BiggerPockets

I am investing in desert hot springs and the surrounding areas. I could actually use some advice on a property that we just opened escrow on. Its in Desert Hot Springs and I'm not very familiar with that area. I was thinking of using it for section 8 housing but am very new to investing and this building is not a straight up 6 unit. Its zoned residential and there are 6 separate units but not all of them have there own kitchen some have sort of a kitchenette. So twelve bed rooms total and I'm pretty sure 6 baths. Can any one give me any tips on owning rentals in a not a totally ghetto area, but i guess i could say a little run down. Desert Hot Springs in also know as the arm pit of the desert lol so...Are section eight requirements very strict does each unit have to have its own legitimate kitchen to use the place for section eight. Any advice would be helpful this is my first rental. The owner lives in one of the units and the total rent that comes in from the other 5 units is 2300 so if you count his i think it can bring in 3000 or so this is not net rent. We haven't even inspected the property yet so i really need to analyze this deal, but like i said i am very new. Were picking it up for 135k hes going to carry 35 k for interest only payments at 11% with an 18 month balloon. I'm giving him 100k cash. I could also use some help on a net rent formula, thanks for your time.

I would definitely check with the city planning/building dept to see what the permits say. For all you know, some of these units could be bootlegged and it will be you that is stuck with the problems once you close.

As far as HUD is concerned, not all departments that administer the program are run the same. If some of the units don't have kitchens then you probably aren't going to pass. The same holds true for closets in the bedrooms. If the bedroom doesn't have a closet then they won't count it.

I would tell your home inspector to pay close attention to the plumbing and electrical to make sure they are not pulling off some of the other units. Also check to make sure everything is separately metered.

Actually, I said the opposite way... if you're getting $3,000 a month out of a $135k property, that sounds very good (at a 50,000 foot level)... where I said you were getting fleeced was putting $100k down on a $135k property and getting charged 11% on the $35k note.

I'm still not sure I understand your financing situation.

Hard money on a buy and hold property tends to make cash flow pretty tough due to the higher interest rates. Why not try owner financing?

Commercial financing (anything above 4 units is no longer a SFH) is running 6's I believe but that would require 25%... if you're going a smaller down payment and getting 8% that's not terrible.

Have you looked for other sources of equity? You can get car loans under 3% right now if you own your vehicles. Might want to cash out some of that equity to be able to move straight into a conventional commercial loan or at least refi the hard money faster. At 30 years and $100k, the difference in payments between 6 and 8 % is about $135 a month.

With your car it is essentially a personal loan using your car as collateral, a refinance of the car. We did it to buy a piece of property after our fence guy put the posts in the wrong spot (please don't get me started on that). As to why to do it...

To me, it's all about leverage... at this interest rate; at, near, or even below inflation... I want as much "credit" as I can get. Would you rather borrow $100k @ 8% or $90k @ 8% and $10k @ 3%? Generally, you'd take the 2nd unless the loan terms on the 2nd hurt your cash flow too significantly.

To refi off of Hard Money, you're going to need a 25% equity stake in your rental. You can wait 6 months (or up to 2 years for some lenders) to season the purchase to the point they ignore the purchase price and do a new appraisal... maybe you got a great deal or the price has appreciated enough you can refi at 75% without adding equity... OR you can bring some cash to closing at buy the equity based on the purchase price. Doing something like taking $15 grand out against your car at 3% gets you a long way towards that 25% equity stake you need without damaging your cash reserves. Your carrying costs will be higher as you're essentially mortgaging all 100% (between the mortgage payment and the car payment) but the interest rate will be nice and low so I would be all for that. (btw, my 2007 Corolla got almost 14 grand at 3.5%, used car valuations are VERY high right now).

Again, I want to get as much debt as I can at these interest rates. Some will say to watch for over leveraging and I can see the risk, at some point equity is needed as a safety net, but to start, gimme gimme gimme.

I'm looking for buy and hold opportunities, passive income for retirement in the form of multifamily rentals. Have only viewed a few opportunities and am actually putting together my own finances to purchase something prior to the end of the year if things go as planned. Investing in my local area here in Utah to start. I feel I have a handle on the demographics here and can therefore derisk myself some.

Hi Chris - I would proceed with EXTREME caution. Do you own other rental properties or is this your first purchase? Desert Hot Springs is an extremely depressed area. Much of the City is unemployed and type of tenants that are attacked to this situation are all bad. You can buy a house built within the last 10 years for around 40-50k.

A friend of mine bought a single family house rental and it was a terrible experience for him. He said he couldn't find any tenants that has consistent income.

I don't want to be negative, but know what you are getting into.

Remember as an investor it is not the VOLUME and size of the deals you put together because many can be crap it is the QUALITY of the deals you do.

I would rather spend a few months doing an awesome acquisition than buying up marginal to okay deals left and right.

I have seen this happen on flips and long term holds.In both cases the investor did real well on one property and then started getting carried away.

Pretty soon a couple of marginal deals starting to tank their long term portfolio into a neutral or negative position.Even on flips they made good on a few and then the next few went real bad and they were almost at square one again.

You have to treat this business like a pawn shop.You will come across many sellers but few will accept your price and terms.So you have to keep going or come back to the seller until they get desperate enough to meet your terms.

A classic tactic with a seller is when they will not accept your price and terms.Then a few months pass and they come back to you.Then if you have a couple deals on your plate you come from a position of power.

You let them know you are involved with other projects now and to take this property on now you couldn't pay what you offered before and can now only do XX.

There will always be another quality deal to be had but millions of marginal to okay deals to get stuck in for years and paralyze the growth and success of your real estate investment portfolio.