All Forum Posts by: Raden Mantuano

@Raden Mantuano not only are you having to bank on appreciation, you are gambling on where interest rates are going to be in 9 years. When the loan is due, you'll either have to sell or refinance. You're, basically, talking about a 40 year loan on a $40k property. You're paying over $30k in interest over those first 9 years and will still owe the entire balance, then refinance for another 30 years. This property will cost you well over $100k in total. I'm sorry, but this seems like a disaster waiting to happen. If you really want this property, take a conventional loan on it. Take the money you say you have as repair reserves and use that as a downpayment. Your monthly payments will be less that in interest only payment you plan to make to the seller, and you'll be paying down the loan.

Originally posted by @Raden Mantuano:

Originally posted by @Caleb Heimsoth:

@Raden Mantuano. Your repairs are way to low. I wouldn’t do this deal. You’re not getting enough rent for that purchase price. Low end homes (50k or less) should be 2 percent rule or better. What happens when the tenant moves out, leaves a bunch of trash behind and you need to repaint and clean it out. There goes all your cash flow

 I have the money accounted for the repairs. However, it is rent ready as Property management has done walk through. 

When you say “money accounting for repairs” are you talking about the numbers above?  If so that won’t be enough in the long run.

It may be rent ready is but it won’t be when the next tenant lives there a couple years then leaves

@Raden Mantuano. Your repairs are way to low. I wouldn’t do this deal. You’re not getting enough rent for that purchase price. Low end homes (50k or less) should be 2 percent rule or better. What happens when the tenant moves out, leaves a bunch of trash behind and you need to repaint and clean it out. There goes all your cash flow

Good advice from @Nathan Gesner above. To directly answer your question, are you not allowed by the contract to pay more than the interest? If your cash flow allows, why not attack the principle and be done with the loan asap?

REI is a long term game and there are a few things that I'd like to address about your concerns with equity build up. There are markets, especially lower end markets where you can buy and cash flow a property for $50k, where appreciation is slow to non-existent. Investing in these markets can be tough, and you have to prepare yourself for the fact that you might not see any appreciation.

Secondly, the REI market goes up and down in cycles. I've been through cycles when I had several properties under water, but rent was covering my expenses. You have to buy properties and put yourself in a financial position that you can weather a storm like that and come through the other side.

Why borrow at 8.5% from the seller when you can borrow from the bank at 5%?

I don't think you're ready. According to your other post, you had to borrow from family just to obtain the $500 earnest money deposit. This indicates you have nothing saved as a reserve and are banking on the tenant's rent to help you save up.

In reality, most homes have problems after purchase. It sits vacant for two months. An appliance breaks. The furnace goes out and requires repairs or replacement. In almost every property I've ever bought, there were unexpected expenses within the first six months even though I did a property inspection with a professional.

How are you going to float the payment each month if it's vacant? If no tenant, you will still have to pay the mortgage, taxes, and insurance. You also have utilities which I assume could run at least $150 a month in the winter. This will cost you as much as the earnest money deposit every month! Are you going to borrow that from family?

I regularly tell people it is a mistake to put your last dime into buying a home. It's even worse to borrow money to purchase a home because now you are indebted to two people and you still don't have funds to handle an emergency.

I recommend you find a reason to get the earnest money back, pay off your family, and focus on saving and preparing for your purchase instead of trying to borrow your way to wealth. If you can't save $500 for a deposit and a reserve fund of at least three months vacancy then I think you're asking for trouble.

Well then you should know the basic closing costs.....title search/insurance, deed/mtg recoding fees, closing fees, mtg docs prep, etc. and also which party typically pays what in your market.  Your contract should have detailed who pays what.  Talk to the title company for a prelim estimate.

I love your hustle in spirit! I would highly suggest kind of getting mobbed up with a good realtor and have them help you with the contract