Just starting out- Is this even possible?
Hello!
My wife and I are just working on building up some equity. We have a little bit of a suicide-run plan to try to buy a multi-family, and looking for a reality-check if we're going to hard, or perhaps into something that isn't possible for us. I totally welcome all opinions, positive or negative!
On the north shore of MA, we currently own a ~1500 Sqft Condo with about $70k of equity, but the value of our home has increased from about $500k to $630k via local comps & my realtor's estimate.
We are looking to purchase a multi-family local to us. The numbers seem to be in our favor, as well as some changes to local zoning. The home is listed at $720k, but we think we could get in at $680k. There are two units, currently TAW- rented below market value. The units are in tough shape and we'd like to finance additional money for reno & an ADU addition- I assume that we could refresh the interior and convert the attached garage space (200sqft) into a 350-400sqft rent-controlled ADU. I am pretty well locally connected and am not overly concerned about permitting/zoning.
Once complete- even with zero down I estimate- $5092 monthly mortgage (including financed rehab). Both units would potentially rent for 2600/unit. The ADU would additionally add $1500 (set by local ordinance) of potential rental income. Totaling $6738 monthly rent collected. Even budgeting for $1600 of monthly expenses (including vacancy and repairs) we still end up in the clear.
-We aren't overly concerned about turning a huge profit. I figure, in time, as rent increases & we are able to refinance, our profit margin will grow.
-Average yearly increase in property value of a little over 6% makes this feel like a small risk as we could cash out.
-We have just enough income to float the second mortgage in case hell lets loose. Renting our current home in an emergency scenario would help too.
-We have some cash on hand, but I'd prefer to hold it as it's our emergency fund.
Am I insane? If not, would a lender ever agree to do this with me? There is risk there, but plenty of escape plans.
Is there a condensed version we can respond to?
Quote from @Allan Smith:
Is there a condensed version we can respond to?
Apologies- I know it's a lot of info. I'm just hoping to get the best advice possible.
Spark notes version- with minimal money down, would I be able to secure a loan + reno funds? Post reno- the property would have some decent cash flow increasing over time in our hot real estate market.
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#3 All Forums Contributor
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Remember that your best case projections could be completely wrong. We don't know where this economy is headed. Other than that, you have fair chance to succeed.....
Quote from @Bruce Woodruff:
Remember that your best case projections could be completely wrong. We don't know where this economy is headed. Other than that, you have fair chance to succeed.....
Thank you Bruce! That's so true!
If the question is whether or not you can get a loan that you need, this mostly has to be answered by talking to lenders. Make sure you can get approved for the refi at the end before you buy the house so you don't get stuck. Just call some lenders and have them look over your financials and see if it's viable to go for it.
if you have a W-2 job it should be pretty easy. If you are self-employed with only a year or two of tax returns, there's a good chance it will be a little bit harder. You can look for a cosigner.
Quote from @Phillip Dixon:
Hello!
My wife and I are just working on building up some equity. We have a little bit of a suicide-run plan to try to buy a multi-family, and looking for a reality-check if we're going to hard, or perhaps into something that isn't possible for us. I totally welcome all opinions, positive or negative!
On the north shore of MA, we currently own a ~1500 Sqft Condo with about $70k of equity, but the value of our home has increased from about $500k to $630k via local comps & my realtor's estimate.
We are looking to purchase a multi-family local to us. The numbers seem to be in our favor, as well as some changes to local zoning. The home is listed at $720k, but we think we could get in at $680k. There are two units, currently TAW- rented below market value. The units are in tough shape and we'd like to finance additional money for reno & an ADU addition- I assume that we could refresh the interior and convert the attached garage space (200sqft) into a 350-400sqft rent-controlled ADU. I am pretty well locally connected and am not overly concerned about permitting/zoning.
Once complete- even with zero down I estimate- $5092 monthly mortgage (including financed rehab). Both units would potentially rent for 2600/unit. The ADU would additionally add $1500 (set by local ordinance) of potential rental income. Totaling $6738 monthly rent collected. Even budgeting for $1600 of monthly expenses (including vacancy and repairs) we still end up in the clear.
-We aren't overly concerned about turning a huge profit. I figure, in time, as rent increases & we are able to refinance, our profit margin will grow.
-Average yearly increase in property value of a little over 6% makes this feel like a small risk as we could cash out.
-We have just enough income to float the second mortgage in case hell lets loose. Renting our current home in an emergency scenario would help too.
-We have some cash on hand, but I'd prefer to hold it as it's our emergency fund.
Am I insane? If not, would a lender ever agree to do this with me? There is risk there, but plenty of escape plans.
Hi Phillip,
I highly suggest you read Chapter 7 from The ABCs of Real Estate Investing - this will help in your situation. Actual Income, Actual Potential Income and Future Income.