All Forum Posts by: Nicholas Rado

@Keon Dickerson I'm also in that area (around Springfield) and looking to meet and make connections with other local investors.  I'm very new and looking for my first deal now so I certainly won't be the house flipping expert you are looking for but if you want to connect maybe we can chat and grow as investors together.

Troy I noticed you are a Pro Member.  You may not have realized but in the past month they added something called BP Insights to this site for Pro Members under the Education tab.  You can enter the area and compare to what real recently rented properties are going for in your area and they have some basic analysis for the area as well.  That's what I'm using to preliminary check rents, as you get closer to actually making the deal it's probably worth talking to a local Property Management company to get an even more accurate estimate.

My realtor sent me this off market deal.  It is a 4 unit multi family that is currently occupied with long-term tenants at $750 per unit.  I'm using a low down payment loan so I have to house hack it and occupy one of the units myself for the first year.  The loan shouldn't give me too high an interest rate because I have very good credit.  

My realtor thinks that it is in the 220k-230k range so I analyzed based on the high end of that, he also thinks rents could be increased to $800 but I don't want to scare off good long-term tenants so I probably wouldn't do that unless someone moves out.  I have limited info since I haven't seen it yet and there is no listing but it sounds like they are probably 2 bedroom units so I may be able to rent out a room in the unit I live in as well (didn't factor this in to the numbers at all).

I was kind of guessing on insurance so I went on what I expect to be the high end of what it may cost.  Also not sure if the repairs/maintenance budget is normally meant to cover regular maintenance like lawn care.  The only thing I changed for the analysis after I move out is increasing the rent because of the extra unit, not sure if there is anything else I should be changing.

To me it seems like a good deal.  Pretty much breaking even while I'm there and has good cashflow once I move out and rent the last unit.  While I'm living there I would pocket the PM fees and do the lawn care myself.  Also potential to be even better since I analyzed on the high end of purchase price and can potentially raise rents.

Analysis after I Move Out (Fully Rented)

Thank you in advance.

Hi @Phillip Mitchell, first off I just want to say that I am also an absolute newbie and just starting analyzing deals.  I looked at your analysis and a couple things came to mind, not sure how relevant they are since I'm just as green as you but I figured it'd be worth starting  conversation and maybe we can both learn a little from each other.

First thing I noticed is that you didn't include anything for Property Management.  Totally fine if you want manage yourself but when I'm analyzing I add it in because even if I manage myself now, I know that over the course of the 30 year mortgage I'm absolutely going to want to pay someone to do it.  That 10% management fee is going to eat up your entire cash-flow.

The next big thing is that you didn't include Mortgage Insurance, you will likely need to pay mortgage insurance if you plan on using that low of a down payment.  Calculating this is something I'm struggling with when analyzing my own deals so I can't help much there.  I also noticed that you didn't include water & sewer, totally fine if you are going to make your tenant pay but I've heard some areas won't let you charge your tenant for that utility so that could be worth checking in your area if you haven't already.   

Another thing is your closing costs, you say $4000 for CC but when I calculate 3% of your purchase price I get $4,140, its a small difference but it seems like you are also forgetting to add in cost of appraisal and inspection.  My loan officer gave me some general price ranges for appraisals and inspections and I've been adding about $1000 to my closing cost when analyzing deals to stay safe.

Lastly, in the comments you say that you don't plan on living there and will immediately rent it out.  I'm not sure if this changes by area but my loan officer said that if you don't plan on living at the property it is considered an investment and you cannot get a loan for less than 20% down.  If this also applies to your situation its not even a matter of is this a good deal its more like you might not be able to finance it anyway, unless you can afford the 20% down of course (I certainly can't for my first deal). 

Thanks for the replies everyone, some great advice here.  As I said earlier in the thread comments I reduced my 401k to 8% so that I'm still contributing a decent amount while I save for my first investment.

I actually got pre-approved for a loan recently and everything is looking good, the loan officer that I used is and investor as well and is saying that with my credit, income, and low spending I have a lot of options. I really won't be limited by my lender much at all, I'm pre-approved for a higher amount that I can afford a down payment for (when also considering closing cost, inspections etc...) even with doing FHA or a low down payment conventional loan.

I haven't gotten a credit card yet because I'm just starting to analyze properties and don't want to make any changes that would effect my pre-approval.  If I don't find anything that makes sense to jump on quickly (not that I really expect to) after a month or two I will get the card anyway because I really shouldn't keep using my debit for everyday purchases for too much longer.

@Filipe Pereira  I would love to talk about the area and possibly meet up, I just messaged you.  I've connected with a few other investors in the area through BiggerPockets and the realtor I'm in contact with and am trying to make as many connections as possible in the area.

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Thanks @Steve Vaughan, I appreciate the input.  

I just reduced my 401k at work to 8%. I didn't want to reduce it all the way down to the minimum yet because I'm going to wait to open the Roth account until I have reached my savings goal, which should take less than 12 months. After that I will likely reduce the 401k to 4% and contribute a high percentage to the a Roth IRA to take advantage how powerful the compounding interest is at my age, like you suggested.

Thanks for the tip on the store credit card.  I knew they were a bad idea for most people but I thought that maybe in this special case they might be useful.

Hello everyone, I am looking to get into REI and am taking a hard look at my financial and credit situation to set real goals that will help me purchase my first property. Although I haven't been analyzing my finances or budgeting at all I have been living below my means for a good while and I believe that I am in a relatively good place to start from. I'm going to explain my situation and ask a couple questions that I would love some insight on. I'd also like to mention that I am in Western Massachusetts and looking to get into the Springfield market if anyone is local and wants to reach out. I appreciate any and all feedback. The questions have been made very visible if you don't want to read the details and thought process.

About me, my income, and my savings.  I am 25 years old, unmarried with no kids, and have been working a steady job and have earned a few pay increases the past 2 1/2 years.  I actually just received another raise which bumped me up to around 52k annually (started at 37k).  During that time I have been able to put away around 17k into savings account while contributing 18% (+4% match) to my 401k.  Now that I am looking into investing I plan on reducing my 401k contribution significantly to increase my cash savings that can be used as a down payment. I recently started using Intuit Mint to analyze my fiances, I plan on making a budget to help save even more.  My goal is to have 20k to invest and to be safe I want an extra 5k to have a backup in case of unplanned costs due to inexperience in the buying process, having vacancy the first months, etc...

Question 1: Does it make sense to minimize my 401k contribution to nearly nothing to speed up my savings for REI?

Question 2: Does it make sense to take everything out of my 401k now to use it on REI considering I am likely in a lower tax bracket now than I will be when I retire?

Question 3: Does it make sense to move the money in my 401k account into a Roth IRA for the same reason as Q2?

So lets talk about credit, I've done as much research as I can and think I have a decent handle on the general concepts but have some questions about details.  First of all let me explain my current standing.  Years ago my parents gave me an "emergencies only" credit card to carry and unknowingly put my name on their account.  This card is rarely used, paid in full every month, and has years of credit history.  It is the only thing contributing to my credit but it gives me a credit score of 789 (reported by Intuit after submitting my taxes).  

While it is awesome that I have very good credit, any lender looking into it will see that it is from a single source where I am not every the primary account holder.  So I plan on getting a credit card, there is a whole bunch of available info online about first credit cards so I think I should be good.  I plan on applying for one that is below what is recommended for my credit range to minimize risk of getting rejected and needing multiple inquires into my credit.  I know in general store cards are not so good but I'm considering getting a Lowe's or Home Depot card so I can use points to buy materials for rehabs.  I also plan on doing a small personal loan purely to pay it off and build credit. I'm a bit concerned though because I have heard of people finishing their final payments on loans and it hurting their credit.  My goal is to diversify my credit while still keeping it above 750.

Question 4: Does the benefits of using points for rehab materials on a Lowe's/ Home Depot credit card outweigh the negatives of a store credit card (high interest, etc...)?

Question 5: Will completing a small person loan lower my credit more than it built over the course of the loan?

Almost done, I just have a few concerns about credit inquiries hurting my credit.  First of all I know that my credit is going to drop (at least temporarily) considering I'm starting from such a high point.  I'm hoping to minimize that drop and build it back up again to be stronger that it originally was because it is more diversified.  So if all is done right I will only need 3 credit inquiries: credit card, small personal loan, and pre-approval for property financing.  Now ideally I would get the credit card and loan first, use the card and pay off the loan, and the get pre-approved with my new stronger credit.  I have heard people say that your credit will temporarily drop a fixed amount after an inquiry but a second or third inquiry in the same month won't drop it any more.  If this is true it may make more since to get all 3 inquiries done in the same month.

Question 6: Will getting all credit inquiries done in the same month significantly lower the amount my credit drops?

Thanks for reading everyone, again I appreciate any feedback at all.  I know you are all very busy and it means a lot to me have this kind of access to advice from professionals.