All Forum Posts by: Tony Pragosa

Go conventional if you can. FHA MIP is high and nonrefundable.

@Tony Pragosa I'm not a fan of percentages. You need to run budgets to get a better idea. Like @Eric Greenberg said age of the improvements makes a difference in your capex. An example. You determine a new roof will cost you $7500. Life span is 25 years. $7500/25 year life span/12 months in a year=$25 per month. Same roof but now it is 15 years old. Your effective lifespan is now 10 years. $7500/10 years/12 months in a year=$62.50 per month. You have to do the same with all the major components.

You also need to run a repair budget. You have to make some decisions. How often are you going to repaint between tenants. A 5% vacancy is the equivalent of your tenant staying 20 months. An example. Cost to repaint the unit $1500. Deep clean $300. Number of service calls 1.5@$150=$225. $1500+$300+$225=$2025/20 months=$101.25 per month per unit.  Now what if you touch up between units and paint every 5 years. Cost of touchup $300. So you will have 2 touchups and one major plus 3 cleanings and 5 service calls. $1500+$600 touchup+$900 cleanings+$750 service calls=$3750/60 months=$62.50 per month per unit. Better numbers make better decisions.

 Tony,

I would personally fully understand what improvements were done to the property and when as much as possible prior to sale. 

As for CapEX it would matter what type of heat you have, what type (if any) A/C you have, what type of roof you have and the sqftage, what appliances do you provide on top of the normal  fridge/oven (ie dishwasher/microwave/washing machine/dryer/etc)

@Tony Pragosa - Looks like your off to a great start!  You display a basic understanding of the numbers and process.  I don't know your market, but if your assumptions about the local area are correct, this house hack is a fine place to start!  

A couple of things to consider:

* keep talking to lenders, find local/regional bank that has a portfolio product. Lenders are HUNGRY right now, so if you have some cash and decent credit, they want you! Remember, they are selling a product. You are not begging for a lifeline. You can probably escape MIP

* Get the right kind of insurance on your rental, it's not standard homeowners.  

*  If you are gone 6 months of the year, consider short-term rental on your side.  

Again, you are off to an amazing start!  Keep talking to lenders!

You definitely aren’t over analyzing!  These are all things you need to think about.  As mentioned above definitely consider Capital Expenditures as well for when you need a new roof or appliances or any other big purchase that can and will eventually break.

From the mortgage side, unfortunately on conventional mortgages a 2-unit property would require 15% down in most cases even if you plan on living in one of the units. Certain local credit unions might be able to help as they sometimes are more lenient, but otherwise you would probably want to use an FHA loan for the property.

I'm not sure how much capital you currently have, but FHA definitely allows you to get in for low money down. There is an upfront mortgage insurance premium but that will be rolled into your loan amount and then you will have Mortgage Insurance. From a rate perspective, FHA rates are slightly lower than conventional as of today (10/7).

If you put less than 10% down with FHA, then you will have Mortgage Insurance for the life of the loan. If you put more than 10% down with FHA, you can have the Mortgage Insurance taken off in 11 years I believe. Either way chances are you will want to refinance the property before then.

I dont know where you are buying in Philly but $1500 for a 2/1 sounds realistic. 

The biggest issue I see is no CapEX and a small (5%) towards repairs. Happy to talk in more detail but unless this is a new build (which id still be weary of in Philly) or recently rehabbed Id want to set aside alot more capital for the CapEX/reapairs that come along with our older homes. 

Id also throw in a rental license fee and potential for snow shoveling unless thats on the PM.