Financing a Buy and Hold in Rochester, NY

Creative Real Estate Financing
10yFollow

Financing a Buy and Hold in Rochester, NY

Mike Dixon
Investor · Omaha, NE · Member since 2015 · 9 posts · 1 vote

My uncle is getting up in age and is wanting to sell some of his properties that range from SFH's to duplexes and a few triplexes in Rochester, NY. I'm trying to figure out the best way I can finance this first property with the least amount of money down. Here's some details on the property.

Zillow estimate value $64,500 (not sure how accurate this is?). Assessed tax value is $45,000 this is what I can buy the property for. (is it known that the assessed tax values are lower than the actual market value in Rochester?)

Duplex built in 1925 in 14609 zip code (Rochester, NY)

City taxes $1,900/year, County taxes $1,300/year

Water $800/year (Uncle says he forwards the bill to the tenants but since it's a duplex the bill is in his name) 

Insurance $300/year

Rent income $1,200/month ($600 from each side, is about to go up $25, there are currently tenants living on the property that have been there for 2.5 years)

All of those expenses come out to about $358/month. For example adding another $350/month mortgage payment (I know it's high) would bring my total expenses to about $708/month. So this would leave me about $492/month in cashflow for now. My uncle told me he would manage the property for free as long as long as he is able to (he's 78). Even if I had to pay for property management which I know I will one day and count in vacancies and repairs I think this is a good property.

I have $15,000 I could use as a down payment and get a $30,000 loan (If a bank will work with me because i'm 25 and my business is only 11 months old but I have great credit) but I want to keep as much of my money free as possible. I have an extra $2,000/month I could throw into the mortgage if I get one but don't know if it will be hard to pull 75%-80% equity back out to buy the next property. Or I could give my uncle $15,000 and we could work some type of owner financing out but since he's old he doesn't want to do a long term, but i don't want to lock all $15,000 up right now. Another option that was brought up to me is that I could have someone cosign a unsecured loan (my dad has great credit and he already told me he would cosign) then buy the property. Then do a cosmetic rehab (to raise the value for the bank) and get an equity loan and with the equity loan pay off my unsecured loan.  These are the main options i'm looking at here, please let me know If I'm missing anything and your thoughts on how I should go about this.

Thanks for looking!

0Reply
19 views

Most Popular Reply

Shannon Sadik
Rochester, NY · Member since 2014 · 152 posts · 65 votes
10y

@Mike Dixon, my suggestion is to put down as little as possible every time you can. This will help preserve your cash longer, especially since it sounds like your grandfather has more you can buy. The minimum most banks require for a down payment for non-owner occupied investment property is 20-25%. There's really no way around that. And most banks don't care if you are just starting out as long as you have the down payment. The only reason why your business' age could be of benefit to you is that eventually in 1-2 years (depending on the bank) they will let you count that rent as additional income which helps you qualify for more money. 

If at all possible, since it's family, see if you can get creative with the deal. I understand you don't want a long term loan with him, but maybe there's something else you can do. The sky is the limit on what lawyers will allow here in Rochester when buying houses. It's all up to the seller and buyer. You haven't responded to questions about owner financing so it sounds like this isn't an option? 

A great option is to buy the house at 70% of it's ARV (with private money) and then quickly refi it. Some banks can do it in around 45-60 days. then you didn't pay much in interest to the PML and you didn't have to put any money down at all. You just have to be sure you get it at a good enough price to make this work.

I question your purchase price. Is your grandfather trying to give you a deal at all? Don't go by zillow or the tax assessment. Neither is necessarily accurate. Try running your own comps or get a realtor to help if you can. That zip code ranges from very very low income properties to good ones, so it's impossible to say just from that. 

1Reply
See this reply in the discussion

18 Replies

Jump to latestLatest
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    10y
    First talk to a lender and see there requirements . Several questions you need to know is who pays utilities. Also you need to factor in maintenance, repairs, capital expenditures and vacancy Still looks like it possibly could be a good deal depending upon the expenses One thing to check is the taxes - $3200 for $45,000 property seems extremely high.
    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    I dont see an equity loan happening.  You are mostly going to have to put down 20% plus closing cost or get him to do owner financing. 

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    0Reply
  • Mike Dixon
    OP
    Investor · Omaha, NE · Member since 2015 · 9 posts · 1 vote
    10y

    @Chris Seveney I've talked to a couple banks but run into problems with the age of my business- they all say they want a work history/business age of 2 years minimum. The tenants pay all utilities. I think this is a good deal even after factoring all those things in, what's the turning point of you thinking this would go into a bad deal? Adding in 10% for vacancies, 10% for repairs then having less than $200/month cash flow?

    @Curt Davis Why don't you think I could get an equity loan? Is it because the age and type of category this property falls into? If that's the case I will put as little money down as possible because I'm also trying to buy another property similar to this one in the same area.

    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    Unless you have some connection with your bank you will have to do 20% down financing.   If the place has a ton of current equity based on your purchase price to actual value you could do a hard money loan to refi and use little out of pocket.  I did this on all my investment homes I own but not many people know how to put these together anymore. 

    Good luck

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    10y

    how much does your uncle owe on it ? Could you have him do owner financing or subject to deal?

    Do you have a full time job? If so out it in your name and not a company.

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Mike Dixon
    OP
    Investor · Omaha, NE · Member since 2015 · 9 posts · 1 vote
    10y

    @Chris Seveney my uncle has $18,000 left on the mortgage. I can have him do owner financing but the length would be short because of his age and what does subject to deal mean? Sorry I'm new to this.

    I don't have a full time job, My only sorce of income now is my bank. But I do have another property worth about $45,000 according to Zillow. (I might just try and pull the equity from this property) From what I've found out from speaking with a few different banks I'll have to do the financing in my personal name to make things easiest and have the better interest rates.

    0Reply
  • Mike Dixon
    OP
    Investor · Omaha, NE · Member since 2015 · 9 posts · 1 vote
    10y

    *not bank my business

    0Reply
  • Larry Turowski
    Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Mike Dixon:

    Zillow estimate value $64,500 (not sure how accurate this is?). Assessed tax value is $45,000 this is what I can buy the property for. (is it known that the assessed tax values are lower than the actual market value in Rochester?)

    No, you can't go by assessments. If anything in that area they are high.

    0Reply
  • Martin Grizzanti
    Investor · Rochester, NY · Member since 2015 · 499 posts · 169 votes
    10y

    Where are the properties in Rochester, NY?

    I do not trust Zillow.  You might want to check out the city's website.  https://www.cityofrochester.gov/

    0Reply
  • Mike Dixon
    OP
    Investor · Omaha, NE · Member since 2015 · 9 posts · 1 vote
    10y

    @Larry Turowski I looked on the city's website and I the house was purchased for $32,010 in august 2006. I would assume the property hasn't appreciated up to $45,000 in a little over 8 years. Do you suggest that I pay to have a market value assessment done first? If so do you know any high quality local companies?

    @Martin Grizzanti I called the cit and they told me the tax assessed value is supposed to be 100% of the market value, i'm not sure if I believe this. This specific property is located in Homestead Hights Rochester,NY in the 14609 zip code. When I look on Zillow it shows properties in this small area ranging on sale from $28k-$116k. The cheaper properties are only 2bed 1bath and the most expensive are 6bed 2bath. The property i'm looking at is 4bed 2bath. What do you think?

    0Reply
  • Shannon Sadik
    Rochester, NY · Member since 2014 · 152 posts · 65 votes
    10y

    @Mike Dixon, my suggestion is to put down as little as possible every time you can. This will help preserve your cash longer, especially since it sounds like your grandfather has more you can buy. The minimum most banks require for a down payment for non-owner occupied investment property is 20-25%. There's really no way around that. And most banks don't care if you are just starting out as long as you have the down payment. The only reason why your business' age could be of benefit to you is that eventually in 1-2 years (depending on the bank) they will let you count that rent as additional income which helps you qualify for more money. 

    If at all possible, since it's family, see if you can get creative with the deal. I understand you don't want a long term loan with him, but maybe there's something else you can do. The sky is the limit on what lawyers will allow here in Rochester when buying houses. It's all up to the seller and buyer. You haven't responded to questions about owner financing so it sounds like this isn't an option? 

    A great option is to buy the house at 70% of it's ARV (with private money) and then quickly refi it. Some banks can do it in around 45-60 days. then you didn't pay much in interest to the PML and you didn't have to put any money down at all. You just have to be sure you get it at a good enough price to make this work.

    I question your purchase price. Is your grandfather trying to give you a deal at all? Don't go by zillow or the tax assessment. Neither is necessarily accurate. Try running your own comps or get a realtor to help if you can. That zip code ranges from very very low income properties to good ones, so it's impossible to say just from that. 

    1Reply
  • Crystal H.
    Flipper/Rehabber · IA · Member since 2015 · 157 posts · 35 votes
    10y

    I would be surprised if you can get a loan for that small amount. Last time I purchased a property around 30K no bank would lend that small amount, good credit, good income and money down. Ended up doing owner financing. I tried a lot of different lenders in Florida, maybe NY is different. Good luck. I look forward to hearing the outcome.

    0Reply
  • Jeff Lezark
    Lender · Boca Raton, FL · Member since 2015 · 84 posts · 41 votes
    10y

    Any formal lending institution will want you to have a stable (at least 2 years) income that they can underwrite to be sure you can repay the loan should you lose tenants. The overall value of the deal will not matter to them if you can't make the payments. On the opposite end of the spectrum is a private HML (hard money lender) who doesn't care if you can repay the loan, only how well the deal pencils out. I agree with @ CrystalH. in that you'll find it very difficult to find anyone willing to lend such a small amount because the cost to book your loan will exceed the fees/income generated by doing it. Acquiring the property and trying to cash out with an equity loan will typically max you out at 65% of the value. Again, a loan amount no one is interested in doing. Your Uncle is the best source to finance this deal until your financial picture changes allowing you to obtain financing without restraints.

    0Reply
  • Mike Dixon
    OP
    Investor · Omaha, NE · Member since 2015 · 9 posts · 1 vote
    10y

    @Shannon Sadik I'm definitely putting down as little as possible. My uncle told me he would owner finance me but because of his age he wouldn't want a long term. I assume he wouldn't want to do more than 10 years but that would be pushing it.

    He is trying to give me a deal but the property is in the middle of properties selling for $30k and $50k+ on Cummings Street. I will run some comps and get in touch with a RE agent, thanks!

    @Crystal H. Thanks. He has another duplex in Rochester not %100 sure where exactly but he told me he would sell it for $30k (the numbers would be about the same, rent/taxes/insurance wise). I figure if a loan that small couldn't be made i would pay him $15k as a downpayment and just pay the whole thing off within 6 months. The only thing i'd be afraid of then is trying to pull equity out of a property with a low value like that. Have you ever pulled the equity out of a $30k property?

    0Reply
  • Crystal H.
    Flipper/Rehabber · IA · Member since 2015 · 157 posts · 35 votes
    10y

    @Mike Dixon No I have not pulled equity from any property ever.It sounds like a great opportunity for you.

    0Reply
  • Larry Turowski
    Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    @Mike Simmons Just get comps on Zillow. Keep in mind there are some things you don't know. Some of the higher comps may be foreclosure sales back to the bank, or owner financed. If you PM me the address I can give you a better idea.

    0Reply
  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    10y

    @Mike Dixon

    Mike - any further updates on this potential deal?

    Thanks,

    Tom

    0Reply
  • Mike Dixon
    OP
    Investor · Omaha, NE · Member since 2015 · 9 posts · 1 vote
    10y

    @Tom S. It looks like conventional financing won't work for now because of the age of my business. I'm also waiting to hear back on how I could owner finance this property. So for now it looks like I'll just buy a different property for $30k cash or I have another property I can pull some equity out of but I'll have to wait a couple months. I wasn't wanting to tie up that much money at once but it looks like my best option now is to just buy a cheaper property cash then pull the equity out.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free