All Forum Posts by: Mark S.

Went to check out the units today. Overall, they're in decent shape. There were several little issues, though, which would cost some money to fix up front before making them livable. One of the things that sort of freaked me out was that the copper was stolen out of one of the units. I had suspicions about the neighborhood already, and this helped to confirm.

The neighbors weren't exactly inviting either - loud car stereos with vulgar music blaring, kids screaming everywhere, people driving by yelling stuff out the window, etc. Not a good sign.

We re-ran some of the numbers and with our conservative estimates, the numbers weren't as appealing. Please disregard the figures posted previously; there was an error in the spreadsheet that I fixed and those numbers are NOT accurate.

The two biggest challenges for me are:

1.) The neighborhood doesn't seem like it will allow me to attract quality tenants.

2.) There appears to be some repairs needed to bring the units to livable condition.

It would honestly be a stretch for me to come up with the down payment alone, never mind the extra repair funds needed. All the while, these units would not be rented for a few months and I'd have to continue to service the debt.

There must be SOME value, though, as there are at least two other investors that already bid on the property. It just sucks being late to the party with minimal information since it's a foreclosure.

I have two options:

1.) Don't make an offer, let this one go, and continue to save more cash.

2.) Make an offer with an inspection contingency and back out if the costs are too high.

I'm leaning towards #1. Anyone else have any thoughts?

Hey, Jerry, were they not offering a fixed rate or did you want an ARM for some reason?

Hey Chris,

I just have my primary residence. No other homes. It just seems most banks are not interested in giving out fixed rate mortgages to investors right now. The down payment will be a struggle for me, so I guess I'd consider an ARM, but only on a 85% LTV, not 75% or 80%. I'd really rather put down the extra 5% or 10% and get a fixed rate, though. We'll likely never see rates this low again.

Yikes! So, it sounds like the FHA option for me is out.

So far, the best I'm finding is 80-85% LTV from local lenders; the downside is they will only do an ARM, not a fixed loan. There are non-local lenders (some of the HomePath people I talked about) that are doing 75% LTV (even worse!), however, I need to find out if they'll do a fixed loan or if they're also on an ARM. if they'll do a fixed, it may be worth the extra $ down.

@Jerry W.
Thanks for the list of questions. I have answers to a couple now; I'll still need to do some more research for the rest:

Property Tax Costs: $2,871 when the property was appraised at about $300,000 in 2012.
Utilities appear to be metered separately. The building is currently vacant, so I guess I get to decide, if I buy it, what I pay and what I don’t.

I’m planning to have the tenants be responsible for all their utilities. I may just pay trash for them for convenience.

Lawn Care: I’ll make sure to get quotes.There is parking in the back on concrete where the small decks are for each unit, so no lawn there.The front yard is relatively small, so I can’t imagine it’d be more than $75 to mow.

Plumbing, roof, heater/ac system: Need to find this out with realtor.

It’s about 14 years old.

Condition of apartments: Supposed to be going to see it with realtor tomorrow.

Demand for rentals in that area: High. There are quads all around this one. There are also duplexes and other rentals nearby. Rental demand will be high, but competition may be also.
I need to keep this in mind.

Rents/Vacancy Rates/Foreclosure Reason: Will get more into this with realtor. Based on what I currently know, I believe I could get $500 - $600/month per unit on these. I understand that's a wide range, especially when you multiply by 4. Even at only $500/month per unit, with 85% LTV (there's one lender near me that I believe will do this), 6.5% interest rate for 20 years, I calculated a 9.91% cap rate with 17.33% cash-on-cash returns. This includes 10% vacancy, $1,500 insurance, $2,400 repairs/maintenance, $200 advertising, $1,200 lawncare, $1,000 miscellaneous.

Records of rents/costs/tax records: Since it’s a foreclosure, I doubt I’ll be able to get these.

I hope to have many more answers shortly.

Hey @Brandon Turner
I haven't specifically asked about FHA on a non owner-occupied rental property, however, I heard they relatively recently made some changes to where the mortgage insurance on FHA loans remains for the life of the loan (not just until the equity is built up) - this is something I definitely want to stay away from, if possible.

I'm not familiar with the 203k remodel loan. Is that something that's tacked onto another loan, or is that a loan type available within itself (like the HomePath Renovation loan with all-in-one)?

As a sidenote, I love the Podcasts and you crack me up each week when I listen. You guys have great senses of humor, yet you keep the show on track and informative. Great job!

@Andrew Greaves
Welcome to BP! I've sent you a colleague request; we're in the same geographic area with similar interests in real estate investing. This site is awesome! I've spent hours at a time on here trying to learn from others. I hope to be able to give back some day when I, too, have more experience.

I've been talking to several banks about loan programs for rental property. Most require 15 to 25% down, which I expected. The thing I didn't expect, however, is that it seems that virtually all of them are looking at either a 3 or 5 year ARM, many with no cap after the fixed rate period is up. Anyone getting fixed mortgages on rentals right now. Maybe I'm just talking to the wrong people. Most of these banks are local or regional, where I expected to get an even better deal than from, say, a national bank. Thoughts?

Do any lenders require less than 25% down on a fourplex? HomePath and HomePath renovation loans.

I contacted a realtor friend to assist me with evaluating this property further and hopefully purchasing it if all checks out. I'll try to post more info here in the next few days. Hopefully if I have some numbers, people will chime in and help me out.