All Forum Posts by: Phillip Dixon

Quote from @Randall Alan:

Quote from @Phillip Dixon:

Hello!

My wife and I are just working on building up some equity. We have a little bit of a suicide-run plan to try to buy a multi-family, and looking for a reality-check if we're going to hard, or perhaps into something that isn't possible for us. I totally welcome all opinions, positive or negative!

On the north shore of MA, we currently own a ~1500 Sqft Condo with about $70k of equity, but the value of our home has increased from about $500k to $630k via local comps & my realtor's estimate.

We are looking to purchase a multi-family local to us. The numbers seem to be in our favor, as well as some changes to local zoning. The home is listed at $720k, but we think we could get in at $680k. There are two units, currently TAW- rented below market value. The units are in tough shape and we'd like to finance additional money for reno & an ADU addition- I assume that we could refresh the interior and convert the attached garage space (200sqft) into a 350-400sqft rent-controlled ADU. I am pretty well locally connected and am not overly concerned about permitting/zoning.

Once complete- even with zero down I estimate- $5092 monthly mortgage (including financed rehab). Both units would potentially rent for 2600/unit. The ADU would additionally add $1500 (set by local ordinance) of potential rental income. Totaling $6738 monthly rent collected. Even budgeting for $1600 of monthly expenses (including vacancy and repairs) we still end up in the clear.

-We aren't overly concerned about turning a huge profit. I figure, in time, as rent increases & we are able to refinance, our profit margin will grow.

-Average yearly increase in property value of a little over 6% makes this feel like a small risk as we could cash out.

-We have just enough income to float the second mortgage in case hell lets loose. Renting our current home in an emergency scenario would help too.

-We have some cash on hand, but I'd prefer to hold it as it's our emergency fund.

Am I insane? If not, would a lender ever agree to do this with me? There is risk there, but plenty of escape plans.

@Phillip Dixon

As soon as you say your next purchase is "not my primary house" - most every (typical) lender is going to say "You need 20-25% down to make this purchase happen." They want investors to have 'skin in the game'. They won't be left holding the bag if your investment fails. So I see the "zero down payment" line in your chart as a non-starter. There is more to these calculations, like your income as to qualifying for the loan for one -but a better approach might be to buy the house as a new personal house of your own - even if it meant selling your current house. It would definitely lower your down payment requirement for starters. Then you could renovate one side while living in the other, and make the ADU addition as well. After six months or so, you could move out of your Current house, buy a new house, and then rent out the remaining units in your rental. The selling your old house isn't so much required - but might make it easier as far as qualifying goes. Also, I would want to know that your ADU will definitely happen - otherwise your numbers would really stink as to profit versus expense. I'm not a fan of a deal where you are potentially upside down if you can't get through all the changes required (ie. adding the ADU). Like, what if you run out of money, or it takes a year to get through permitting, etc. Now you are carrying the house upside down for an extended period of time. Could get ugly. We had 6 months of setbacks when we went to update windows in a 1925 house. Had to bring the house to 2022 building code for everything we were changing. Cost us $50,000 we weren't expecting. We still came out ahead because our deal had plenty of profit in it, but it was definitely disappointing and frustrating. We missed the peak of the market to sell (as a flip) and ended up making it into a rental. Food for thought!

All the best!

Randy

Thank you so much for this Randy! These are excellent thoughts! I know financing could be tricky, we'll see what that hits! You've also convinced me that I'd like to add some ADU permitting contingencies to a potential offer. Even if it took us a year to float- I think we'd be okay. Its so hard to break into this when you don't have a bunch of cash to put down!

 Apologies- I know it's a lot of info. I'm just hoping to get the best advice possible.

Spark notes version- with minimal money down, would I be able to secure a loan + reno funds? Post reno- the property would have some decent cash flow increasing over time in our hot real estate market.

Hello!

My wife and I are just working on building up some equity. We have a little bit of a suicide-run plan to try to buy a multi-family, and looking for a reality-check if we're going to hard, or perhaps into something that isn't possible for us. I totally welcome all opinions, positive or negative!

On the north shore of MA, we currently own a ~1500 Sqft Condo with about $70k of equity, but the value of our home has increased from about $500k to $630k via local comps & my realtor's estimate.

We are looking to purchase a multi-family local to us. The numbers seem to be in our favor, as well as some changes to local zoning. The home is listed at $720k, but we think we could get in at $680k. There are two units, currently TAW- rented below market value. The units are in tough shape and we'd like to finance additional money for reno & an ADU addition- I assume that we could refresh the interior and convert the attached garage space (200sqft) into a 350-400sqft rent-controlled ADU. I am pretty well locally connected and am not overly concerned about permitting/zoning.

Once complete- even with zero down I estimate- $5092 monthly mortgage (including financed rehab). Both units would potentially rent for 2600/unit. The ADU would additionally add $1500 (set by local ordinance) of potential rental income. Totaling $6738 monthly rent collected. Even budgeting for $1600 of monthly expenses (including vacancy and repairs) we still end up in the clear.

-We aren't overly concerned about turning a huge profit. I figure, in time, as rent increases & we are able to refinance, our profit margin will grow.

-Average yearly increase in property value of a little over 6% makes this feel like a small risk as we could cash out.

-We have just enough income to float the second mortgage in case hell lets loose. Renting our current home in an emergency scenario would help too.

-We have some cash on hand, but I'd prefer to hold it as it's our emergency fund.

Am I insane? If not, would a lender ever agree to do this with me? There is risk there, but plenty of escape plans.

Hello!

My wife and I are just working on building up some equity. We have a little bit of a suicide-run plan to try to buy a multi-family, and looking for a reality-check if we're going to hard, or perhaps into something that isn't possible for us. I totally welcome all opinions, positive or negative!

On the north shore of MA, we currently own a ~1500 Sqft Condo with about $70k of equity, but the value of our home has increased from about $500k to $630k via local comps & my realtor's estimate.

We are looking to purchase a multi-family local to us. The numbers seem to be in our favor, as well as some changes to local zoning. The home is listed at $720k, but we think we could get in at $680k. There are two units, currently TAW- rented below market value. The units are in tough shape and we'd like to finance additional money for reno & an ADU addition- I assume that we could refresh the interior and convert the attached garage space (200sqft) into a 350-400sqft rent-controlled ADU. I am pretty well locally connected and am not overly concerned about permitting/zoning.

Once complete- even with zero down I estimate- $5092 monthly mortgage (including financed rehab). Both units would potentially rent for 2600/unit. The ADU would additionally add $1500 (set by local ordinance) of potential rental income. Totaling $6738 monthly rent collected. Even budgeting for $1600 of monthly expenses (including vacancy and repairs) we still end up in the clear.

-We aren't overly concerned about turning a huge profit. I figure, in time, as rent increases & we are able to refinance, our profit margin will grow.

-Average yearly increase in property value of a little over 6% makes this feel like a small risk as we could cash out.

-We have just enough income to float the second mortgage in case hell lets loose. Renting our current home in an emergency scenario would help too.

-We have some cash on hand, but I'd prefer to hold it as it's our emergency fund.

Am I insane? If not, would a lender ever agree to do this with me? There is risk there, but plenty of escape plans.

@Avery Heilbron Wow, yes that sounds super interesting! Whats the name of the group? I've been poking around for folks on meetup with an interest in real estate. 

Wow! Thank you all for the info! Definitely solidifies my belief in chasing after 3 or 4 unit properties.

Interesting info! Is having umbrella insurance just as good as pursuing an LLC? Since there are a few of us, we thought LLC would be a great way to join together and protect from risk.

Does using an FHA loan only help minimize down payment? I am not super well researched on them yet. Any good reading material for me? Books? Articles?

We have the upfront cash to afford a down payment above that of the FHA as well as a Reno fund. Would it be more favorable for us to pursue a different type of loan? Should we be prepared for a 30-40% down payment to stay competitive?

Also, is it worth focusing on a neighborhood, or should we keep our options open? 

Thank you all!!!

Hey Lien! Thanks for reaching out!

It’s myself, my partner & my father. We’ve been eyeing getting into real estate for some time now.

Was planning on using a FHA loan since we'd live in it. We were also planning on possibly starting up as an LLC?

Hi there!

New in town & tired of renting! I am a hotel manager, and have been for a long time. I’d like to try my hand at being land lord as well. I’d just like to possibly meet an agent, or better yet, friends and a community! I love talking shop & it seems some of my experience seems to translate!

Rather than getting super hung-up on price. We have been laser-focused on potential Cap Rate & NOI. We have funds to rehab, but don't want to bite off more than we can chew with deep rooted issues.

Specifically been eyeing Chelsea, Quincy, areas of Dorchester, south Boston, and possibly Salem.

To make the numbers work, it seems as though duplex is out of the question in the area while turning a live-in profit? We have been eyeing triplex mostly. If we are in the smallest unit, I only see that being in our favor!

Thank you in advance!!