Tenants Vacancy, Missed Mortgage Payments

Orange County, California
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Tenants Vacancy, Missed Mortgage Payments

Dairek Lewis
Member since 2020 · 14 posts · 3 votes

Hi, new to BP and real estate investing. I have around 50K to invest in. I live in Orange County, CA and plan on investing here. Ive looked into Mulitplex, SFH, and Condos. Im looking for fixer uppers in the area to put some sweat equity into but have had a hard time finding some. Currently I'm focusing on getting into ADU/Multiplex's. This will be my first home that I will be purchasing with FHA. Because of the high mortgage my concern is may 50k be to small of an amount to invest with. I plan on rehabbing the place myself on a place that is in less than good condition. I myself work in construction trade, have resources and am comfortable in doing this rehab. I will qualify for a higher loan because of the dwelling unit income. Im afraid after rehab cost, and down payment, it wont leave me much left over for emergency fund and also vacancy. Estimating my mortgage payment around 5k or less my worry is if I can not find someone to split the mortgage with (tenant) I will quickly be in a tough situation. How much should I excpect on vacancy? Ive never had tenants before and don't know how hard it actually it is to find someone willing to pay that amount. Condos/Apts go for about 2k or less in my area. This is will be an ADU so ill be looking for around 2450 minimum.

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
Originally posted by @Dairek Lewis:

Hi, new to BP and real estate investing. I have around 50K to invest in. I live in Orange County, CA and plan on investing here. Ive looked into Mulitplex, SFH, and Condos. Im looking for fixer uppers in the area to put some sweat equity into but have had a hard time finding some. Currently I'm focusing on getting into ADU/Multiplex's. This will be my first home that I will be purchasing with FHA. Because of the high mortgage my concern is may 50k be to small of an amount to invest with. I plan on rehabbing the place myself on a place that is in less than good condition. I myself work in construction trade, have resources and am comfortable in doing this rehab. I will qualify for a higher loan because of the dwelling unit income. Im afraid after rehab cost, and down payment, it wont leave me much left over for emergency fund and also vacancy. Estimating my mortgage payment around 5k or less my worry is if I can not find someone to split the mortgage with (tenant) I will quickly be in a tough situation. How much should I excpect on vacancy? Ive never had tenants before and don't know how hard it actually it is to find someone willing to pay that amount. Condos/Apts go for about 2k or less in my area. This is will be an ADU so ill be looking for around 2450 minimum.

 Some thoughts/comments

  • I do not believe ADU rent counts as income. I believe it has to be a multiplex.

    I suspect you have a lot to learn about rental expenses.  Research the 50% rule.  Make sure you understand capital expenses including the associated tax regulations. 

  • Do a rent survey including use of a Rentometer to determine market rent.  

    FHA loan will eliminate properties that may present the best rehab value add.

Good luck

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  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    6y

    @Dairek Lewis my experience in Inland CA has been vacancy around 3%. The bigger concern would be if you were doing a large rehab, but most things that will qualify FHA will be good for a while and not need much non-cosmetic rehab.

    1Reply
  • Dairek Lewis
    OP
    Member since 2020 · 14 posts · 3 votes
    6y

    @Aaron K. so with FHA Loans only a certain amount of homes with a certain amount of rehab needed will only qualify

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Dairek Lewis:

    Hi, new to BP and real estate investing. I have around 50K to invest in. I live in Orange County, CA and plan on investing here. Ive looked into Mulitplex, SFH, and Condos. Im looking for fixer uppers in the area to put some sweat equity into but have had a hard time finding some. Currently I'm focusing on getting into ADU/Multiplex's. This will be my first home that I will be purchasing with FHA. Because of the high mortgage my concern is may 50k be to small of an amount to invest with. I plan on rehabbing the place myself on a place that is in less than good condition. I myself work in construction trade, have resources and am comfortable in doing this rehab. I will qualify for a higher loan because of the dwelling unit income. Im afraid after rehab cost, and down payment, it wont leave me much left over for emergency fund and also vacancy. Estimating my mortgage payment around 5k or less my worry is if I can not find someone to split the mortgage with (tenant) I will quickly be in a tough situation. How much should I excpect on vacancy? Ive never had tenants before and don't know how hard it actually it is to find someone willing to pay that amount. Condos/Apts go for about 2k or less in my area. This is will be an ADU so ill be looking for around 2450 minimum.

     Some thoughts/comments

    • I do not believe ADU rent counts as income. I believe it has to be a multiplex.

      I suspect you have a lot to learn about rental expenses.  Research the 50% rule.  Make sure you understand capital expenses including the associated tax regulations. 

    • Do a rent survey including use of a Rentometer to determine market rent.  

      FHA loan will eliminate properties that may present the best rehab value add.

    Good luck

    1Reply
  • Dairek Lewis
    OP
    Member since 2020 · 14 posts · 3 votes
    6y

    @Dan H. thanks for your input will def be doing more work on the suggested topics.  Seems I have more to learn about with fha. This is news to me. I thought as long as you qualify for a certain amount you good to pick and choose which house you want. 🤷🏾‍♂️ I guess it makes sense, the less equity you refi for the longer you’ll have to stay on an fha. Can you lose the pmi with less than 20% equity? Excuse my ignorance, I’m a newbie and will be doing my own due diligence but figured I’d ask since on the subject 

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Dairek Lewis:

    @Dan H. thanks for your input will def be doing more work on the suggested topics.  Seems I have more to learn about with fha. This is news to me. I thought as long as you qualify for a certain amount you good to pick and choose which house you want. 🤷🏾‍♂️ I guess it makes sense, the less equity you refi for the longer you’ll have to stay on an fha. Can you lose the pmi with less than 20% equity? Excuse my ignorance, I’m a newbie and will be doing my own due diligence but figured I’d ask since on the subject 

    I believe all conventional financing requires PMI until at least 20% equity is achieved. I mostly buy non owner occupied RE, but my understanding is that an FHA does not lose the PMI when 20% equity is achieved (requires a refinance to lose the PMI).

    All conventional financing have rules about the livability of a property, but FHA sets the bar higher.   For example most conventional loans will not finance an RE without a kitchen.   However, there are smaller items that seem so trivial that can hold up the financing such as a water heater not strapped to the wall, a broken window, missing fire/CO alarms, etc.   

    Some of it seems silly as I can conventional finance with a sagged roof (as long as it has the roof) but cannot with a missing fire alarm ($10 item). 

    Good luck


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  • Dairek Lewis
    OP
    Member since 2020 · 14 posts · 3 votes
    6y

    @Dan H. 

    Some of it seems silly as I can conventional finance with a sagged roof (as long as it has the roof) but cannot with a missing fire alarm ($10 item). 

    LOL. 

    Thanks again for all the advice. I checked out your intro on your home page. Good stuff! Awesome you were able to get into the game at such a young age. What a great location to be in for investing in too. Good luck to you 
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