meet with 2-3 Realtors, 2-3 Property Managers and 2-3 Lenders. That should help you get to know a market, start building a team and know you lending options.

$15,000 cash gives you some options, depending on your job and your credit. I personally would look at buying an owner occupied multi-family or a non-owner occupied single-family.

Mike

@Brad Tamm I'm doing the exact same thing on the rehab I have going right now. My friend put up the cash for purchase, I'm funding the rehab and I'll pay him his cash back plus interest at a 10% APR when I refinance.

I didn't know where to start, so I offered him 15% when we started the conversation. He brought it back down to 10%.

I would make sure your lender is lined up for the refinance. There are some lenders, including a regional bank I'm using, that will refinance as soon as you're ready and don't require 6 months or 1 year of "seasoning".

I hope the pieces come together for you.

Mike