First rental property with a 3% conventional loan

17 Replies

Good evening all.

I’m wondering if this makes sense and if I’m looking at this the right way.

The property is a 3 family house priced at $210000

I will be putting 4% down.

With PMI and insurance the mortgage will be $1571.

Water and sewage will be $150 a month

and I will also pay $ 100/month for common electricity

The total rent roll is $2700/month

Which nets me $879/mo.

I’m very green when it comes to this. To me this looks like a good deal since will get my down payment and closing cost back in 2 years.

Am I approaching this the right way?. Is there anything else I need to be considering ?

At a minimum, we consider:

  • Mortgage P&I
  • Insurance
  • Property Taxes
  • Any utilities (gas electric water)
  • General maintenance cost as a % of rents, as a realized cost
  • Property management fees if applicable
  • Expected vacancy rate as a realized cost (we use 1 month vacancy which is realistic for our area and properties)

Lastly, we amortize a savings plan for the next large piece of maintenance as a monthly expense since we are fairly conservative. So if a roof needs to be done say, about 5 years from the date of purchase, we estimate the cost of replacement and amortize over 5 years as a savings to come out of rent profits. We track this savings amount in a separate savings account for our properties to ensure larger maintenance costs aren't being overlooked or spent on something else. 

I’m pricing out the cost of a property manager. As of now, the house does not need any major repairs (does need a full cleaning). Utilities are paid by tenants except for the common electricity (outside lights, hallways, etc)

I would be responsoble of water and sewage ( any idea where I can find info of the average cost in Poughkeepsie?)

did you add property taxes, house insurance, p.m if you have one. And % for vacancy and repairs. Then your cashflow with most likely be around 300$/mth. 

If it cash flows by 200$ /mth then it's a good deal to me. 

my next question to you is, how are you able to finance with 4% down. That's unheard of in my area. For investment houses we need a minimum of 20% deposit. So your same house would cost me $42k plus land transfer tax and closing costs. Lawyer, title ins.

I am probably just an echo at this point. I think you are missing a few key metrics in cost. I would include at lease 15% maintenance expense off your Gross Rents, 10% Vacancy cost, Property Tax, and Insurance. I ready you are pricing Management that will probably be 10% roughly of Gross Rents. So if the Gross Rents are $2700 - deduct $405 for maintenance, $270 for Vacancy and $270 for PM that is an additional cost of $954/month. You could maybe drop the maintenance to 14% the vacancy to 7% and PM to 8% depending on your area those deductions may work. Based on the numbers you provided you are buying this at a 7.7% cap rate which in my book is not something I would buy. I am looking for 10% cap rates or better. If you are going to live in this building and just rent 2 of the units it may not be a bad purchase as long as there is a good path to increase rents, and appreciation on the property.

A conventional loan on an investment property with a 4% down payment?? That's to good to be true unless you're living in one of the units for a few years. 

Thanks for the info. How do I look up the vacancy rates? Just to confirm, you would allocate some of the rental income to protect you against somebody vacating the apartment (s, correct? Property taxes are included. 

Originally posted by @David Steinbok :

my next question to you is, how are you able to finance with 4% down. That's unheard of in my area. For investment houses we need a minimum of 20% deposit. So your same house would cost me $42k plus land transfer tax and closing costs. Lawyer, title ins. 

It would be a 3% conventional. I calculated title insurance and everything in the closing cost which usually is about 4% the selling proce

Originally posted by @Joseph Pichardo :
Originally posted by @David Steinbok:

my next question to you is, how are you able to finance with 4% down. That's unheard of in my area. For investment houses we need a minimum of 20% deposit. So your same house would cost me $42k plus land transfer tax and closing costs. Lawyer, title ins. 

It would be a 3% conventional. I calculated title insurance and everything in the closing cost which usually is about 4% the selling proce

 That is correct but are you living in one of the units?

Originally posted by @Scott Wolf:

@Joseph Pichardo have you found a bank to finance this with 3% down, without you occupying one of the units? If so, please do share their name.

Any response Joseph?