Is this deal worth it?

Question

I'm interested in buying a 4plex as a primary in NYC at 1.3m. However, I only have enough funds for 12% downpayment. I'm not able to go the FHA route because the property will not pass the self sufficient test. The current rent roll on this property is 9.8k/mo and each unit pays they're own utilities. I do have the opportunity to raise the rent to $12k/mo when I get the place. The place will not need any work done on it and is ready to go in day 1. My broker recommended me to get a Hardmoney loan as a 2nd mortgage is help fund the remaining 8% with rates 12% (2 years term, 6 month
prepayment penalty, so the monthly payment for HM is $1,040/mo. See table below:

I have another business that cashflows $7k/mo and I was thinking I could use that cashflow and use it to pay off the HM loan. What are your thoughts?

Mohammed Rahman · Answer

Hey @Zulu Black - thanks for sharing your deal as well as your underwriting process!

I'm noticing that you're being pretty conservative with your annual maintenance & repair at $2k - Even if the property is completely turnkey, I would estimate a higher amount than ~ $170/month (unless you're planning on doing a lot of the regular maintenance yourself).

A general advice I would also give is to shy away from hard money loans on your primary home - your primary bank may actually even not allow it, depending on their underwriting criteria (forbidding any positions to come behind them) due to the nature of the low down payment approval. Do you know if your current lender has baked in the potential gross rental income of your property into your approval amount? If not, there are lenders that can offer you as low as 10% down loans without a PMI as long as the property has a DSCR of 1:1

My thoughts on using another business' cashflow into this property is also negative. If someone came to you and said "hey, I have 2 businesses. Business A has to give Business B money every month so that Business B doesn't die" - what would your thoughts be? Maybe you're ok with this if your investment strategy is to buy & hold for an extended period of time since you may be playing the appreciation game.

To answer your main question: Is this deal worth it? Depends on what's valuable to you. If you want to own a 4-plex and are ok with being in the red every month until you sell in a few years and cash out, then it's definitely worth it. If you're looking to house-hack and self sustain, then no.

Shoot me a DM and we can chat further if you're interested, happy to point you in the right direction.