Hi everyone, i've got a couple questions and could definitely get some tips.
1. Is it alright to buy a 4 plex in a high foreclosure area? I'm talking about hundreds of units. I'm thinking that since i'm geared towards renting to students, it shouldnt be a problem because there are universities nearby. I also feel that with all the foreclosures, people need a place to rent afterwards to remain in the same city.
2. I'm planning on doing a conventional loan at 5% with a PMI. The property I'm interested in is around 200k, and I plan to refinance in the future to remove the PMI. Since it's conventional, I don't have to live in it right?
3. How to structure a lease agreement? Do i just talk to a lawyer, or is there a general one that can be used as a base. I realize every state is different, maybe there's some site that helps make one...?
1. Why is the area high foreclosure, and what is your tenant profile? If you know that students are renting in the neighborhood, it's a good bet, but I would get a look at what they are paying for rent (and factor that into your analysis). If the area is mostly W2 tenants, and there are no jobs, things could get worse. If there's a crime wave, things could also get worse. Foreclosures are great ways to find 'deals', but it only matters if you can find tenants.
2) You're unlikely to get anything lower than a 20% on a conventional without living in the unit. Once you live-in, you can qualify for as low as 3.5% in many places.
3) There are sites like legal zoom that can help you review documents, but I still think it's best to talk directly to an attorney. Structure it efficiently and safe for you (and a good attorney should have something standard). Particularly if this is in Massachusetts. They (like my state) are not known for their landlord friendliness.
I recently closed on a multi family deal in Massachusetts, because it is an investment property, I had to put down 25%; it was a conventional loan.
Ruslan, There is nothing wrong with buying in a high foreclosure area if you know what you are doing. It sounds like you are just starting out.
I would strong recommend against using a generic lease in Massachusetts. If you have read any of the forums on BP about MA landlording, you know that MA and CA are probably the two most tenant friendly states in the US. One of the best threads is How to evict a Squatter started by @Tim Walls .
You don't say where you are planning on buying in MA, but if you tell us, there are plenty of MA landlords on BP who can help. If the area is high foreclosure, it is likely that the landlord had trouble getting enough rent. $50K per unit is high in areas like Fitchburg, Lawrence, etc.
HI @Ruslan Laranjo ,
Like the others mentioned you would probably have to put between 20-25% down if you weren't going to live in the property. As for a lease goes, if your in mass I can email the one that we use or you can do a quick search and find something like this one below.
Originally posted by @Ruslan Laranjo :
... Is it alright to buy a 4 plex in a high foreclosure area? .... I'm thinking that since i'm geared towards renting to students, it shouldnt be a problem because there are universities nearby...
That really depends... but a few things to keep in mind...
Typically you may find bargains in high foreclosure areas but appreciation of values may be slow (or slower) compared to areas with low rates of foreclosure.
Many multi family investors though may be more concerned with cash flow than appreciation so that may not necessarily be an issue but for some, it may.
Students typically do need help... but if their lease is only for the semester or term, that may cause some vacancy issues unless they actually live in the area when school isn't in session.
Ah thanks for the help everyone. I read about the 5% conventional loan with PMI, so I assumed that it was also possible to not live in that sort of financing. I assume the 5% is for people who will live in the unit. The area I was looking is out of state, but due to the downpayment being 20-25%, It looks like i will look for something in state near where my wife is in grad school.
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