I'd like your advice on a buy and hold I am contemplating purchasing. It's pre-MLS, so I have to make a decision fast.
Asking price: $499k. Lender requires 25% down for a 4plex with conventional financing, or I can do as low as 3.5% down with FHA BUT that requires $516/mo for Private Mortgage Insurance.
We could put 25% down, but I don't think it would be wise. We can re-fi and lose the PMI once we hit 25% loan to value. If my calculations are correct, that means by Y9 or 10, we could refi.
Offer price: $475k (my realtor thinks this is reasonable number since it hasn't gone on the MLS yet and these deals go quickly; thoughts?)
Rent: 4 units x $1500/mo=$6k
Property taxes: 4% (I know. It sucks)
Down payment: 5%
+ mortgage, 15% capex/maintenance reserves, insurance, and $800/yr for all tenants' water
No Property management as we will do it ourselves
Vacancy: 0% (it's a highly desirable area and these are very nice apts)
No additional work needed
Cash on Cash: 30%
Net Cash flow: $609/mo.
We plan to live there for a few years so we could actually live in highly desirable (and expensive) area for $665/mo.
For the money down, and the area, it seems like a good deal, but this is a LOT of money and this is our first buy and hold so I'd appreciate your advice! :) Would you buy this apartment? What would you put down? Is it worth it with the PMI?
Looks pretty good to me, provided it is an area that you think will appreciate and has prospects for steady job growth. Don't forget that your tenants will (mostly) be paying down your mortgage. PMI will allow your cash to go farther, and perhaps allow a rainy day fund for roof replacement or other unanticipated expenses. With any luck in a few years you can get it removed once you hit 30% loan to value, assuming you have that much appreciation. (The last tricked worked for us on an duplex we own in Texas!).
"It is a LOT of money" -- cost of rental properties is all relative. That's a LOT of rent, so the rent/price differential seems very reasonable to me.
Considering you plan to live there for a few years it seems like a no lose situation. I would, however, caution you to adjust your numbers going in because assuming it is a 4plex and you are living in 1 unit, your monthly gross income would only be $4,500 ($1,500x3). Also, I would only put down 3.5% because, although you have enough money saved up to put 25% down, using that cash as a reserve fund may be more prudent and could allow you to pursue another deal in the near future. I hope it works out for you!! Good luck!
Thanks for the comments!
@Embert Madison jr we have taken into account the lack of rent on the one we would live in.
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