All Forum Posts by: Ahmad H.

If it sounds too good to be true, it probably is. 

I didn't particularly like the idea of getting locked into a 20-year contract, the extra liability, the taxpayer subsidy the company receives, and the house becoming an eye soar. 

There are numerous reasons for this.

Maybe they borrowed money to rehab at a high a cost and they can't refinance so they have to sell in order to get out.  Maybe another deal came along with better returns or maybe they are just strapped for cash as not paying taxes suggests. You would have to know more about the current owners to narrow the possibilities. 

I try not to worry about the reasons but focus more on the deal itself. Do your due diligence and if its still a good deal do it.

@Chase Gochnauer

Congrats! I've looked a little into notes but didn't get the courage to pull the trigger. Is there any equity in it? How does the 1st lien balance compare to the FMV of the property? Do you intend on monitoring the status of the 1st lien?

Then you should just put it all down on the 1st property. The difference in returns between 11.35% (350*12/37000) and lets say 15% if you put 20% down on a similar or better property is small and does not justify your money idling for 5 months. I suggest you buy the 1st one without PMI and manage it yourself which will let you cash flow well. You will be a in low risk position and you will build cash reserves quickly so you can save up to buy a 2nd property. And if you decide owning rentals is not for you, you are not stuck with PMI and wont have to lose money to refinance to get rid of it.

At the end of the day its not a cut and dry decision, many factors go into play but I would value peace of mind over the extra couple of bucks. 

@Jeff Tracy

The numbers look good. I like that you included PM cost in the analysis but if you have the time to manage the property yourself you should, because then you can squeeze out a sizable cash flow and get valuable experience. 

As for your down payment dilemma, it really depends on the following:

1) Is it easy to find another property with the same cap rate?

If yes,

2) Can you deploy the 37k you have left to buy that property right way?

If no,

3)How long will it take you to replace the 13k that you spent to acquire the 1st one?

Keep in mind that with buying two you provide yourself with ability to earn more money by managing both yourself and diversifying your assets.

On the other hand I am not a fan of putting all the cash you have to buy one property so only do this if you have access to emergency funds. If you don't you should probably do FHA for 1st then keep cash reserves, save more, then buy a 2nd property.

@Joseph Legnard

Welcome to the site! Hope to see you at the upcoming AIN meeting.

@Sunny Burns TrustCo Bank lets you do 10% down for up to 4-family with no PMI. Michael Noto has a good point regarding the electric heat, a lot of people do not like it so the rents have to be lowered to compensate for the additional utility cost. Frankly I think you can do better than this deal and I encourage you to move on.

For first time home buyers its pretty easy to get 5% or 10% conventional loan. I got mine from a credit union for 10% down but that was a year and a half ago. Now the same credit union will do 5% down loan. For the 2nd property I had to put 20% down.

I personally would try to put 5% or 10% down and find a property that cash flows with the costs of a property management factored in. You have no exit strategy with this. You are buying it at market value and requiring yourself to manage to make any cash flow. What if you don't like managing tenants and want to hire a PM? What if you don't even like dealing with a PM and just want to get rid of the property? The way I see this deal is that you are going to pay $75000 to get yourself a job that pays $450 to $600/month with a $30,000 penalty if you decide to quit.

I think $2500 for maintenance is a little low, its probably going to be closer to $4000 or $4800 (10% of gross rents). Snow removal and lawn care are reasonable at $2000 if its a regularly sized yard and driveway but insurance rates depend on claim history. Will you be renting to students? Insurance rates might be affected by past claims like fires or tree falling on the building. I would try to get an insurance quote for it before purchasing. 

I see you put 5% vacancy. For my area I prefer to budget 10% for vacancy but your area might have higher demand so this is something for you to gauge. 

I expect you to cash-flow somewhere between 5500 and 8000/year from this which isn't bad for 4 units with only 5 people to deal with but from a COC point of view you would be getting 10% or less return which with is not great with self-management.

If you decide to hire a PM, your cash-flow will be -100 to +100 /month