California 4 Unit - Epitome of CA Excess?

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California 4 Unit - Epitome of CA Excess?

Craig Kleffman
Reseda, CA · Member since 2016 · 78 posts · 48 votes

I thought I'd share this report I just generated.  

The report is here, incidentally:

https://drive.google.com/open?id=0B5YbSRYrt3Q8WXN1...

We're looking at, among other things, opportunities in Orange County for triplex and fourplex properties that we can attain using fha financing.  We qualify for the max - and I'm happy to leverage our way into a multifamily.  Uniquely, however, we need a true owners unit give the four person family I head (me, wife, and two young kids).  

So, we found this place for $1.75 million.*  It's a nice looking place - but how the hell do you make the numbers work?  Turns out you don't.  The itemized expenses are $12,000 a month against $8,000 of gross rents.  So, expect a loss of at minimum $4k a month.  

This is a triplex, with the main house assigned a rent of $3,400 a month.  So that, we would need to expect to fund a housing cost to our family of $7,400 per month (3400 in "rent" to ourselves and another $4,000 in loss a month).  

Then, I thought through - what about creative financing? What if we did an interest only balloon payment. Even then at a 5% interest only with a 10 year balloon, we'd have an annual finance cost of $87,500, or about $7,291.67 per month. With a traditional FHI mortgage the finance cost is PI of $8,057.74 plus another $850 for PMI; so nearly $9,000; the savings is about $1,800 a month, but that leaves a $2,200 a month loss - which is $26,400 in annual loss.

Now what is not on the analysis, however, is our tax issues.  We would take the loss which would reduce our taxable income.  We would gain access to a write-off of the property over its 27.5 year expected life.  So, the annual depreciation on a $1.75 million purchase would be $1.75mm/27.5 years = $63,634.54 as a reduction from our income on the property.  So that, instead of us being taxed on $190,000 of joint income, we would be taxed on ~$127k of income instead.  In other words, about 1/3rd of the depreciation ($63,634.54 /3 = ~$21k) in taxes we don't send to washington or sacramento.  But, even with an arguable (someone correct me if I've got it wrong please), tax benefit of $21k, we still end up about $49,000 LESS the $21k tax benefit still amounts to a $28k loss.  i suppose that's the speculative payment for hoping that soCal real estate appreciates at the rates it has done since the early 1960s.  I suspect one would not even break even on this property - even when including the tax benefit - for another 4-7 years.  

-Craig.

____

* Yes, I'm aware FHA loans don't reach to $1.75 million - this is what generated me reviewing this deal to see how one could expect to do. I didn't want to get into the complex math of a seller carrying paper. Turns out, though, once I ran through the numbers - neither fHA nor private seemed to come close making a workable deal. The max fha loan for a fourplex in Oc is around $1.25 million for a fourplex.

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y

Hi @Craig Kleffman,

Yup, you've discovered that [ FHA + Retail Price + MLS + 2-4 unit = less than ideal ] in hotter markets.

We talk about FHA+MFR for countless hours each year, but I can count on one hand the number of these I actually do in that same given year in SoCal / Bay Area (eg, excluding rural California).

And for that handful, it's typically a slightly different formula:

[ FHA + Off Market + Discounted Price + 2-4 unit = win ]

Ain't nothing I can do as a mortgage guy to make FHA not FHA except give you pragmatic advice. It's FHA, and you're only putting typically 3.5% down, with mortgage insurance on 96.5% of the sales price. It is what it is.

So, pragmatically, you've got to Hustle Like a Wholesaler (HLAW) (tm) (yup I just made that acronym up and I'm going with it) and SELL to make it happen w/ FHA 3.5% down in the MFR space in a hot market. Drive for dollars, dial for dollars, knock for dollars, mailers, signs, networking, etc. You can pair that with your lender speaking with the seller to offer assurances that the loan will go through (eg, outsource some of your selling to your lender), but at the end of the day it's on you to HLAW if you want to be in that "handful a year" category and not the "oh look another hour of talking about something you will never actually do because you have no hustle" category.

You can also trade in that hustling for 15% down on a duplex or 20% down on a 3-4 unit (owner occupied in both cases). When you do 3.5% down on a MFR, you're really still doing 25% down. It's just that 3.5% is cash, 5% because you're an owner occupant, and the remaining required balance of the 25% down payment is in the form of your HLAW and sales ability.

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y

    Hi @Craig Kleffman,

    Yup, you've discovered that [ FHA + Retail Price + MLS + 2-4 unit = less than ideal ] in hotter markets.

    We talk about FHA+MFR for countless hours each year, but I can count on one hand the number of these I actually do in that same given year in SoCal / Bay Area (eg, excluding rural California).

    And for that handful, it's typically a slightly different formula:

    [ FHA + Off Market + Discounted Price + 2-4 unit = win ]

    Ain't nothing I can do as a mortgage guy to make FHA not FHA except give you pragmatic advice. It's FHA, and you're only putting typically 3.5% down, with mortgage insurance on 96.5% of the sales price. It is what it is.

    So, pragmatically, you've got to Hustle Like a Wholesaler (HLAW) (tm) (yup I just made that acronym up and I'm going with it) and SELL to make it happen w/ FHA 3.5% down in the MFR space in a hot market. Drive for dollars, dial for dollars, knock for dollars, mailers, signs, networking, etc. You can pair that with your lender speaking with the seller to offer assurances that the loan will go through (eg, outsource some of your selling to your lender), but at the end of the day it's on you to HLAW if you want to be in that "handful a year" category and not the "oh look another hour of talking about something you will never actually do because you have no hustle" category.

    You can also trade in that hustling for 15% down on a duplex or 20% down on a 3-4 unit (owner occupied in both cases). When you do 3.5% down on a MFR, you're really still doing 25% down. It's just that 3.5% is cash, 5% because you're an owner occupant, and the remaining required balance of the 25% down payment is in the form of your HLAW and sales ability.

    4Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Craig Kleffman:

    I thought I'd share this report I just generated.  

    The report is here, incidentally:

    https://drive.google.com/open?id=0B5YbSRYrt3Q8WXN1...

    We're looking at, among other things, opportunities in Orange County for triplex and fourplex properties that we can attain using fha financing.  We qualify for the max - and I'm happy to leverage our way into a multifamily.  Uniquely, however, we need a true owners unit give the four person family I head (me, wife, and two young kids).  

    So, we found this place for $1.75 million.*  It's a nice looking place - but how the hell do you make the numbers work?  Turns out you don't.  The itemized expenses are $12,000 a month against $8,000 of gross rents.  So, expect a loss of at minimum $4k a month.  

    This is a triplex, with the main house assigned a rent of $3,400 a month.  So that, we would need to expect to fund a housing cost to our family of $7,400 per month (3400 in "rent" to ourselves and another $4,000 in loss a month).  

    Then, I thought through - what about creative financing? What if we did an interest only balloon payment. Even then at a 5% interest only with a 10 year balloon, we'd have an annual finance cost of $87,500, or about $7,291.67 per month. With a traditional FHI mortgage the finance cost is PI of $8,057.74 plus another $850 for PMI; so nearly $9,000; the savings is about $1,800 a month, but that leaves a $2,200 a month loss - which is $26,400 in annual loss.

    Now what is not on the analysis, however, is our tax issues.  We would take the loss which would reduce our taxable income.  We would gain access to a write-off of the property over its 27.5 year expected life.  So, the annual depreciation on a $1.75 million purchase would be $1.75mm/27.5 years = $63,634.54 as a reduction from our income on the property.  So that, instead of us being taxed on $190,000 of joint income, we would be taxed on ~$127k of income instead.  In other words, about 1/3rd of the depreciation ($63,634.54 /3 = ~$21k) in taxes we don't send to washington or sacramento.  But, even with an arguable (someone correct me if I've got it wrong please), tax benefit of $21k, we still end up about $49,000 LESS the $21k tax benefit still amounts to a $28k loss.  i suppose that's the speculative payment for hoping that soCal real estate appreciates at the rates it has done since the early 1960s.  I suspect one would not even break even on this property - even when including the tax benefit - for another 4-7 years.  

    -Craig.

    ____

    * Yes, I'm aware FHA loans don't reach to $1.75 million - this is what generated me reviewing this deal to see how one could expect to do. I didn't want to get into the complex math of a seller carrying paper. Turns out, though, once I ran through the numbers - neither fHA nor private seemed to come close making a workable deal. The max fha loan for a fourplex in Oc is around $1.25 million for a fourplex.

    Beyond what Chris mentioned to getting a good deal to make this fourplex in Northridge area work is that with FHA you also have the self sufficiency rule and in my experience only fourplexes that have gross rents of .90% relative to the sales price or acquisition price have worked with FHA.

    This means your 1.7 fourplex would need to rent for .90% or $ 15,300 per month or $3825 per unit in order for your FHA financing to go through.

    This is mainly why I havent done many FHA 3-4 units (SS rule only applies to 3-4 units on FHA) in Orange county/Los Angeles/San Diego except back in 2010-2012 when rent to price ratios were more in line with .90%.

    You could often find .90% to meet the SS rule in santa ana, riverside, banning, san bernardino, ontario, maybe in the valley by victorville/apple valley/hesperia and other places where things can tend to be a bit more depressed.

    Nowadays even a wholesale deal in a prime market like huntington beach or hermosa beach probably wont work (fourplex is probably 1.6 -2.0 M and wholesale deal is probably 1.3-1.5M) and if it did work it would be a unicorn of sorts and you would be a very lucky individual indeed.

    1Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    Also Im not a tax professional but I've worked on a alot of mutual cases with accountants. I do know that if you're not a RE professional and even if you're actively managing your real estate assets you will not be able to write off any of your passive losses from your rental real estate when you're over 150k AGI (you mentioned you were 190k AGI - prior to itemized deductions and exemptions).

    Also the other thing is that when accountants go to create your depreciation schedule they dont take the 1.75M and divided it over 27.5 years.

    They typically (other wise proven via engineering study or cost seg report) use the LA/ventura county tax assessors value for land and improvement(building) and they take that percentage on the assessors website and apply it to your 1.75M sales or acquisition price to determine your depreciable basis.

    So for example, if the improvement was 80% of 1.75M then you have a depreciable basis of $ 1,400,000 / 27.5 years = $ 50,909.10 annual write off.

    Back to the above REpro, if you're not a REpro, you wouldnt be able to write off anything against your active/earned income and you feel the full brunt of the tax man unfortunately.

    3Reply
  • Justin R.
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Albert Bui is spot on with the calculation corrections ... but that just makes something ugly look, uglier.

    The real problem is that you're looking at $8k in GSI and paying $1.75M for it. It doesn't work for *anyone* who wants a current return on their capital.

    From personal experience in the SoCal market with both tris and quads, I know that my monthly GSI has to be at least 0.80% of property cost in year 2 to justify a long term B&H. And, that assumes self-management and separately billed utilities.

    Good luck!

    1Reply
  • Paul Caputo
    Cost Segregation Specialist · Naperville, IL · Member since 2016 · 204 posts · 168 votes
    9y

    If you were investing in anything else would you consider an investment that loses over $20,000 a year? Of course not. I think too many people get caught up in trying to house hack and make an owner occupied multi-family work when it may make more sense to live in one place and do business in another. Even if you got this place and rented all 3 units and lived elsewhere you'd still be losing money on it or barely breaking even. If you want to live there because you want to then the liability is worth it if you deem it to be, but if it's solely a business decision I think you already answered your own question.

    On the tax side the depreciation would only apply to the rental property in proportion to the entire property. On a $1.75M property you'd generally have about 20% land value (The actual number would be in the tax assessment and appraisal) so you're looking at about $1.4M cost basis for the actual building. You allocate that based on square footage, so if all three units are the same size each gets one third of the cost basis, but if the main house is the size of the other two units combined then it'd be half to the main house and a quarter to each smaller unit. So if they're all the same size your depreciable cost basis from the rental property would be 2/3 of $1.4M or about $933K. So your annual depreciation on that would be $933K/27.5 or $33.9K so you'd more realistically be looking at around $11K in tax savings per year, not $21K. 

    Of course you could do an engineered cost segregation study to reclassify some of that depreciation to 5, 7 or 15 year asset lives with accelerated treatment. This allows you to take more of the depreciation sooner and in turn lowers long life depreciation. Due to the time value of money this can have a huge positive impact on any real property transaction. The idea here is instead of getting that $11K in tax savings every year for 27.5 years you'd get $20K in tax savings for the first five years and $9K in tax savings for the remaining 22.5 years. Those numbers aren't exact of course, just illustrating the point. On property over a million dollars the tax savings from cost segregation can be between $50K-$100K+ so it should be seriously considered with every major purchase of commercial or rental property. 

    If you have specific questions on cost segregation please feel free to PM me.

    1Reply
  • Craig Kleffman
    OP
    Reseda, CA · Member since 2016 · 78 posts · 48 votes
    9y

    I agree it seems crazy high (just my luck of course).  

    But, it dawns on me --there's a much bigger question:  Who *IS* buying these properties, what is THEIR analysis, and WHY are they doing it?  Are they buying cash?  Are they borrowing?  Are purchases doing all cash deals?  Why buy a fourplex, when just slotting yourself into 5+ units drops the cost per square foot by at least $100?  If people are buying to live in it (like us) - are they just financially dumb?  

    I mean, not that anyone asked - but I can show you a pile of properties that are admittedly cheaper than this - but nonetheless $1.0MM to $1.25 MM or so, that will present a similar sort of lack of cash flow, lose money for multiple years scenarios. . . 

    Love to hear the answer to THAT!  :-).  

    cek.

    1Reply
  • Rich Lopes
    Rental Property Investor · San Jose, CA · Member since 2016 · 114 posts · 54 votes
    9y
    May be there is some business reason for someone to show losses against huge gains they are making elsewhere or they might want to eventually redevelop such lots into larger properties or entirely tear it down built 3-4 town homes and sell them at 1m+ a piece?
    1Reply
  • Paul Caputo
    Cost Segregation Specialist · Naperville, IL · Member since 2016 · 204 posts · 168 votes
    9y

    This is just a guess, but it'd probably be a real estate professional with many other properties renting out all the units as opposed to owner occupied. If they can make it work to eventually go positive the short term losses are mitigated by future returns. Pair that with being able to put losses here against gains elsewhere and it starts to make more sense. 

    Also be careful if you're not a real estate professional rental income is considered passive income and you can only deduct passive losses to the point of passive income, anything further is disallowed in the current year and carries forward to next year. If you continue showing passive losses and don't have other passive income it'll just keep adding up and you won't be able to take it until you go positive. So again it'd probably be a real estate professional doing these types of deals since the short term losses would lower their taxable income and they could make it work long term.

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    the reason these properties still sell well is because people with $$$ buy them. That thing will cash-flow nicely with 30-40% down. And someone with some dinero can do that. I'm also assuming it's in a good neighborhood, so it probably has very good long term appreciation potential. I mean, rich people want to buy investment real estate too ;)

    1Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    @Matt H. want to chime in? This is his market and area of expertise I believe.

    0Reply
  • Craig Kleffman
    OP
    Reseda, CA · Member since 2016 · 78 posts · 48 votes
    9y

    So let me understand this (and I mean this 100% respectfully, but admittedly with a dash of sarcasm):  The rich folks like to invest in a deal that loses $50k or so a year, because that's good for taxes?  And as far as 30-40% down with "nice cash flow" that ignores what the value of the 30-40% down (e.g., $50-70,000).  They're putting in $50 the first year, with the best case scenario they'll lose it based on cash flow.  

    Now, the other side (mentioned above) I totally get.  Sure, whatever they lose in cash flow they'll get back in strong appreciation as has occurred for the last 50 years in so-cal.  So that they'll lose $50k in cash, but gain $50k in appreciation (or more).  And as that continues, so the argument goes, one should endure great losses now, for the promise of appreciation tomorrow.  OK - that I "get" (to some degree).  There's always a reason . . . not always a great reason -- but people are mostly very rational.  

    -craig.  

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  • Craig Kleffman
    OP
    Reseda, CA · Member since 2016 · 78 posts · 48 votes
    9y
    Originally posted by @Paul Caputo:

    This is just a guess, but it'd probably be a real estate professional with many other properties renting out all the units as opposed to owner occupied. If they can make it work to eventually go positive the short term losses are mitigated by future returns. Pair that with being able to put losses here against gains elsewhere and it starts to make more sense. 

    Also be careful if you're not a real estate professional rental income is considered passive income and you can only deduct passive losses to the point of passive income, anything further is disallowed in the current year and carries forward to next year. If you continue showing passive losses and don't have other passive income it'll just keep adding up and you won't be able to take it until you go positive. So again it'd probably be a real estate professional doing these types of deals since the short term losses would lower their taxable income and they could make it work long term.

     Hey Paul - 

    Thanks for the note.  Minor pre-amble:  I'm just politely arguing, making a point - not pounding on the table here.  No disrespected is intended whatsoever.  

    The above doesn't make sense to me for at least one basic reason.  This is a triplex.  It is priced at around $350/sf, if memory serves.  That same investor could buy a five unit for roughly (something like) $200/sf.  In other words, once one goes to commercial real estate (five and six units and above) and leaves behind residential (1-4 units) there's a natural cliff.  NOw, the 1-4 unit cliff, is subsidized by residential purchasers like myself who can compete with the professionals by way of a 3.5% downpayment and the highly leveraged world of fha loans - which means more demand can--and apparently does-- drive the price up.  But why would the professional looking to add more doors want to mess with 3-4 unit properties - aren't they well served in this hot market to stick to those 5+ unit properties?  

    Happy to hear the thoughts.  AGain - just my view - I may be 125% wrong - and I'd be delighted for someone to show my why that is so.  Honest.  

    cek.

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  • Matt H.
    Real Estate Broker · CA · Member since 2016 · 243 posts · 226 votes
    9y

    Thanks @David Faulkner

    So I would say to this thread that 1.75M triplexes in Socal are more the exception than the rule. This is a pretty similar argument to: "I was looking to put money to work in the state of New York and we happened on this building near the Apple store on 59th an 5th and are just really struggling to make the numbers work".

    At 1.75M for a triplex I'm guessing this is in Newport, Laguna or maybe the parts of Dana Point or San Clemente where they have income with views. That really just the upper end of the market. At almost 600k/unit and those rents there is no reason to even break out the spreadsheet; of course it doesn’t work. Something like that is designed for old ladies to park their cash or for you to buy a 2M house by the ocean and catch a couple bucks of rent in the back.

    CA is the 6th biggest economy in the world, snugly wedged right between the UK and France. Socal is more than half of that. It’s a big place. Most triplexes don’t cost 1.75 so it’s not a good example. I invest in Orange County which is still very very expensive by national standard and I don’t generally spend much over 200-250k/unit. I'm in escrow for two triplexes side by side right now for just over 1.1M total. That's a better example. I won’t consider it if I can’t get the cap rate over the cost of capital. In 2009-2013 maybe you can get some of those appreciation type places to cash flow, we have a couple but it hasn’t worked close the coast in at least 3-4 years. In my opinion, in 2017, 1 and 2 coastal caps are where you buy to live when you have a couple bucks, not where you invest.

    Matt

    2Reply
  • Paul Caputo
    Cost Segregation Specialist · Naperville, IL · Member since 2016 · 204 posts · 168 votes
    9y

    Isn't that what these forums are about? Politely offering differing opinions? :) @Craig Kleffman You have striking and well thought out arguments here, just trying to add my perspective. The truth is it's out there so someone will buy it sooner or later. It just seems more likely it'd be someone who would be able to structure the investment in tandem with other things perhaps in an effort to turn those negative numbers into positive ones. 

    Of course it makes sense for a larger investor to go into a larger 5+ property, but there are plenty that stay in the 4 and under market because that's where they're at with their personal strategy. Saying why doesn't everyone do that misses the complexity in pairing the individual investor with the overall market. If everyone did the same thing we'd all be living in apartment complexes (instead of just me!) but that's not the case there's a wide variety of options. Different living conditions are acceptable to different tenants just like different investments are acceptable to different investors. 

    Just trying to help prove your point that maybe this isn't the best investment for you. Is it the epitome of CA excess? Perhaps. Are there better alternatives to this? Probably. But that's really up to you and what you want. Ten years from now would you make the same decision? 

    You're much farther along than I am and I applaud you for it, and I'm sure you owe that to hard work and recognizing what to do with constructive advice. Matt has a point here, 5th Avenue is a lot more expensive than Queens. You might be confusing your best place to live with your best place to hold a rental. If you want to combine the two you may need to compromise.

    Thank you @Matt H. for chiming in, things always become clearer with a local perspective! 

    0Reply
  • Matt W.
    Rental Property Investor · Los Angeles, CA · Member since 2016 · 57 posts · 34 votes
    9y
    I laughed when I saw the link in the original post. I was look for investments in OC and I had already come across this listing which had me scratching my head upon review of the numbers. It is not in a beach community as Matt has suggested above, more like 20 miles inland, in a so so part of Orange at that. If you act as if you're purchasing the home to live in long term, and graciously price that at $1M, then you are buying a duplex for $375k/door. None of that math works or makes sense. There might be a buyer out there for this at the listing price, but I don't think they are your typical investor. I have this listing saved so I can go back and see if it actually sold, but seeing the listing history of it being marketed and pulled I would not be surprised to see this sit without a buyer and then get taken off the market again.
    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    @Craig Kleffman how is this thing loosing $50k if someone puts 30% down?

    Btw I'm talking in general about 2-4 units in better, and more expensive neighborhoods. This specific deal may be over priced. But my point is that people with $$$ can put a larger down payment and get cashflow. What that gets them (if they choose well) is a property in a prime location where tenants are much easier to manage, their downside is lower and where appreciation is much more likely. 

    Simple as that. 

    0Reply
  • Account Closed
    Sherman Oaks, CA · Member since 2017 · 56 posts · 11 votes
    9y

    This is a great discussion on overpriced CA properties. I'd like to share some knowledge on financing units with FHA.

    This is something that usually gets discovered too late in the transaction. FHA has a what's called a "Self-Sufficiency Rental Income Eligibility" requirement for 3-4 unit properties. Here is a quote from the FHA 4000.1 handbook:

    "The PITI divided by the monthly Net Self-Sufficiency Rental Income may not exceed 100 percent for three- to four-unit Properties ... Net Self-Sufficiency Rental Income is calculated by using the Appraiser's estimate of fair market rent from all units, including the unit the Borrower chooses for occupancy, and subtracting the greater of the Appraiser's estimate for vacancies and maintenance, or 25 percent of the fair market rent."

    Thus, 3.5% down is not usually enough for these properties. 

    0Reply
  • Fay Chen
    Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes
    9y

    Not sure if I understood you correctly. My calc shows it will cost you ~$3000/mon to live there (if you get $3400/mon income from the other units). That's cheaper than renting a 3 bedroom house in Orange. I'm not saying that's what you should do, but maybe that explains why other ppl are willing to pay that kinda money for it.

    Property Price $ 1,749,000
    Down Pmt 3.5%  
    Term 30 years
    Rate 4.00%  
    Down Pmt $ 61,215  
    Closing $ -  
    Total Initial Inv. $ 61,215  
    Monthly Expenses    
    Mortgage $ 8,058  
    Amrt $ (2,522)  
    Int. Deduction $ (1,383.82)  
    Prop. Tax $ 1,894.75  
    Maint. $ 170.00  
    Insurance $ 70  
    HOA $ 50  
    Utilities  
    Internet  
    Total Exp. $ 6,336  
    Rental Income $ 3,400  
    Total Expenses $ 2,936  
    0Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Fay Chen:

    Not sure if I understood you correctly. My calc shows it will cost you ~$3000/mon to live there (if you get $3400/mon income from the other units). That's cheaper than renting a 3 bedroom house in Orange. I'm not saying that's what you should do, but maybe that explains why other ppl are willing to pay that kinda money for it.

    Property Price $ 1,749,000
    Down Pmt 3.5%  
    Term 30 years
    Rate 4.00%  
    Down Pmt $ 61,215  
    Closing $ -  
    Total Initial Inv. $ 61,215  
    Monthly Expenses    
    Mortgage $ 8,058  
    Amrt $ (2,522)  
    Int. Deduction $ (1,383.82)  
    Prop. Tax $ 1,894.75  
    Maint. $ 170.00  
    Insurance $ 70  
    HOA $ 50  
    Utilities  
    Internet  
    Total Exp. $ 6,336  
    Rental Income $ 3,400  
    Total Expenses $ 2,936  

    Thats great and all but we also have to realize that the maximum high balance limit for 4 units in LA and OC counties is $1,223,475 so you cannot put down 3.5% on this deal anyway but rather $525,525 if we're looking at it from a FHA or conventional loan stand point. Its something all the posts above have not considered but I thought I'd point out.

    1Reply
  • Craig Kleffman
    OP
    Reseda, CA · Member since 2016 · 78 posts · 48 votes
    9y
    Lots of great discussion here, with diversity of thought, and very polite people.  Love that!  

    Fay, I think there is a bit of confusion.  This is a triplex, not a quad.  So, I think the different is this:  There's 3,400 in rent (or so - I'm ball parking it as I'm writing this post) from the back units (2x $1700).  The front house is listed with a rent of something like $3,400 as well.  So, the pro forma includes about $6800 in rent.  So, not only would it cost us the $3,400 in rent, but we'd also have to kick in another $3,000 or so a month to make up the difference between the expenses that outpace income by about $3,000 or 4,000 a month.  

    And, looking a bit closer, I also don't see a line item in your analysis for Mortgage Insurance, which would be required unless we put something like 25% down.  And, that stuff is expensive!  

    cek.  

    Originally posted by @Fay Chen:

    Not sure if I understood you correctly. My calc shows it will cost you ~$3000/mon to live there (if you get $3400/mon income from the other units). That's cheaper than renting a 3 bedroom house in Orange. I'm not saying that's what you should do, but maybe that explains why other ppl are willing to pay that kinda money for it.

    Property Price $ 1,749,000
    Down Pmt 3.5%  
    Term 30 years
    Rate 4.00%  
    Down Pmt $ 61,215  
    Closing $ -  
    Total Initial Inv. $ 61,215  
    Monthly Expenses    
    Mortgage $ 8,058  
    Amrt $ (2,522)  
    Int. Deduction $ (1,383.82)  
    Prop. Tax $ 1,894.75  
    Maint. $ 170.00  
    Insurance $ 70  
    HOA $ 50  
    Utilities  
    Internet  
    Total Exp. $ 6,336  
    Rental Income $ 3,400  
    Total Expenses $ 2,936  
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