All Forum Posts by: Robert-Lee Pass

Today is inspection day on the deal I’m currently under contract on , it’s a 1984 3500 sq ft 4 plex , 3 tenants in my place and 1 unit vacant . I’ll be walking all 4 units in a couple hours . Curious if there is anything you all think I cant/shouldn't overlook ? 

Quote from @Codey Wendel:

Hello everyone. I just started the mortgage application process and have been pre-approved for a loan with a 6.75% interest rate. I was planning on purchasing a duplex this summer and going the FHA route, but now am not sure if it's the right decision with how high interest rates are. My price range is 200-250k and my total interest paid when it's all said and done will exceed the purchase price. I don't want to sit around waiting for interest rates to drop and pass on some good opportunities, but I'm also not sure if I want to pay that much in interest.

Does anyone have any opinions on this? Would refinancing a few years after purchasing make my numbers look better? 

Thank you in advance.

So this duplex , are you planning to rent out both sides eventually? If you are then who is actually paying all that interest? If you arnt and your going to live there long term then again.. your other side is paying a very nice chunk of the overall interest. I think its typical to see 95-110% TIP just matters to me who is actually supplying the money to pay that interest . In the end the Equity is mine .. on the path to the end the interest is paid by the tenant imo

@Dan H. First off thanks for continuing to reply , second -> Location is about an hour or so away, Ive spend a year away once and 15 months another and it wont be anything like that this time so it seems easy to me . The fear of not doing this because im going to miss the wife for some time doesn't compare to the fear of not doing this or whatever it will take to get the the finish line i have in my mind. If i cant get a VA loan that's cool too guess the lender will make that call or underwriting.

Not using a percent of rent for those category's is the first time Ive heard that , All i know is bigger pockets forums , podcasts, real-estate rookie , some other YouTube and common books recommended from that circle. all of those content streams. I just assumed what bigger pockets says or recommends is just "the way to do it" type of thing. Yeah i guess conservative is correct it just seemed like a high number so aggressive on the % used but your not using % so again visual is different.

Both of the properties i was talking about are inside the same neighborhood . maybe 3/4 streets around a particular k-5 school. Not completely different locations , neighborhoods, building types etc. There was this stat i read about the area saying 70% or maybe it was even 80 something % of people in that area are married so i wasn't sure if the step down on property would be a problem because the 3/2 typical family wouldn't have been comfortable by my standards.

The Cap Ex _ you know what, i don't think the percent was considering multi units. So the fact there is multiple of everything is a good reason to just up that number either nominal or percent either would do

I do have a question as far as the water heater, and other cap ex items. isn't that covered by a warranty or insurance? the roofs here is Colorado seem to be replaced every 3-5 years about because of hail so not common to see a roof older than 10 years . property was a new build so hopefully that 10 year lifespan on a water heater holds true right but even it it only lasts till 5 years that's a decent amount of time to stack that Cap ex account to get ready for that.

My mother of all people , when i tell her and her husband that i want to have cash on hand after the purchase for cap ex and maintenance they cant understand what the warranty , insurance, etc will not cover. im new to home ownership too so i didn't have the answer but i mean cmon its not free to live once you make it into a house haha note my mom has only lived in her own house for the past 2 years in her whole life.

whats vacancy rate do you use when running numbers on things? how do i get an accurate or in the ballpark number if im self managing and its my first time?

Thanks for the comment about earning that VA loan . i get defensive apparently about that. In 2009/10 after that last deployment America wasn't receiving veterans of the Iraq war well anymore. after that 7 year mark it turned different people at the airport spitting and ****. anyways , i wish i understood i had that available to me sooner or just understood what it could do for me .. would have purchased in 2011-2012 if i knew that. instead i took a different path before seeing "the light".

I agree about it being a good thing this one got away. im still open to it but it'll have to be on my terms from the seller at this point . other than that though this was a productive thread. i learned a lot too. from slab foundations to errors in my calculations , plumbing , framing , haha 

Sine Note - Nice this got on the trending page. Not so nice im not the best at not getting defensive haha

Im sorry i didn't note somewhere on the calculator that the first year would be different with me living there , i assumed in my story i was saying that was happening but again the numbers wernt clear so next time ill have that in there somewhere

Thanks again for continuing to engage and not just dropping a 1 liner and continuing on . appreciate it even if i get defensive .

- Robert-Lee

Quote from @Josh Braun:

Just wanted to point out that besides the inconvenience (or convenience?) Of being away from your wife and kids for a year, you are also "spending" an extra $19k to qualify for your loan. Thereby affecting your cash on cash return as well as starting off with negative $19k.

i did know that and was willing to take that hit on the chin with new money that comes in leaving the cash on hand pile alone for the year +. with such little down your right it goes negative and with the seller not interested in working with me (hes an owner builder so he can rent it for what i can but his loan is probably half of what mine would be or less) the deal isn't good any more to me unless that 10k concession is given .

the idea was the 12k to close and another 15k to hold my side of the mortgage up for the year would still be less than what most people have to pay to get into something like this . was looking at it like 25k total on the year but was doing the math to see what it looks like after the 12-18 months i live there and can rent out both sides. Im willing to weather the storm for the year i guess is what im saying. 

Quote from @Tim Bratz:

I think when you send a post out saying, "should I kill the deal?" you kind of have your answer! Haha, at least in your own mind. It can be hard to convince yourself to walk away from a deal, especially when you're just getting started. 

Yeah i guess your right although i did learn some of the issues i was caring about are things i shouldn't pay any mind to . The seller killed the deal anyways when he decided to not work with me on closing cost after i worked with him on asking price. He wanted me to take a -50% cut to the return on capital spent and all i was asking from him was a -2.5% hit on asking price.

Oh well , at least the numbers make it very easy to sever the emotion :)

Quote from @Dan H.:

I am less worried about the short comings noted by the OP and more concerned about:

- Whether OP is intending to commit mortgage fraud

- If he does reside in one unit for a year (as required for VA loan), the rent is 50% of that represented in the underwriting. This kills the return in the first year. Using his numbers, ~$1600 month less cash flow.

- 2% vacancy is very aggressive especially for self managed, small unit count units.  The LL in these units take noticeably longer to tenant flip units than large unit properties with dedicated maintenance personnel.

- maintenance/cap ex at $192 is not enough to cover one unit.  I suspect 3x the value used will be closer to accurate over the long term (at least $600/month).

- I am confident that the 50% rule will be a more accurate expense estimate (-606/month) than the OP's estimate.  This implies that all return numbers are likely fiction.

The underwriting shows lack of experience. The plan for the loan may be unethical and illegal.

Is the property expected to appreciate more than the national average?  Is there any significant value add?  Any reason to believe rent growth will be greater than national average.

The goal is not to own units; the goal is to make money.  This looks like it will not make money.

Good luck

@Bruce Woodruff damn bro , i definitely am not intending any kind of fraud, jeez, i thought if i lived in it then its owner occupied? is it the keeping of the other house nobody likes or the me leaving the duplex after a year or two that people don't like? I'm willing to live in a 3/2 1100 sq ft for a year my wife and kids are not so that's the trade off i believed i had to make in order to use owner occ financing. Should i look further away or something like that? 

Is there something im missing if i am the owner and i live there ? its Va right so the veteran in particular is occupying it not like im sending the wife or anything. hmm im interested

I Can use 5% conventional owner occ too but its about 25k down and pmi . My remaining entitlement on owner occupied is 325k so up to about 450k its best to use the VA financing and not the conventional as far as leaving cash on hand for the next. I have very low 6 figures just trying to leverage it the best i can and i thought this idea might be a good one. I can also do a 20% conventional non owner occ but why? it'll take way more cash to do that than to fund 1/2 the mortgage for a year or so

Yes the numbers will be for year two . im not sure how to force the calculator to factor my first year being as you stated but again i feel that's just a hurdle im going to have to suck up paying that 1/2 mortgage for the year in order to get
the ball rolling with this journey. hoping people arnt reading the calculator and saying " look it says year 1 return how is that possible if hes living in it , it must be fraud" its just where i hope to be once i can rent out both and move the kids down to the area.

the 600 a month in maintenance and cap ex is pretty aggressive that's 6% per category 3 catagorys . but
ill consider that thanks for the heads up was hoping the new construction would lesson that blow for the first 5 years or so.

your probably right about the vacancy rate i just called a prop management company down the street and asked them the vacancy rate of that zip for the bed bath and it came back at 1.7 so i used 2 . again probably right to make that higher.. how high do you think ?

Location is good yes its appreciating faster than average and rents have also jumped and population is growing , i did do a lot of research on the neighborhood. so im confident in that part.

Lastly , of course i lack experience , this is my first time buying a property other than my current residence. I probably wouldn't be asking such noob questions on a forum like this if i was experienced.

... Damn man, I feel bad now like not only is the numbers not good, but using a VA loan and living in it without my wife and kids isn't an option either apparently , and my idea of going back and forth is illegal.. or unethical. thanks for everyone's concern though , just didn't think that's what id be defending as that just assumes my character is trash and im full of **** trying to pull one over on someone or something.

Quote from @Dan H.:

I am less worried about the short comings noted by the OP and more concerned about:

- Whether OP is intending to commit mortgage fraud

- If he does reside in one unit for a year (as required for VA loan), the rent is 50% of that represented in the underwriting. This kills the return in the first year. Using his numbers, ~$1600 month less cash flow.

- 2% vacancy is very aggressive especially for self managed, small unit count units.  The LL in these units take noticeably longer to tenant flip units than large unit properties with dedicated maintenance personnel.

- maintenance/cap ex at $192 is not enough to cover one unit.  I suspect 3x the value used will be closer to accurate over the long term (at least $600/month).

- I am confident that the 50% rule will be a more accurate expense estimate (-606/month) than the OP's estimate.  This implies that all return numbers are likely fiction.

The underwriting shows lack of experience. The plan for the loan may be unethical and illegal.

Is the property expected to appreciate more than the national average?  Is there any significant value add?  Any reason to believe rent growth will be greater than national average.

The goal is not to own units; the goal is to make money.  This looks like it will not make money.

Good luck

damn dude , i definitely am not intending any kind of fraud i thought if i lived in it then its owner occupied? is it the keeping of the other house nobody likes? or the me leaving the duplex after a year that people dont like? Im willing to live in 1100 sq ft for a year my wife and kids are not so thats the trade off i thought i had to make in order to use owner occ financing.

Yes the numbers will be for year two . im not sure how to force the calculator to factor my first year being as you stated but again i feel thats just a hurdle im going to have to suck up paying that 1/2 mortgage for the year in order to get the ball rolling with this journey.

the 600 a month in maintenance and cap ex is pretty aggressive that's 6% per category . but ill consider that thanks for the heads up

Lastly , your probably right about the vacancy rate i just called a prop management company down the street and asked them the vacancy rate of that zip for the bed bath and it came back at 1.7 so i used 2 . again probably right to make that higher.. how high do you think ?

Location is good yes its appreciating faster than average and rents have also jumped and population is growing , i did do a lot of research on the neighborhood. 

Offer Update : I Surprised the seller by coming up to his ask but i couldn't budge on that closing paid concession from him . when the money down turned to 23-30k the returns get destroyed. with the idea of adding at least a fence . at that point it breaks 10% CoC . So im walking away.

If he comes back to me in a few weeks ill probably do it i feel way better about the things hearing you guys talk about it . Learned what i care about and some thing to look for when im walking a duplex next time .

Ill have to look more into that law about having to have my wife and kids come with me in order to call it owner occ. not sure why i couldn't go myself so they don't have to live the suck through all that with me . I just felt like I am the veteran, i will be the owner, i will be living there ( i dunno if it'll be 51% that's best case for the wife if i make it to her as often as i could it'll probably be more like 75-80% me at the other property.

thanks for all the reply's , definitely found the sub-thread that has the eyeballs in it

As far as not knowing anything about basic stuff like that .. Maybe growing up with a single mom in apartments my whole life until about 15 then i hit the state group home in California, then army , Iraq 2006 and 2009 , spiraled out of control for about 8 years , found the VA (not the loan but the hospital) and a decade later here I am haha . Sorry for sounding dumb or to the people who "stop reading when the op says ________" My bad but that's why i asked the questions to begin with.

thanks again everybody , confidence is even higher for the next offer 

Love it , Glad conversation sparked.

learned Pex isn't bad. Slab isnt bad and has positives actually. i love inches when changing a window to a door , copper only gets stolen lol i will stick that in permanent mental bank .

This is owner occ loan , the numbers are for the second year . i see you @Don Konipol i didn't know the family had to move down with me and i have to rent out the current house currently then i guess.

The plan was to move down there and start setting up shop for the family while in a smaller cost per month situation than buying a SFH and swinging the whole mortgage myself on top of my current one. I assume itll take about a year , maybe a year and a half and at that point ill move out of that place, and into a larger SFH for all of the family to come down now to live and we rent out the one i originally wanted to leave the family in.

OFFER UPDATE - I shot the offer last night at 375k closing paid (365k basically for him) he countered at 399 but will pay closing . this still turns the deal to a 27% cash on cash 7.6 cap 31.3 NOI kinda more realistic numbers i would say haha I'm about to respond to his counter so i came here to see your guys' thoughts