All Forum Posts by: Corey Demuth

Around here (in NY) a lotttt of people have out of state plates and licenses. It seems to be a game to pay lower auto insurance premiums. Personally I don't like it, I follow the rules and got a NY license as soon as I permanently moved here - but there are a ton of people who do it and that may be the real reason why she is dragging her feet.

Having said that, I have no clue whether the state she has her DL in has better insurance pricing than Texas.

Ask them if they'd give you a better rate if you put down 20%, if you want to find out (to fairly compare the difference.)

To be clear, there are of course situations where sure putting down less and paying PMI make sense, it's just that they are rare, and with most of the people who post on here wanting to do it, the issue is they have no capital and are trying to squeeze a deal through and kidding themselves about the hard numbers. So that, in my opinion, is why you are seeing so many anti-PMI posts.

First of all, most of the people wanting to get a loan with PMI are usually trying to get a super low down payment. So it's usually a much bigger difference in numbers and it is harder to get a deal that cash flows properly when you are only putting down 3.5% or 5%.

15% vs 20% isn't such a big gap. But is it really worth it? You know you won't likely be able to get the PMI taken off for at least a couple of years, right? Also, you should verify whether the rate is impacted... generally the more down payment, the lower the rate. So it may be costing you more than just the PMI.

You may also have a hard time getting a loan for such a small purchase price... many banks won't do a mortgage for under 50k.

Thanks Jeff! Come one people, vote that post, this is valuable info...

I don't know WHAT some of you guys are talking about. Make no mistake - during the crash RENT WENT UP. The % of people renting... WENT UP. Where do you think all the people that lost their homes went??? To live on the moon? Come on...

Regarding risk. Provided you are not holding properties in an area with insanely overkill tenant-favoring laws (NYC for example) and you do your numbers correctly, I don't think you have to worry. If you have properties in a normal area with reasonable landlord-tenant laws, and you have to evict someone, it isn't going to bankrupt you. (But in NYC it could take 1 or 2 years to get them out, so yeah in THOSE SELECT AREAS you could have a major problem.) But I absolutely do not suggest investing in those kinds of areas so to me that's an irrelevant concern.

Bank calling the note due because you lost your tenants? I am going to have to call BS on this one. Whoever told you that is lying or misinformed... Please show me the page of a mortgage agreement where it says they can call the loan due for this!

If you do your analysis and numbers correctly before buying, and you aren't basing them on some pipe dream of a rent figure (ie expecting to get 1000 a month for a unit that will really rent for 600) then you are not in some hugely dangerous, risky situation.

Once in a while, you'll have an unexpected repair. Once in a while, you'll have a vacancy for a month or two. But unless you are doing something VERY wrong, you aren't just going to suddenly lose all your tenants and not be able to get new ones for 6 months. That's absolutely insane, and whoever is leading you to believe this is just trying to discourage you.

If you lose a tenant and the place doesn't rent right away, you can hire a broker to help you rent it, lower the rent a small amount, etc - seriously just keep the property in good condition, make sure you don't overpay when you are buying it, and make sure your numbers WORK. There should be plenty of money left over after paying the building's expenses every month, for you to save some toward future repairs and pocket some as profit. If that's not the case, IT'S NOT A GOOD DEAL.

Also, having more units (ie several houses, or a multifamily, etc) spreads your risk around. If you have one SFH worth 500k and it becomes vacant for 2 months, obviously you will feel it more than if you had 5 100k SFH's and 1 of the 5 became vacant for two months... something to consider since you seem risk-conscious. With a good duplex or triplex, you can have a single unit be vacant for a little while and still break even as the other tenant's rent should cover the mortgage, tax, and insurance.

Bottom line is, honestly you have to be careful who you take advice from. A lot of people will try to discourage you from investing or taking risks, and it's usually NOT because they are more well-informed than you. It's either because they are brainwashed into being terrified of debt, or they are jealous of the possibility of you making a ton of money and getting ahead of them in the world. It's sad but it's human nature - read a few books on human evolution and psychology. We are basically wired to try to hold everyone else back and just get a little bit ahead of the pack by any means necessary. When someone steps up, a lot of people in the crowd will try to pull them back. I'm sure you've encountered this in the office too, if you've been working a while.

*I am not a lawyer or financial advisor etc, obviously these are just my opinions and you need to make your own decisions.*

Any thoughts about my questions regarding old wiring in the attic?

To me this whole 'debt' concept of a mortgage on rental property is utter nonsense. If you are paying 500 for a mortgage, 400 for taxes insurance water etc, and renting it for 2000, you are not in some risky position to suddenly get f-ed. Lost your job? Uhhh who cares, you aren't paying the mortgage - the tenant is! You're still clearing 1100/month. Even after operational expenses you are cash flowing. You will actually be BETTER OFF than if you did not have the income property and lost your job because guess what - then you have 1100/month coming in vs zero.

I don't even care about appreciation I care about cash flow. Oh God, what happens if I buy a house for 300k and it drops to 200k? What am I going to do? How about not even give a damn because the rents don't drop in sync with the sales prices! In fact rents continued to rise strongly through this whole recession! If you are buying and holding then price fluctuations after you buy are largely irrelevant.

Most people don't have hundreds of thousands of dollars lying around to just scoop up a few properties without financing. And even if you do, you're leaving a big chunk of profit on the table. I'll make a simple example based on a property I am considering buying.

List price 100k, 2 family, rents for 1800, expenses 1200/month including ~400 for a 30 yr fixed mortgage in the low 4s. That's 600 profit a month.

Now, to finance, you'd need 25% down. That's 25k. Plus 4k closing costs. (I don't have to escrow and can count IRA funds for the 'reserve' they want to see. If your bank doesn't give you those options, get a better bank.)

So, you'll make 600 x 12 = 7200 profit yearly. That's a 25% return on your money. And that's before we even look at the mortgage interest deduction and depreciation! Please show me a better investment!

But if you bought it with cash, it becomes 1000 profit a month (since you're no longer paying the 400 mortgage payment) so it becomes 12000 profit yearly. That's only a 12% return on your 104k of cash. LESS THAN HALF COMPARED TO USING FINANCING, FOLKS. If you want to make less than half as much profit, be my guest I suppose... And you don't get the mortgage interest deduction...

If you had 100k cash, you could buy 3 of these properties with loans (29k for DP + CC each) and still have 13k left over to stick in your rainy day / sudden repairs fund. Then you would be making 600x3 = 1800 a month profit, which is 21,600/month, from 87k cash invested, which is again 25% return annually, before we even look at the mortgage interest and depreciation factors.

So do you want to make 12% or 25% for doing the exact same amount of work... 

I'm not a financial advisor, use your own best judgment.

Jeff, which banks were able to offer those terms?

How big of a deal is it when a house has updated electrical (breakers) but you find some knob and tube crap in the attic? How expensive is it to deal with this - or is it totally unnecessary if you only see a circuit breaker in the basement and no fusebox?

Talk to a lot of banks... 4s for a 5+ unit building seems highly unlikely because I believe you are forced to use commercial financing on properties with over 4 units (every bank, credit union, and broker I talked to confirmed this.) 

However there is a big spread in terms of interest rates AND closing costs so you need to shop around a lot. I got from 5s to low 4s for a residential loan on a 2family (non owner occupied) with about 1500 less in closing costs compared to most of the other banks I had spoken to.

MB is one lender to check with... I don't know if they do all states but definitely several.