All Forum Posts by: Orlando Goodon

I'm afraid that tons of low rent nearby is going to risk me getting low rental appraisal on 4 family FHA loan. The street the house is on, is DRASTICALLY different than 98% of the area, so the market is complex.

I found the most amazing deal ever. Beautiful home with amazing views. Great area and everybody is so friendly there too. Area is surging right now due to a lot of people coming in and buying property cheap and renovating. Case in point, house I'm trying to buy was asking $200k more than last year's sale price!

Here is the deal. The street the house is on is one of the two most desirable streets in the area and 98% of the area is completely different. 3 blocks away you have vacant and sketchy and crime. Where the house is, you have low crime, beautify tree lined streets and views of mountain/river. Also there is only a hand full of rentals there, any unit for rent on these streets would be RARE to find and the only one available and that will be available for some time. The area in general has people on waiting lists (not just good area) and most units seem to rent in 2 weeks (which tells me the rents are even too low in bad area. I think finding a good tenant should take at least a month if prices right).

So you have almost NO data on the prime real estate area and tons of data in sketchy areas, which means an appraiser needs to extrapolate theoretical values. Now there is SOME data, but it's slim pickings and there is only one example in MLS. Most people are renting on Facebook or some private site. There are are probably 6 listings that are at the price I need, including the top unit in the house has a new lease at a price that works, but that data needs to come from local property management, home owners or real estate agencies.

So if the appraiser just runs MLS search, they will come in $200-$300 under what I need for self sufficiency test, based on the noise of the sketchy parts of town, dominating the data. The only way to properly appraise an area with barely any rental data at all and very few units, it to be aggressive in finding what little data there is, which means going beyond MLS and speaking to real estate companies and property management that DO have rental data not seen on MLS. Then you need to extrapolate from that, because even thier data will not give full picture as the market is moving very quickly. Transitioning from people who bought over 5 years ago with tiny mortgages, to new buyers who will pay twice as much.

I don't think appraiser will do this however. I think they will just look at MLS. The one good thing going is that one unit in the house that is ALREADY at a price it needs to be, in defiance of what MLS says. However, that unit looks amazing post renovation. The rest are not renovated, so they might take off a couple hundred for the other units, claiming they are not as nice even though I'm renovating them all.

If I do a renovation loan, will they appraise rents based on renovation value?

Yes, this will be an owner occupy. Issue with Home Possible is my income is well over $100k. I heard there is a VERY low salary cap. I even thought about buying with a family member who has lower income. Only problem is they would not have any money, so not sure how that works. Person applying has income within range, but no money to put down. I would be a co-buyer putting all the money down. Primary buyer might have DTI issues as well. Then once we buy it, I could later 'buy' them out. Pay like $5k to take over the loan.

I don't know what to do here. Bank robbery is ruled out because of prison food concerns. Actually, let me now assume. I'll contact the local prison and get a meal plan from them and see what my risks are.

I found an AMAZING house with amazing views and 4 units, but the rents in the area are too low. On the bad side of town, similar units go for up to $1700. The house is in the best part of the area. Great quiet tree lined streets. Existing leases are around $1700, so below market. I think they should be $2000+, but I just failed self sufficiency test with another property so I'm pessimistic. So I add $100 to the top rents in bad part of town for $1800 expected appraisal. That means we fail the test by $1700.

I'm going to lose this deal until I can figure out financing. I'd need $60k reduction on price and 3% interest rate to MAYBE pass with 3.5% down. That is a stretch. What are my alternatives?

I need a loan that does not require self sufficiency or even one with a 15% vacancy factor for self sufficiency. In this house, all units have rented in 2 week EVERY time, due to LOW inventory and the views and best area in town. 25% vacancy is ridiculous. All I could find as alterative is Home Possible Freddie Mac, I think has 5% down with no test.

How can I get financing on a 4 family were rents are low with 5% down? MAYBE 10%, down but that is MAX I can do.

Quote from @Alex Alleva:

Hi Orlando Im also a mamaroneck landlord. How big is the unit, bedroom, baths? That will dictate how m much you can get for rent. Either way I think you will have it rented in a month. I just rented a small 2 bedroom for $2050. No laundry and street parking only. Are you listing it yourself or going through a agent?  

 Not sure how I will list it yet. I want to get maximum price so I'd need to be aggressive on marketing. So probably go with agent and promote it myself as well.

Quote from @Alex Alleva:

Hi Orlando Im also a mamaroneck landlord. How big is the unit, bedroom, baths? That will dictate how m much you can get for rent. Either way I think you will have it rented in a month. I just rented a small 2 bedroom for $2050. No laundry and street parking only. Are you listing it yourself or going through a agent?  

 It's a 2 bedroom, maybe 900sqft. 

Why did you rent yours so low? Right now 95% of the listings in Mamoraneck are over $2700. Even section 8 is about $2400 in Mamoraneck.

I need my units to appraise for $2600 or the FHA loan will be denied based on self sufficiency. If you are renting for so low, then I'd expect you can find tenant really fast like you would in any area.

Buying a home soon and looking to rent 1st floor with washer drier and full unfinished basement & garage parking with outdoor patio area. I'd like to try getting $2900. Is that too much? How long will this sit on the market looking for a high quality tenant? I'm willing to wait up to 3 months if that is what it takes to get the most rent, because I got screwed by last owner. Locked me into a 4 year lease for $1900 with one unit. So I'm going to be losing money until that lease expires and I can increase rent to market rates.

Quote from @Lucas Miles:

@Orlando Goodon biggest things I have learned after getting into multifamily, make sure you do quality inspections, especially of expensive items, roof, siding, heating source, sewer inspections, etc. Do everything you can to minimize unexpected surprises, if you find something major you might be able to ask for a seller credit to cover any major issues found. Finding and funding the deal is definitely just the beginning of the battle. Operating and running the project, especially in the first couple years can be challenging. For my first couple deals I didn't budget nearly enough for how much rehab would cost, unless your property is in very good condition the first couple tenant turnovers will cost a minimum of a few thousand $ per apartment. Then there will always be the unknown things that pop up. Dealing with inherited tenants is always interesting, do what you can to learn from the seller on good/challenging tenants. 

Finding a good quality handyman that you can trust is absolutely critical unless you plan on doing everything yourself. I still manage a couple of my properties, takes a lot of time creating systems up front, learning how to be a good manager, etc, but not terrible once you have your systems in place. 

Thanks for the tips! I'm actually starting first contract! Inspection was great! New everything...almost. Now trying to decide if ARM is way to go. I expect to pay down full loan in about 15 years, cutting the loan term in half with extra payment.

So, your tenant comment was right on! I kept asking about leases and they would not say, then they spring a YEARS long lease on me below market. Lesson learned. Lease terms MUST be disclosed right away. No exceptions. That was unacceptable. 

I'm about to close on my first multi family. Thinking about self managing. The deal is multiple houses on the same lot spanning multiple acres. Landscaping will be fun!

Please your expectations prior to closing, then any contrast with what you expected, that occurred in the first year.  What was it like for the first few months with your new multi family? What were you wrong about? What caught you off guard? Was is more challenge actually finding a good deal and figuring out financing and it was pretty smooth after or the other way around?

What would you change if you could go back in time to before you closed? How much work has self managing been? 

Thanks in advance.

Looking at this deal and wondering if long term it would be as profitable as I think, to BUILD a second multifamily on the excess land? So house selling for $1M in OK condition making it the 5th (of 20 total listed) most expensive house on the market there. Prices hit $3-4M within 5 minutes drive. Based on that, I wonder how hard would it be to build possibly a $1.3M+ home that I can either sell or rent out? I don't so care about that number, what I'm seeking is profit margin possible. What would it cost to build a 4 unit property, that has a luxury feel to it, but done with value in mind? Target would be middle income professional couples/families to upper middle class.

If that property would be worth $1.3M, but would it cost to build it (after construction prices return to normal)? I see profit margins have been as high as 30% for "builders". That would mean it would cost me $910k to build a $1.3M property. That means, I'd make $390k on my investment if I did not somehow screw up royally on some calculation. Maybe this is why people tend to do fixer upper, like that $370k house I see selling for over a million a couple years later. To build that house from scratch if 30% margin would mean $710k invested to make $310k, but that house was BOUGHT for $400k, then renovated for I'm sure MUCH less than $710k and now listed at a million. So that is that? $400k-$600k in profit? Sure my estimations are WAY off. I'm in the commodities world, so everything I've seen follows a basic principal. More risk, more reward. Doubling your money MUST come with MASSIVE risks. That just seems to be how it works. One thing I see for a builder already is a $700k loan would be a massive monthly payment on a massive liability (a hole in the ground, that is generating nothing more than NOISE and EXPENSES). So the risk comes from the journey to project completion. Where would you find the $4k-$6k(?) a month to cover that construction loan for year? I guess a partnership is required. 3 guys paying $2k/month for a 3rd of the profits from sale or rental income. Maybe two people that have an $3k/month to spend to fund this? However, now you have lowered the risk...which means, less profit. The most money comes from the riskiest preposition of going it alone and risking running out of money and defaulting, but if you pull it off, MAJOR payday at the end, but that is a rich man's game.

Price: $1M

Deal: MASSIVE 4 unit on 2 acres in OK condition, an hour drive from a major city, surrounded by woods, minutes from river, supermarket/bank/shopping across the street, private (limited visibility from street

Area: Less than 5 units available for rent now, county report almost non-existent vacancies

Market: I see a 2 bedroom listed at near $3k, without massive yard without 7+ rooms like the deal I'm looking at

Layout: 3+ bedrooms in each unit with massive storage options and 4-7 rooms each, huge yard surrounded by woods

NOTE: Owner has had property for at least 15-20 years, so the rents are likely legacy rates based on the tiny(relative to current value) mortgage size from when home was originally bought. 

So I love the deal as is:

PROS:

I'd love to live there (will be owner occupy). Nature. Green. Hiking. River. Multiple covered outdoor spaces. Private Quiet. I think rents are almost $1k under market for an area with no inventory and nearly $3k for a TWO bedroom. Rents are currently $2k with 5-6 year tenants. Possible huge opportunity to expand portfolio by building.

CONS:

$30k taxes!!! $11K fuel? (who pays this?). 2 of the 4 units are occupied with LOW rents. Filling the 2 vacant units leaves me net negative over $1000.

NOTE: There might be a law/regulation that allows me to pick any of the units for my occupancy. Meaning, although there are 2 vacant units (and this fact might legally kill this strategy), since I'm the owner and it's a loan requiring me to live there, I might have the right to pick whatever unit I want to live in, with only limitation being the lease term. Some once lease is done, I can evict or not renew the unit paying least rent. Now I can get $9k gross.

Quote from @Kathy Utiss:

Kinda confused where you get such numbers. Or how buyer is doing financing. Being a quad it qualifies for FHA financing. Usually is 3.5% down. $900,000 x 3.5% is only $31,500. According to this

Generally, the most you can borrow with an FHA loan is $420,680. That applies to single–family homes, with limits increasing for 2–, 3–, and 4–unit properties and in higher–cost counties. The maximum FHA loan amount for a 1–unit property in a high–cost area is $970,800. And for a 4–unit home, it's nearly $2 million. Dec 8, 2021

Is this anything they've considered? 

You can do FHA up to I think $1.8M in certain areas. You would have to pay $31K down, close to that for closing plus you need 3 months reserves. Depending on taxes, that could mean $20k-$30k in reserves is required and although that is money you keep as the banks like to tell you for some odd reason, it's still money you need to come up with. If you only have money for closing and downpayment, it's irrelevant that reserves are kept by you as you don't have enough for reserves which means no loan.

What I was looking for is how do you think the seller looks at this? I feel they would be accommodating. Now is not the time to be sitting on a big quadplex that you invested a ton in, while interest rates rise. If I were the seller I would look at this like musical chairs. They have been going round and round with big dreams for big payday, but the music is starting to die. Don't want to get caught sitting on this property at a time when the market dries up, knowing some of these houses can take well over a year to sell. However, I'm the new guy here...so wanted to hear what others thought.