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All Forum Posts by: Mike Rubino

Mike Rubino has started 3 posts and replied 15 times.

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0

Jon, Yoshio, everyone who has contributed to this thread, thank you all for your input and time. I still have a lot of learning to do, and you all have helped me greatly.

Jon, thank you again for the in depth analysis! I will be speaking to lenders and brokers shortly to see what kind of loan I am able to acquire. I will keep you all posted.

Happy Holidays to all of you.

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0
Originally posted by Jon Holdman:
Lets be generous and assume you can buy such a building for $800,000, and that you can get a 30 year 7% loan. I know rates are 5.5% but that's for the best borrowers with conforming loans and 20% down. Lets also assume 40% for expenses rather than 50% because you're going to be right there to work on anything, show a vacancy, etc. Further, you'll have one tenant who will never be a bit of trouble although they will never pay a dime in rent -- you!

Scheduled rent: $7200/month
Expenses: $2880/month
Lost rent: $1800/month (your unit)
NOI: $2520/month
Payment: $5322 assuming 100% financing
Cash flow: -$2800/month

So, you're going be forking out $2800 a month in "rent" while you hope for the place to appreciate. You're paying an extra $1000/month over what it would cost you to just rent a place.

Now, lets put 10% down, plus closing costs (about 2%) and loan origination fee (1% typically, though could be more for a loan like this.)

Total cash invested: $103,200
Cash flow: -$2270/month
Cash flow: -$27,200/year

So, you're investing $103,200 and losing $27,200 a year. Yes, there will be some tax benefits. But if you can cover that $2800/month loss, I'd guess your income is pretty good, and you may not be able to take those benefits. The rent income would be tax free, but you don't pay taxes on actual losses in any case. So, the passive loss would only be able to be used to offset other income if your AGI, not including this loss, is under $150K. If your income is under $150K, you're not getting this loan.

Keep in mind, too, that when you sell real estate, the costs each up at least 8% of the sales price. So, if you put 10% down, plus those other costs, and end up selling in three years for the same price, you'll pay $64,000 in closing costs. That will net you $736K. You'll have to pay off a $720K loan, leaving you $16K.

If the property depreciates more than 2%, you'll have to bring more money to the table to sell. If the property depreciates 20%, which is entirely possible in my mind, it will be worth $640K. It will cost you $51K to sell, netting you $589K. But you still owe $720K. So, you have to bring $131K to the closing table.

Thats a grand total of $213K in total losses.

Jon, thank you for taking the time to run through these numbers with me. I would have never known how to break down the expeses of owning a building like this.

I'm Assuming that the expenses category is including things like property taxes, insurance, maintenance, pest control....am I missing anything important here?

Once the numbers are broken down it seems that to make this pllan of mine work, I will need to find a 4 unit at a price around $400-500K (assuming the same rents) to make this work.

Also, regarding max conforming loan,(let me see if I have this right) for 2009, the max amount I would hypothetically be able to borrow is $720K, assuming that i have great credit (which i do, btw) and a large downpayment. Just exactly how substantial of a downpayment is needed for a loan of this size? You mentioned in the neighborhood of 20%. It is completely irrational to hope for a loan of that size for a borrower with pristine credit, good job, and say, 10% or less?

Again, thank you for all of your time and responses.

/Mike

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0
Originally posted by Jon Holdman:
I'm sorry but why in the world would you want such a building? Are rents really $3500/unit/month? That's what you need for this to be a break even deal. At that price you're going to be hard pressed to get any loan, let alone one that will only need 10% down. Prices in SoCal could easily fall another 20% before we're done. Even more for high priced properties such as these.


Jon, thank you for the reply, and let me state the obvious once more for record: I am very new to this. :)

No, rents are not that high. Probobly would be looking at around $1800/unit/month



My hopes/ideas were to gain experience with managing properties while having a unit to live in that with be mostly covered by my renters, a well as the associated tax breaks.

Like others have posted in here, it is possible to get 85-90% financing, but at what point is the loan amount unrealistic?

Also, at what point does a "negative" cashflow become a bad thing?

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0
Originally posted by Michael Rogers:
Mike,

One of my first properties was a nicer duplex. I lived in one side and rented the other. It was in a part of town that I liked and I have always been able to get good quality tenants in it. I never had any problems. On a duplex that you are occupying, you should be able to get at least 85% to 89% financing at your local bank. Especially, if you have good credit and $30k for a down payment.

I also don't recommend going in 50/50 with anyone. In most partnerships it's best if only one partner is the chief and the rest are the indians. 50/50 creates two chiefs. This will save you lots of arguments with your dad. You could probably go at it alone on a duplex.

Best of luck.

Mike, thank you for your response, I really appreciate all of the input.

I agree with you that it would be ideal to not have to partner up with anyone for the purchase. However, I just do not have the kind of money to put down a 10% down payment.

I am looking for a 4 unit buliding, which in So Cal is probobly going to run 800K- 1M. Is there any way to to aquire a property like this for under 10% up front?

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0

I really appreciate all of the input! There is some great advice in here. Any other thoughts?

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0

sorry to bump an old thread, but I am looking to purchase a 4 unit in the South bay somewhere.

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0
Originally posted by Ned Carey:
Either option is good, just get in the game.

I like the idea of the 4 unit better. Being an owner occupant of a four unit you can get better financing. You can always buy you own SFH later.

While a SFH is nice and can be a good investment. Buying a 4 unit really puts you in the investing game. You will learn about tenants and what it takes to manage rental properties. You won't get that experience from owning you own single family home.


Thank you for the response Ned.

I was thinking along similar lines. I am still young and would like to learn as much as possible REI, and PM. I see this as a way to gain experience, have a place to live, and most of all, to make some money.

I agree that a SFH is something that I will hopefully be able to purchase later on,but right now I believe the 4 unit will be a good way to get started.

Any other thoughts?

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0

bump. Anymore suggestions?

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0

thank you for the input.

I have to agree that keeping things simple is usually the bast plan, although there is a part of me that wants to get started in PM.

Any other thoughts?

Post: My first RE purchase...opinions?

Mike RubinoPosted
  • Los Angeles, CA
  • Posts 16
  • Votes 0

Im fairly new to these forums and very new to the world of real estate. I am 25 years old and currently saving for my first real estate purchase.

My question is, which do you see as a better way to get stated in investing?

Option 1: Buy a 3-4 unit building, live in 1 unit, rent the other 2 or 3.

This option would mean investing with my father who is also interested in investing. The costs would be split 50/50. and he would be, more or less the "silent partner" leaving the property managment to me ( which I am perfectly ok with).

Option 2: Buy a single Family home for my first purchase, forget renting any properties, and forget investing with dad, for the time being.

I currently saving and will be looking to invest around 30K at the time of down payment (60K for downpayment if I go in on the rentals with my dad. 30 from him and 30 from me.)

Any thoughts?

and by the way if I do decide on option 1, is it likely I will I need a 20% down payment on the property becaue I will be renting some of the units?

Thanks in advance.

//Mike