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Cyle Sicurella
  • Investor
  • Long Island, NY
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Financing Advice for Rentals

Cyle Sicurella
  • Investor
  • Long Island, NY
Posted Nov 1 2022, 11:59

Hello All,

1st post here! My wife and I are young real estate investors from Long Island NY. Aside from our Long Beach Co-op, it’s nearly impossible to scale here because we’ve been priced out of this market and will probably be forced to move. 

I want to see what different people opinions are on my situation. Here’s the all the variables. My wife and I plan to start our family toward the end of next year. I personally feel that if we choose to stay on Long Island, we will be house poor and not being to provide for our children or do future vacations. The only way I see us staying there is acquiring income producing properties (in addition to our salaried jobs) before buying our forever home to offset living expenses. 

We currently own a beach Coop which we are renting out while living at home for dirt cheap. I’d like to utilize this time by acquiring rental property in Wilmington North Carolina ( I currently have a strong trustworthy relationship with a local agent, and my father in law is a general contractor there ). My question is, as all of you know, making the numbers work on a long term rental with todays rates are very difficult. The only way it seems is to truly work is tailoring a furnished rental to nurses.  But, my other option is a 15 year 150k loan at 4% from the father in law if we put up 75k ourselves to purchase a home cash. I know this an excellent deal, but my concern is locking up much more money than I originally anticipated which will severely push back the timeline to purchase my own home and it doesn’t give me the ability to scale/capitalize on future opportunities when they come up. 

Should I utilize this option for a cash deal long term hold, or bite the bullet on tight margins utilizing a bank loan until I can refi lower down the road? 

Sorry for the long winded explanation, but it seems like every decision we make at this point is overwhelming because there’s so many variables. Thank you all for the info and support and love learning in this community. 


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Replied Nov 1 2022, 13:10

@Cyle Sicurella

welcome.

this all seems too personal to advise on.  so I am not going to do so.

normally, in general, I strongly recommend that new investors pick a market they can drive to, to start investing.  even in Long Island, you can drive to some lower cost markets that are a few hours away - for example, in PA or CT.  this might take some time - but you have to put the time in if you want to be successful.

with that said, I do like that your father in law is a GC in NC.  that seems like an advantage if you want to invest in Wilmington.

good luck.

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Tony Severance
  • Lender
  • Fort Worth, TX
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Tony Severance
  • Lender
  • Fort Worth, TX
Replied Nov 1 2022, 14:29

My reply will be from a pure numbers standpoint...
The 75K is 33% down on a $225K purchase price.  Assuming the loan from your FIL will amortize over 30 years, the $150K at 4% will make your payments be about $600/mo lower than if you put 20% down and paid 8% interest from another lender.  That equates to about a 4 year payback of the $30K of additional down payment.  From that point on, it's all extra money in your savings account toward your new home or next investment!  We don't know what your new home timeline is, but this sounds like a pretty lucrative offer that has been presented to you.  Good Luck!!

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Suzanne Player
  • Real Estate Broker
  • New York City / Long Island, NY
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Suzanne Player
  • Real Estate Broker
  • New York City / Long Island, NY
Replied Nov 1 2022, 14:53

Would your father in law consider a 30 year payment schedule with the same 4%?  It looks like he doesn't want to tie up the money for 30 years, but perhaps refinancing it later on or selling the property (you may want to buy something else at that point anyway), or having a balloon payment after 15 years would work for him.  The lower payments from a 30 year make it much easier to cash flow.

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Tony Severance
  • Lender
  • Fort Worth, TX
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Tony Severance
  • Lender
  • Fort Worth, TX
Replied Nov 1 2022, 15:09

The payment on a 15 year fixed at 4% is still $243 less per month.  And, as @Suzanne Player suggested, will he entertain a 15 year balloon amortized over 30 years, which would maintain the $600+ savings per month from my initial reply above?

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Cyle Sicurella
  • Investor
  • Long Island, NY
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Cyle Sicurella
  • Investor
  • Long Island, NY
Replied Nov 1 2022, 17:34

Hi @Tony Severance and @Suzanne Player. Thank you both for the responses. I haven't asked if the 15 year balloon would be an option but I certainly will. The property still cash flows $100 a door after accounting for all fixed and variable expenses without the balloon. I see how that would help the cash flow issue, but doesn't this still present the issue of giving up all of my available capital into 1 home? The fall back I had in my head was pulling equity from the home if I need to purchase my personal home or if another investment opportunity came across. But in reality, the true deals that will come when interest rates are at their highest will be cash deals no? Therefore I wouldn't be able to capitalize on it anyway because I wont have the funds.

Maybe I'm over thinking and need to just focus on 1 property at a time lol. I tend to shoot for the stars when I should land on the moon first. 

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Tony Severance
  • Lender
  • Fort Worth, TX
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Tony Severance
  • Lender
  • Fort Worth, TX
Replied Nov 3 2022, 14:22

@Cyle Sicurella  You're welcome!  The balloon should have no bearing on the cash flow for the 15 years you use that financing because the payment is still amortized as if it is a 30 year fixed.  Also, based on your response, it sounds like you want to buy your new personal resident sooner rather than later.  Use the math I posted earlier to help make your decision with your own timelines injected into your equations. 

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Mohammed Rahman
  • Realtor
  • New York, NY
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Mohammed Rahman
  • Realtor
  • New York, NY
Replied Nov 8 2022, 14:14

Hey @Cyle Sicurella, I'm going to go against the current here and ask why you feel like you have a harsh deadline you need to stick to? From what you've described so far, is it not possible to live at home for a bit longer until the rates calm down? 

Alternatively, you could take the deal your FIL is providing but a couple of things to consider: - at that point your relationship will change to lender & borrower & - your income should ideally also be increasing over the years (this is to counter your point about feeling like your timeline is pushed back to purchase your own forever home). 

Your income typically increases over time, and so does the equity in your investment properties (both with mortgage paydown and price appreciation).