All Forum Posts by: Nathan Emmert

Are you geographically mobile? To qualify as owner occupied, I believe you need to live there for 12 months? Get a HELOC against your current home and buy the new place as an FHA with 3.5% down... rent out the old place... in another year, time for a new FHA!

If you're looking for maximum leverage with cheap funds, that's a way to go about it...

Other than that, lower mortgage is always better... you could always take out a HELOC against your rental that you're paying for in cash if you wanted to sell your primary and had to go to the table with cash. Equity is equity.

Actually, I said the opposite way... if you're getting $3,000 a month out of a $135k property, that sounds very good (at a 50,000 foot level)... where I said you were getting fleeced was putting $100k down on a $135k property and getting charged 11% on the $35k note.

I'm still not sure I understand your financing situation.

Hard money on a buy and hold property tends to make cash flow pretty tough due to the higher interest rates. Why not try owner financing?

I'll disagree with Loc a little bit, though you do need more info.

I have looked into several multifamily homes and small apartment buildings in the past month. What I have found is occupancy rates and rents are almost always grossly over-stated. You need to understand the market and what rents the market will bare and ignore the data from the seller.

As for the valuation, you can try that approach. Generally speaking, if you can achieve 2% of purchase price for rent it is a VERY good investment. Some people simply target 1% as a solid investment. The 50% rule has solid backing for expenses so the math all adds up depending how motivated the seller is.

It's a shame you'd want to wholesale that property though, sounds like a nice cash flow opportunity, guess we all have different goals :) I just need to figure out where you find sellers like that!

I'm new to the game but everything I have read says avoid the big banks like the plague... Chase, Wells Fargo, BoA, etc...

Talk to your local banks if there are any left back in ND (I know there was one in Mandan when I was growing up) and local credit unions. They tend to keep more homes in house and don't worry as much about being able to resell the deals, they can get more creative with their financing.

For me, I was told I can't get conventional funding for an NOO because of a short sale 18 months ago (didn't stop me from getting my primary residence though, go figure!)... but in talking to local Credit Unions, it's not a problem as long as my credit score is still within thresholds. They just play by different rules.

Why would you sell the first property if you had no equity in it? You've already "given" the equity to the bank as collateral on the next loan. I'm guessing the sale of the property would trigger a call clause on the bigger mortgage and you'd end up passing all the proceeds on to the bank after you pay a realtor's fee, taxes, etc... not a great deal for you.

In real estate, you have two choices... grow slowly but constantly saving up capital and making 25% down payments to purchase performing properties... or add value either through rehab or management to distressed properties which allows you to develop equity. The property may only be worth $100k but if you could get the occupancy from 40% up to 90%, if you could do the deferred maintenance that was dropping rents to $300 a month instead of $550 a month, the building is obviously "worth" substantially more growing your capital base.

Not sure where to start with this...

I'm assuming Desert Hot Springs is in CA based on your location?

If the other 5 units are renting at $460 a month, why do you believe the current owner will pay you $700 a month?

As for HUD, it's not for the faint of heart from what I have read. No experience to advise you on requirements though.

Why put down $100k cash on a $135k property? Worse, why finance $35k with him at 11%? With 25% down on a commercial loan I'm guessing you'd be in about the 6's on a full term amortization loan. Is your credit shot? You're getting a terrible deal in terms of financing.

That said, at $135k... if you can achieve $3,000 a month, you got a great deal unless the property taxes are an absolute killer.

For rent... figure 50% in expenses (including insurance, property tax, and property management).

@ 3,000/mo * 50% = $1,500/mo * 12 mo/yr = $18,000 NOI

From that, subtract your "mortgage payment" to get your cash flow for the year.

Divide your cash flow by your investment ($100k) to get your Cash on Cash return.

To me, that's one of the most important numbers to optimize as I am looking to maximize the return on my resources. Yours could have been better with stronger financing terms but should be just fine going this way... $18,000 - $3,850 = $14,150 => 14.2% cash on cash return... better than the stock market but worse than most RE investors are striving for.

One quick note, I believe you're referencing the 2% rule, not the 50%...

The "50% rule" is simply that you can expect 50% of rent to go towards expenses...

The 2% rule says to target properties where you can get monthly rent equal to 2% of the purchase price. This is to try to achieve $100 a door in cash flow (after the 50% rule).

What are your goals? Who are you buying through?

For example, through homepath, an investor can buy a SFH house for 10% down but a Duplex requires 20% (tri and quad are 25%)...

In that case, the SFH would give a better cash on cash return because it only requires half the down payment and returns more than 50% of the duplex's cash.

If both require the same down payment, you generally want to maximize your cash flow so the Duplex would be better. Of course you now have to deal with more tenants... but that also helps diversify risk a bit.

Last thing to consider is SFH tend to appreciate faster than MFH. Are house prices going to take off in your area? Are you looking to cash out in 5 or 10 years or hold forever? Your exit strategy can change how you approach it.

For me, I'm seeking passive long term income. I'd go Duplex.

How do banks appraise MFHs? I have heard conflicting responses... some believe it's the same as SFH (comparable sales), others say it's more like a stock ("value" is NPV of future returns).

Anyone actually know because they've had an appraisal done for a purchase or refi?

I can evaluate whether I'm getting a good deal based on cash on cash returns, but I'd also like to at least have the pulse of what the equity position could look like. Thanks!

At present I don't!

I started reading as I am interested in purchasing MFH with a buy and hold rental strategy. I started viewing properties over the past week and hope to have something closed by the end of the year.

Too many things still kicking around in my head (the curse of ADHD) so we will see how things progress. Buy and hold is capital intensive unless I can find some very motivated sellers to get creative financing with. Of course that takes time and energy!