Self Employed/ Pandemic Unemployed - Cash Purchase vs No Purchase

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Self Employed/ Pandemic Unemployed - Cash Purchase vs No Purchase

Dave Dupuis
Member since 2019 · 2 posts · 0 votes

Hi everyone - 

I'm self employed and currently unemployed due to this pandemic, expecting my profession to start kicking back in full swing in late 2021 or probably 2022. I have been eager for years to get into real estate investing but because of work and life I've been putting it off. Now is the time and I have the cash in the bank but do my limited self employment income have yet to get approved for any financing options that make sense for any deal to work out. 

Am I just foolish to buy a duplex for cash as and investment/ not owner occupied ? Still leaving a pretty good amount of liquid cash available for future deals.

My thinking is this cash purchase will give me cash flow/income which in turn will make me more eligible for future opportunities and mortgages.

See the deal below which is in Southern New Hampshire where I am from, know the area and am looking to invest in.

Purchase w/ Closing costs would be 205K

Using the trusty BP calculator after - 6% Repairs & Maintenance - 6% Vacancy - 6% CapEx - 6% Management Fees -

I would be cash flowing 1150/ month a 5.7% return.

That said, I think the cash flow will be better as I will be self managing (from out of state though) and the building is in good shape so hopefully won't need too much repair/ cap ex.

Am I just a newbie fool? If you think so what other RE investment angles would you suggest? 

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  • John L DeVitto Jr
    Flipper/Rehabber · Atkinson, NH · Member since 2017 · 20 posts · 13 votes
    5y

    Hey Dave, 

    That's great you have saved that much money to put yourself in this position! Great position to be in with the unfortunate news of loosing your job for a short time. If the numbers make sense to you then do it. I like to see a higher numbers on the ROI (+13%), what do they look like if you take out the management? The nice thing about buying cash is you can fix up what needs to be fixed and get the rent up to market rates... then refi once you have your steady job back and that way you can maximize the amount of CASH you get back. It would be like the BRRRR strategy. What's your expected ARV once done with the repairs?

    Also run the numbers on what it would look like after you refi. With a duplex (not using FHA) you could get a loan from 85% to 75% LTV. Bring down the repair and cap X % depending on how much work you plan to do to it.


    PM if you want to talk more.

    Johnny

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  • Marc Winter
    Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    Remember that most lenders (banks/mortgage bankers) will discount your rental income, so it may or may not have a benefit for your bottom line as seen with the eyes of the lender.

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  • Kenny Tan
    Homeowner · Sacramento, CA · Member since 2010 · 52 posts · 8 votes
    5y

    Hi, I don't know how far away is out-of-state. I am also sure with the right tenants you can make it work. But so much can go wrong. I need my boots on the ground to see the problems. Good luck.

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  • Dave Dupuis
    OP
    Member since 2019 · 2 posts · 0 votes
    5y

    Thanks for feedback here guys - I was just speaking to a mortgage broker out here and as an FYI she said investor Refi's aren't too favorable these days and when you do get them the % rate is in the 5-6+% area. 

    Maybe not so smart to do this if it'll lock away all the cash.

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  • Adam Reeves
    Rental Property Investor · NH · Member since 2019 · 27 posts · 13 votes
    5y

    @Dave Dupuis

    Dave maybe seek another bank, I am currently doing a cash out refi at 3.75% on a 2 unit. Bank of NH. I do have history with this bank but I don’t believe that plays into the rate.

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  • John L DeVitto Jr
    Flipper/Rehabber · Atkinson, NH · Member since 2017 · 20 posts · 13 votes
    5y

    @Dave Dupuis 

    My 9 unit just closed on its cash out refi loan today, I got 4% for 25 years. However it was at 70% ltv with this bank due to covid. I used them because I had too, I bought the property last year with them, and to avoid a huge payoff penalty I had to use that same bank for the refinance. BUT they did it! $118k back whoop whoop! So if you go to the right bank they will do a loan for 75% to 80% once your ready. 

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