All Forum Posts by: Aaron Montague

@Don Nguyen

A good practice to get into is creating and cultivating relationships with various lenders.  I have a running spreadsheet for exactly the products discussed here, 2-4 unit residential loans. Each month I make 20-40 calls to see where the various lenders are with these products.  They vary wildly.  This year we've purchased 3 places, ended up using the same lender on each, and got rates of 5.5 (April), 3.0 (Sept) and 3.5 (Nov).

These lenders are crazy busy right now and I've found them more willing than normal to quote rates fast :)

@Ben Cohen

"Another thing is that the offer I gave is significantly lower than the value of the house, close to 1.4M or 1.425M. Would that be helpful in allowing me to refinance to a conventional loan more quickly? Is this correct: I'd be putting down 44.8k, then there would be an automatic "appreciation" (not sure what the term here is) of 1.4M-1.28M = 120k, so my equity in the property would start off at (44.8k+120k) = 164.8k, so that is 164.8k/1.235M = 13.35." 

So I could potentially refinance to a conventional mortgage after a year or so given that I'd be paying off part of the mortgage + annual appreciation, and that way I'd get rid of the FHA PMI? Is that right?

-Maybe. The only thing that matters to the bank is the appraisal number. Your PMI can be refinanced away once you hit 20% as a general rule. That doesn't mean you couldn't sell if for more than it appraises for :)

Hi @Courtney Stevens. Welcome to BP :)

This is a good market for everyone right now.  My company is actively buying in the area you are talking about and I would love to have another caring landlord bringing up property values for everyone.

Open realtor.com and search multis with 3+ bathrooms within 5 miles of Rochester NH.  Most of them are going to be good or better grade house hacks.  The towns I'd focus on are Somersworth, Rochester and Farmington.

If you find a place that looks promising, post it to the forums and we can help dissect the details.

@Ben Cohen

Now these numbers are starting to look like a rental property :)

That, and I realized your method of calculating Cap Ex is MUCH simpler than the one I've been using for 15 years, thanks for that!

Vacancy - Did you have this in there somewhere?

Remember this is a house hack.  So the goal is to lower your monthly payment in the near term.  If you are currently living for free, this probably isn't the world's greatest choice.  If you are paying 2k in rent now, this is a bit of a loser until you can bring these rents up as you are going to be out 80k and have not dropped your monthly payment at all.  Once the rents start going up you are going to see the benefits of the purchase.

To your direct questions:

How much do those(shoveling) run generally? Is it possible for one of the tenants to shovel the snow in exchange for lower rent? It depends on how much it snows.  We pay between $20 and $50 for a plow depending on the size of our driveways. You can certainly trade rent for shoveling though you are going to have REALLY unhappy tenants if their cars are still snowed in, now matter the reason.  Essentially you need to make sure it gets done.

 Question: Where would I factor in things like: touch ups in between tenants, flooring, plumbing, remodeling a bathroom/kitchen if I want to raise the rents between tenants?

In my mind a remodel is Cap Ex, touch up is a repair.  The exact definition is less important than having enough money around to do the task when necessary.  If you foresee 4 new bathrooms in the next 5 years, start putting aside money now.  Same with the kitchens.  Paint is always helpful for getting places rented though it generally does not need to be done every year.

Your loan: Have you shopped around to see if anyone will give you this loan with 5% down on a conventional mortgage? I did verify that an FHA loan actually goes this high in Kings Country, NY: $1,472,550 :) Besides saving you the FHA fee of $1000+ per month I think you can actually put slightly less down.

5% of your purchase price is 64k.  Add another 8k, though I'm not sure why it would be that much, and we are only at 72k for cash out at closing.  I think Bank of America has a 5% jumbo loan, maybe :)

Food for thought.

@Faith Gracia

I'll echo the "house hack" as your first place.  The goal for a house hack is to REDUCE your current monthly payment so you have more money to invest in other real estate ventures.

Given your geographic requests, I found a couple of possible house hacks for you:

https://www.realtor.com/reales... With this place full of renters and roommates you should be making a few hundred dollars per month to live there. The cash flow as a rental will be okay once you move out. Appreciation will most likely be your best value add here.  There is also the possibility of condo conversion down the line a ways. For sale and Available as of 330pm on 11/14/20.

https://www.realtor.com/reales... Unfortunately "contingent" as of 330pm on 11/14/20. Watch this one if it comes back to the market.

https://www.realtor.com/reales... Salem MA.  Cool place to live, at least one of the apartments is really nice. The 2/1 apartment should rent for $2000/month after some paint.  Throw in a couple roommates at $1000 or $1100 per room in the nicer apartment and you have a successful house hack in a fun town. For sale and Available as of 330pm on 11/14/20.

If you want to chat about any specifics, hit me up.  Good luck in your ventures!

@Ben Cohen

For a place this large I would budget at least $250/month.  I recommend you do some in depth research on the exact items you'll need to replace over the next 30 years.  Now if you don't plan on owning it that long, change your math :)

Your furnace number is WAY off :) Minimally I would guess that should be 7k in NYC.  We generally pay 5500-6000 for a brand new oil furnace up here in New England.  A basic water heater for a 3 bed, 2 bath home runs us 8-900.  You are going to need a larger one which will be more expensive at baseline.  Plus you need to remember there is a huge labor cost involved with all of these plumbing items.

If you put away at least $250/month you'll be happy when you need the money.  And if you have a nice pile in the account when you sell the place, all the better!

• We need sales people. We'll give you 10% equity in the deal if you can bring us 100% of the money. There are 2% equity slices available for 20% slices of the money as well. Selling to yourself is fine. You keep the equity for as long as M and A is involved with the deal, not as long as you work for us.
• If you have the hustle to wholesale, this is the type of job for you! We provide the deals and you sell them to your network.  Each deal has a corporate entity associated with it that you'll own a portion of for the duration of the deal. As an equity partner you will benefit from cash flow, appreciation, and depreciation.
• PM me or post if you are interested in talking further.

@Ben Cohen have you thought about looking at a conventional loan with 5% down? That should drop your closing costs by a fair amount. Starting calling around and see if anyone is doing "jumbo" mortgages with 5% down, conventional financing. FHA is a great tool, though only if you REALLY need it. Your closing costs might go down with a conventional mortgage.

A new water heater in greater NYC is going to cost you $1000.  That leaves you with 4k for a roof.  Is the roof small?  4k generally doesn't get too many roofs done unless you are doing the work yourself.  I'd budget at least 9k.

You need to account for both vacancy, repairs and Cap Ex(that roof again) to make these numbers make sense long term. 

Vacancy in NYC should be less than 5%.  

Repairs and operations accounts for the small fixes and ongoing expenses like snow removal.  Plowing in NYC is not cheap.  Nor is the labor to shovel out 4 parking spots each time it snows.

Cap Ex is the big expense you are missing.  Remember that over the next 30 years you are going to need:

• At least one more roof (10-12k)
• 2 Water Heaters (I assume this based on the fact that you pay a large gas bill) This is 8 water heaters if they are separate
• 4 parking spots and a driveway repaved
• At least 1 new furnace (again, assuming there is only 1 for the whole building)
• 8 Stoves/Ovens
• 8 Dishwashers?
• 8 Refrigerators

Add the costs of all that up and divide by 360.  That'll give you the amount you want to save each month to make these large scale replacements.

@Cory Benhardt

If your HOA has specific requirements for capital reserves, it should be spelled out in your contract. The money you are putting aside from "repairs" and "cap ex" should cover any reserve accounts.

The other big item you want to check is the financial health of the HOA. Your fee seems low to me, though I know nothing about the complex. Any money you are making could be wiped away if this is the type of HOA that using bonds or special assessments to redo everything and anything. You have some room in your monthly numbers but a 3 year, $350/month special assessment will kill your ROI. If the HOA is in good financial health this shouldn't be an issue.

@Cory Benhardt

Where did you get $20/month for management?  Professional management companies are going to want 8-10% of collected rents.  If you plan on self managing I recommend that you budget 10% so your accounting gets used to seeing that money go out the door each month.  If you don't do this, you lock yourself into self managing the property or being forced to sell if you want to move.

Everything else looks good.  You might even get a slightly lower rate than that if you shop around a bit.

Happy buying!