Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
Monday I finally closed on rental number 8. I had signed the closing docs and everything two weeks ago, but the title company jumped the gun and the seller ( Fannie Mae) had not approved docs yet. They rescinded the closing and returned the wire back to me lender.
Purchase price was 97,500 with seller paying 2% closing costs. Home is a 4 bed, 2 bath with one car garage. I can turn it into a five bedroom with a little work. It needs paint , carpet, windows, dishwasher, a few holes patched and a new shower. It should rent for $1,200 to $1,300.
I did 20% down 5 year Arm with my portfolio lender at 4.8725%. Payment is low $500s with taxes and insurance.
Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes
12y
My biggest question would be "why would you divan arm when interest rates are at an all time low and can only go up. What happens if you hold it past 5 years and rates go to 10%.
1. My portfolio lender only offers ARMs or a 15 year fixed. The ARM has a much lower payment that the 15 year and I can cash flow much better with the ARM. I have 10 mortgages now so it is very difficult to get conventional financing. I don't have to jump through all the hoops with my portfolio lender or put 25% down.
2. The ARM has a lower rate and payment. I cash flow better with the ARM then I would a 30 year fixed. I snowball all my cash flow into paying off one mortgage at a time. Because I have more cash flow, I can pay off mortgages faster. According to my figuring I should not have any loans that spend more than a year at a higher rate.
3. Because the interest rate is fixed for five years, I have fives years of a lower interest rate than the fixed loan. My rate can only go up 2% in the first year and 2 % after that and is capped at 8% I think. It would take years for the fixed rate loan to be cheaper than the ARM because of the five years to the ARM was cheaper.
Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes
12y
Thanks for the explanation on your use of Arm mortgages. So that means if you carry the property for 10 years you could be at 8% per property. Ouch! I just like to think of worse case scenarios. The other question I have is "If you have 10 properties that cash flow, then why do you need to borrow money anymore?". Are you not making any money?
Real Estate Investor · Dallas, TX · Member since 2010 · 449 posts · 173 votes
12y
Congrats, Mark! This is exciting to hear (especially for me - I'm saving for #4 right now, so hearing about the successes of folks one or two laps ahead is particularly motivating just because it's that much more tangible). I think 97.5K purchase/1200-1300 rent is a nice sweet spot, and it's similar to what I've been aiming for.
Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
12y
@George P. correct, my portfolio lender doesn't offer 30 year fixed, so any loan I get with them has to be an ARM of 15 year fixed. I began using them after I had four mortgages because it was so hard to find a lender that would lend on more than four. My portfolio lender will lend on as many properties as I qualify for.
Yes, I could have a 8% mortgage if I had the note for ten years, but that's not in my plan and worst case scenario I would still cash flow. I bought my first rental 3 years ago and it is almost paid off. My returns are much greater with leverage than if I paid cash although I could pay cash. I can buy a lot more properties with a loan.
Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
12y
They still count as a mortgage and the 10 mortgage rule. But a portfolio lender lends their own money and doesn't sell their loans. They don't have to abide by the 10 mortgage or 20 mortgage rule because of that.
Wholesaler · Charlotte, NC · Member since 2013 · 269 posts · 66 votes
12y
Are ARMs your preferred financing option for buy and hold or are they apart of your exit strategy? just curious and congrats on your 8th rental on to the next!! Good luck
Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes
12y
Using the 2% rule your rent is 1.23% so isn't that really low. Also using the 50% rule if your rent is 1200 that means expenses will eAt up $600 your mortgage is 500 so you might just break even.
Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
12y
I don't pay attention to those rules and so far it has worked out. I explained earlier the mortgage payment includes taxes and insurance, interest and principal is $413. Taxes in my are about .05% which is typically 1/4 to 1/3 of most areas which lowers the 50% rule.
Investor · Fort Collins, CO · Member since 2011 · 38 posts · 14 votes
12y
Congrats Mark you are turning up everywhere today. In my inbox for alert on Greeley and I was offering on a short sale lead I got and estimating repairs on it in Wellington and I stopped to check out a house with papers posted and it was a notice from you as realtor doing an eviction on an REO.
Good stuff on the rational for ARM's a guy that lives on my street and has about 25 sfr's swears by ARM's because of what you said and in his investing lifetime interest rates have been mostly going down.
I went to the CSU Everitt Center Real Estate market prediction last night and they are real big on Greeley over the next 3-5yrs to continue appreciation and growth with oil and gas, business friendly and going over 100,000 population in about 2 years putting on the map for larger national developers and business'.
Time for me to make some more offers and get some more rentals.
Wholesaler · Charlotte, NC · Member since 2013 · 269 posts · 66 votes
12y
@MarkFuerguson just curious do you plan to only own SFR's in your portfolio? And if so is that due to the markets you invest in or the strategy guidelines you set for yourself?