All Forum Posts by: Phillip Faries

Where are all my Chicago peeps?

@Phillip Faries good for you!! Now it gets exciting! Keep me posted how it goes and what you decide to buy and let me know if you ever have questions!

@Phillip Faries , it's all put in perspective.  In my opinion, the higher the mortgages, the better, as in 20 years, I will have a half a million dollar building paid off entirely by tenants, while I get cash flow and tax benefits. In top of it, by the time the property is paid off, all the money that was going towards the mortgage payment becomes extra cash flow and my 500K building will be worth by then at least 750K if not $1,000,000.

In the same time, I also own condo units that I bought for less than 50K, those will be worth up to 150K each  in 20 years if I am luck, and even if I had a mtg on them, the cash flow will not increase a lot, as chances are the assm will increase also.

What you have to do, is increase your risk tolerance by increasing your reserves account. After buying the building, make sure all the cash flow goes into a reserve account, so this way, in case one or multiple tenants leave the building unexpectedly in the same time, you have the money in the bank. Same with repairs.

Let's not forget that tenants move out of condo units also, and then 100% of your expenses have to be covered by you!

And again, it's all how you are looking at it! You can see it as a possibility to use the bank's money & multiple tenants to become a millionaire quickly or less risk and lots and lots of condo units to get to the same finish line!

@Phillip Faries I will need to understand more about your price point in order to advice you on the choice of neighborhoods. Also, you should look at properties that already have at least a few units rented, and when you move in you can start remodeling the units one by one, as they vacate, instead of having a vacant building to cover expenses for.

Call your lender and see what is the maximum amount you can get approved for, and of course you don't need to go all the way to the max you get approved for, you'll look at what makes sense.

1. Cash Flow

Let's say you are looking at two buildings for example:

Example 1: 3 flat with 2 bed/1bath units, building is for sale at $200,000 and the rents are $700. Your expenses will be approximately $1800/month self managed, and the income is $2100, so you get $400/month in cash flowafter a year if you move out and all the units are fully rented.

Example 2: 4 flat with 3 bed/1 bath units in a different area, $500,000 purchase price, and the rents are $1500 each. Expenses are about $4500 a month, while the income is $6000/month.  In this case, your cash flow is $1500/month.

2. Tax deductions Remember that in addition to this you get tax deductions for interest & property tax and also amortization. The bigger the purchase price, the more reduction in income tax you get. 

3. Amortization. You'll save $5000+ per year ( if you don't make at your job six figures) for 27.5 years

4. Because of the low interest rates ( in my opinion money is almost free these days), you get a lot of principal paid per month. For a 500K loan, your monthly principal paid starts around $600 in the first year and goes up, which means that you'll get over $7000 paid the first year.

After seeing all these benefits, which building will you buy? 

@Phillip Faries that is the question most newer investors need to answer for themselves.  

I am with @Lumi Ispas and @Crystal Smith I would do a FHA loan on a 3-4 unit, but I am personally against condos, so you will never find me suggesting that. There are plenty of very good neighborhoods near public transit that are a much better investment than a condo.

Do you have a little more details on the numbers?  Are you pricing in property management(even if you are doing it yourself).

If the 2 bedroom costs 50% more for the same profit and requires more cash, the 1 bedroom looks like a better investment.  

Are the condos in similar neighborhoods?  The 2 bedroom will probably be an easier resale, but if you are buy and hold that isn't the major consideration.  

Is there significant appreciation potential for these condos?

@Phillip Faries I assume you have W2 income.  If that's the case, w/ $70K available for a downpayment the opportunities for you to find a multifamily w/ a unit that you can live with positive cash flow on the remainder in a safe neighborhoods, are coming on the market all the time.   I have to agree w/ @Lumi Ispas .  While you're looking @ the small condo units, expand you're horizon.  If you're current agent can't help you, hire another agent.