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Hello, I have had a SFR home for about 10 years. Didn't make a whole lot of money being rented but I sold it and decided want to buy the something bigger. I have met with many different financial institutions. They offered me an investment mortgage at 5.75% fixed rate for 30 years but asking 25% down. However the property would be under my name and not an LLC. My accountant says its in my best interest to put it under LLC. I can understand the benefits from doing that however, commercial loans are only offered to me using an LLC. Best deal I was offered from a local bank was 6.25% floating or 6.75% fixed rate, 20% down with 20 year amortization. Incidentally the numbers on the property have been the ones Ive liked the most. The sellers had the property undercontract and buyer fell through bc he could not get approved financing. I would love to hear feedback on property and advice on using the 30 year mortgage vs the commercial loan. Thank you again!
I own several triples through the years, and I always went the fixed rate mortgage route. Back then, in the 80's, I needed 30% down, but the safety of the fixed rate enable me to sleep better at night. I started my investing in the 80's when mortgage rates soared to 18% though I got mine at 13.5%. The big advantage if you start with breakeven cashflow and then when interest rates dropped to 7.5%I refinanced with rent increases, I did fantastic.
Just to give you a contrast, my dad bought his rental, a mixed use no less, in 1963 with 5% fixed. It was that since the 50's. It wasn't till the late 70's that interest rates started going up. In the 50's and early 60's people who bought duplexes, rent one unit to the tenant, live in the other, can live rent free with the tenant covering the mortgage with a normal down of 20%. Those were the days.
The main problem with floating rates is my fear the big bad 80's may come back, with soaring inflation, and the Fed, with Paul Volker, fought inflation by raising rates. With Trump starting trade wars, and the Trump tax changes which pushed deficits to a trillion/year will be the cause. For me, floating rates are too dicey at the moment.
thank you for the reply! I too am not a fan a floating rates.. I believe the cash flow is very IMportant edpecially for my first investment.. I feel safer having the passive income that a 30 year fix can give me if the property gets into a pinch. I also hope with the numbers I did on the property show that it is a good buy.. there are 3 buildings that are identical and all rented out.. all 3 buildings are for sale but i can only afford one with the amount of capital (25%down) they are requesting. I hope others agree the numbers look good! Thanks again for your response !
Howdy @Diego Mugica
To purchase under your name or LLC is a personal choice at this point. The primary reason most use a LLC is for Liability protection. You can achieve the same protection with Umbrella liability insurance. You can choose to do that until your assets reach a certain level. Evaluate both options. See what the pro's and con's of each are. What is the effect of the different financing options. Then make your decision.
As for your report it looks a little too optimistic for me. First you did not include anything for Property Management. 10% for PM. Regardless if you plan to self manage or not it is recommended you include it. After all your time is worth something. Also If you plan to increase your portfolio you may want a PM Service in the future. If you don’t include it now it may be difficult to add it later without affecting your cash flow.
Is the property in pristine, like new, ready to rent condition? You did not include anything for Rehab or CapEx reserves. Nothing lasts forever! You will need to hold money in reserve for the eventuality of those repairs. CapEx at 10% until you have the property inspected. I would also increase Repairs to at least 5%.
If you make these adjustments that puts your cash flow in the $300 - $400 range. Still doable in my book.
Thank you so much for your reply, I really do appreciate it! Yes you are absolutely right, I did not add a PM fee because I had planned on managing it myself but in the future I will need one. Adding 10% for a PM fee and 5% for repairs like you said numbers still look good but not as good haha. I hadnt added repairs because the property was built in 2016 and looks to be in great shape. Of course I will still be doing a proper inspection of the property before closing. I will attach photos of the property. Thank you again for your response it really is tremendously helpful.