All Forum Posts by: Account Closed

When purchasing a 3-4 unit multi-family, you need to live in one of the units to secure financing through FHA. My question is WHEN do you need to start living there after you close on the property? If all the tenants are currently under lease, can you wait until one of the leases are up? If I am currently renting somewhere else, can I wait until MY lease is up? What is the time-frame for this?

To clarify: I had a very detailed statement that broke down all expenses, so I know exactly what the 74% entails. I think I'll wait to see what else the agent can produce for me from previous years to see what typical expenses might be like on average.

Thanks Angie, that helps a lot.

On a side note, the seller's agent sent me a P&L statement from 2012, and it wasn't too exciting.

2012 had an NOI of of $7972 and had 74% of gross income go towards expenses, and that's with the current owner self-managing the property. Two out of the four tenants were paying very sporadically, granted, they are both gone now. Also, new wood floors, new a/c unit, new appliances in one of the units, in addition to smaller maintenance issues. I'm waiting to see if he can produce sheets from the previous years to see if it's any different.

Are numbers like that a dead giveaway of a dud property that's not worth my time, or is one year's P&L Statement not enough data to make that determination?

Another noob question for anyone who wants to answer:

I factored in potential insurance costs, but was really just making a guess, as I have never owned a property or been required to hold insurance. First, is this just "homeowner's insurance", or is it called something else when you own an investment property (or in my situation, where you live in your investment property)? How does an insurance company determine your rates, is it just based on certain characteristics of the property being insured? What insurance companies offer competitive rates that I should check out first?

Great, thanks

Harry M. Also, you mentioned a "mass-appraisal" technique done for tax valuation. Is there a way to know what that is going to be for sure at this point in the game, or is it guess work until everything is said and done?

If not, will using the highest amount of taxes paid in recent years give my calculations enough of a safety margin?

Harry M. Ok, thanks for clearing that up. I figured the rule-of-thumb percentage would have factored in CAPEX.

Joel Owens

Thanks for taking the time to reply at length to give me some background. It's been stressful trying to wrap my brain around the world of financing. I only have one question for you: What exactly defines "starting a case number". What step of the home buying/closing process is that?

Chris Martin

Thanks for the reality check.

As far as calculations go, how do you figure in reserves? If I refigure the above numbers to show 10% of property income towards maintenance and repairs, does this rule-of-thumb figure include the cost of capital expenditures as well (over the long-term)? Or do I need to plan on setting aside more in addition to this 10% for capital expenditures?

Getting initial reserves ready won't be an issue thanks to my wife and I making much more at our jobs than we currently spend.

Harry M.

Thanks for the link, that's exactly what I was looking for. How does PMI work? Is it a 1.35% annual fee? Does this get wrapped into the mortgage, or is it kept as a separate charge? A mortgage banker I was talking to said that in June the FHA is changing the rules to no longer remove PMI after 20% equity has been reached, is this accurate?

Good advice about crunching the numbers without me in the picture, as well as the strict 50% rule. I had figured that since I wasn't using PM I could comfortably weigh in under 50%, but I obviously wasn't think the long-term buy and hold possibility.

That's a really good point about the age similarities to my prospective tenants and I.