All Forum Posts by: Terry Lao

@Kiet N.

I did mortgage banking for about 4 years. Yes, it happens on loans. Yes, people got to jail for mortgage fraud. It is a federal offense.

In above question, how do you spot? if person submits fake stubs, then ask them for their bank statement to see it hitting their bank. For example, person is paid $2000 paid via check or direct deposit. Then when it hits their bank, then it show as deposit line item.

Also, I would ask them for their bank statement to see cash reserves, and not tell them to confirm pay stub.

Terrence

@Tom Pham

@Chingju Hu

If all cash, then brings up another topic. OPM..........other people's money. why in the world would you not leverage and buy more. For the price of one all cash, you can buy four with 25% down financing.

Terrence

@Tom Pham

@Chingju Hu

Let's ask her. Hey Chingju, is your transaction all cash?

if it is all cash, by all means, the 8 plex is a no brainer.

if it is financing, 25% down, then I would say a (2) 4 plex.

I'm leaning towards financing since she just bought an out of state rental for rehab.

Terrence

@Chingju Hu

@Tom Pham

Overall, the more units the better. However, your #3 comment, once you own and manage an 8 plex, you can then move upwards to larger complexes.

If you never had a 4plex, then what makes you think you can go up to 8plex. you need to crawl before you can walk. walk before you run.

unless you are cash rich, you have to start small. condo, townhouse, SFR, 4plex, 5+ units, commercial building, trump tower?

Terrence

@Uzoma Onyeije

I've been using the 1% rule as general rule of thumb, or quick analysis for multi-units in Las Vegas. The 1% rule is 1% of sales price should be minimum monthly rents. In your case, your sales price is $896k, and rents are $6350. I can tell right away, that 1% of $896k, needs to bring in $8960 a month to stand a chance, and its far below.

Pass.

Terrence

@Jeff B.

6 Plex in Cupertino bought in at the low's, 2010, would still be over $1M?

Terrence

@Chingju Hu

I'm using the term " economies of scale" in a loosely term. In economics 101, the more you produce of an item, the average cost goes down. I think the same goes for multi-units, the more you buy, the cost per unit goes down. For example, in Las Vegas, duplex will cost about $150k, which means $75k per unit. Triplex goes for $180k, which translates to $60 per unit. Fourplex goes for $210k, or $52,500 per unit. The same goes for 8 units or 12. However, the limit where you can get conventional financing is up to 4 units (30 year fix at 5%). At 5+, it is considered commercial, and best financing is ARM starts (6%, and adjust up to 11% or 12%, as an example). Paying the extra financing costs each month will reduce your net monthly income. If your adjustable goes to 11%, then will eat up a good portion of your rents.

My 4plexs that I purchase already had tenants in place, with verifiable leases. If you have 2 years landlord experience, some lenders maybe want 1 year, then you can use 75% of total rents. For example, let say you rent each apartment for $700, and total is $2800 per month. For underwriting, the lender will let you use $2100 ($2800 x .75%), as income. If the total debit (PITI, HOA, Management), if $2000 per month. Then the net is $100 positive, that will add to your total income.

The above is an actual example of 4plex purchase in Las Vegas, that had $100 net positive income, that help me qualify for loan. Overall, based upon the above example, if you have a good W2 job, then finding a 4plex that is fully rented, will not hurt your qualifying for loan, it will help.

Terrence

@Chingju Hu

The exit strategy or when you decide to sell, it will be more difficult to sell 8 units rather than (2) 4plex. Not many people can qualify for 8 multi-unit loan versus a 4 plex, also the cost is half as much.

Its not like Costco when you can get better deal buying bulk. The financing kills any savings that you will get via economies of scale.

Terrence

@Chingju Hu

The (2) 4plex vs. 8 units comparison, IMO, comes down the financing. As mentioned from above, 4plex falls under, 1-4 residential, Fannie Mae/Freddic Mac, and can get 15/30 year fixed rates. I have (2) 4plex, and was able to get 15 year at 4.125% and 30 year at 5%. Also, the qualifying, if you have 2 years rental on 1040's, can use 75% of lease agreements to help qualify. In Las Vegas, I was able to find 4plex that actually had $100 net positive to debt ratios with rental agreements factored in.

The 8 units is commercial and banks usually lending with variable rates amortized over 30 years, which means every 5-8 years you will need to refinance or negotiate new terms. Also, lender will use cap rate to determine your loan, and property will need to support itself.

Another aspect is LLC, you will not get 15/30 year fix rates is under LLC, more likely variable.

Terrence

Number of doors is just one aspect for a goal. Another goal is the net cash flow per door, or ROI, or cash on cash return per door.

My goal is to have 16 doors, with over $100 net cash flow per door, with double digit returns for ROI/cash on cash return.

To date, I have 8 doors, with net cash flow about $150-200 per door, and last year with ROI of 14%.

Terry