Beginner investor starting out in Baltimore

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Beginner investor starting out in Baltimore

Sam G.
Baltimore, MD · Member since 2017 · 26 posts · 5 votes

Hi BP,

I have been reading the forums, listening to podcasts, and taking a few online real estate classes for a while now and feel like I have a decent handle on the basics. My goal for 2017 is to get my feet wet in real estate investing and I think I might have a potential property near where I live in Baltimore.

It's a duplex in a great area (Fells Point) that can use a reasonable amount of TLC. It's currently listed for $275,000 and one unit is being rented for $1200/mo. Based a price per square foot of recent comps in the same neighborhood, the ARV should be somewhere around $350,000 with a rental potential of $1400-$1500/mo. The realtor who I've been working with confirmed these numbers. I have not yet talked to a contractor about reno costs, but I think that $40,000 is a reasonable estimate.

The financing is what I'm getting hung up on. I realistically don't have access to the ~$95,000 for a 20% down payment plus renovation costs. At the same time though, if I go the 203K route, I will end up with a negative cash flow from renting only the one unit. 203K still makes more financial sense than renting, which I am currently doing, but I would really like to be cashflow positive on my first deal. 

Any suggestions or routes that I haven't considered? Or should I just keep saving and wait until I can take on a bigger down payment?

Thanks in advance!

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  • Anthony Angotti
    Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes
    9y

    Hi @Sam G.

    • Partner with someone with Cash, but no time. 
    • Take out a personal loan from a family/friend/anyone for Down Payment.
    • Gift funds from family. 
    • Do 203(k) then refi and BRRRR out of it.
    • Seller finance if they own 100%
    • Buy, rehab, tenant, and then sell. 
    • Wholesale, pick up extra shifts, work on the side, make some money as a side hustle to raise some cash. 
    0Reply
  • Joe Norman
    Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    Welcome to BP and to the Baltimore investing community. What neighborhoods in Baltimore are you considering? I ask because "nicer" could mean different things to different people. I think you'll find the best cashflow in some of the B/C class neighborhoods in our city as opposed to what I personally consider the "nicer" A class neighborhoods, and since your goal is passive income you might want to shift your focus to those areas. Good luck!

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  • Sam Frank
    Contractor · Baltimore, MD · Member since 2017 · 32 posts · 18 votes
    9y

    Hi Sam. 

    I live in the Hampden area and am pretty familiar with neighborhoods across Baltimore - being a young person who you might catch at Johnny Rocket's on the weekend.

    Having recently bought my home in Hampden for ~$250K, after 20% down, my monthly payment is ~$1500. Doing some back of the napkin math, with $315K total investment ($275k purchase price, plus $40k on the reno), your monthly payment would be ~$1900-$2000 per month (assuming 20% down). Does that sound right?

    How much rental income are your expecting? $1400-1500 / month? I thought you said one unit was being used as a rental right now at $1200 / month right now. Are you planning on living in the other unit?

    Also, can you not do FHA financing? Why do you need to put down 20%? If cash is a barrier to entry, you could put down ~$48K to do this deal (3% down on FHA, $40K in reno on top of that). But then, what is your mortgage payment after that? Maybe still pretty good - would have to look into this.

    In terms of evaluating the following deal:

    1. You rent out one unit, live in the other

    2. Have ~$95K to put down, meeting your 20%

    I'd say this might be a good first deal. 

    Fix it up quickly, start living there paying below avg rent for Fells Point, rent out the other bedroom for that ~$1400-$1500 number that you suggested and then live there for 2 years to avoid capital gains tax as a owner-occupant, selling the home for $350K or more capturing ~$35K in profit from appreciation.

    Our company, Four Twelve Development, works as a contractor in Baltimore City. We have a good stable of subs, we are affordable and we like doing deals. I am not sure what kind of reserves you have to do this deal, but there are also cheaper assets to go after in Baltimore that I'd be happy to tell you about. Caveat..having cash is usually very important to get into some of these choice deals, but if you can hunt down good deals, this is a great thing to bring to the table.

    Appreciate the opportunity to discuss a deal in Baltimore. Thanks for posting @Sam G. !

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  • Sam G.
    OP
    Baltimore, MD · Member since 2017 · 26 posts · 5 votes
    9y

    @Anthony Angotti- That's perfect! Exactly the sort of information I was looking for. I'll look into each of those options and see which one, if any, will work best for me.

    @Joe Norman- I realize that I replied to you on both of my forum posts, so feel free to reply to either one and we can consolidate our conversation

    @Sam Frank- You're making good points. The numbers thing is pretty much exactly what I'm trying to figure out. To answer some of your questions, the one unit is currently rented for $1200, but based on comps in the area, I think it would rent for $1400-1500 once renovated and updated. If I went the FHA/203K route, then I would live in the other unit, yes. I'm hesitant to do this however, because it would result in a negative cash flow since the income from the one unit wouldn't cover the entirety of my mortgage payment. Like you said though, it still could be a good first deal once I take into account the forced appreciation from the renovating and updating.

    Also, if all goes according to plan, I will probably be looking for a good contractor in the near future for a home inspection and renovation. If this situation arises, would it be alright if I contacted you through BP to get more information about your company?

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  • Sam Frank
    Contractor · Baltimore, MD · Member since 2017 · 32 posts · 18 votes
    9y

    @Sam G.

    would love to be in business, if you find a project that you want to dig into. at the least, we could come out on site and give you a free estimate on the reno so that you can better approximate your costs

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Sam G. that deal doesn't sound like any deal I would want to do. It sounds like negative cash flow to me. Property expenses are mush higher than most new investors think.

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  • Sam G.
    OP
    Baltimore, MD · Member since 2017 · 26 posts · 5 votes
    9y

    @Ned Carey- I'm starting to think the same thing. I'm going to hold out for a 3-4 unit place that will give me some positive cash flow even with me living in one of the units. Thanks for heads up!

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