All Forum Posts by: Kyle H.

Why don't you just pay off your credit card with the lump sum of cash you receive when you refinance?  Then you could have $0 in personal debt, and two more rentals.  Is this not an option?  From a personal standpoint, it doesn't make much sense to take on additional debt if you already have personal debt you haven't paid off yet.

I've seen credit scores go as low as 600 for mortgages, but the interest rate would be higher.  Keep in mind this isn't the only factor, but it is possible depending on what lender you go with.  On top of the down payment, you will also needs 6 months of cash reserves for each property you own, so if you are depleting all of your cash, it still won't get approved on the financing side.

My advice: refinance, take as much out as your lender will allow, pay off your personal debt, use the rest to buy 1 (or 2) more rental(s), and don't accumulate anymore personal debt.  Then your credit score should remain 730+, and you will add some serious cash flow to your life (from more rentals and less personal debt payments).

Good luck.

Your cashflow isn't as great as you think:

100k at 5.5% for 30 years is $568.

taxes - $108

insurance - $67

property management 8% - $96

maintenance/repairs 10%- $120

capex 10%: $120

vacancy 5%: $60

Total expenses: $1139

Rent - expenses: $61 CASHFLOW

SSSSSEEEEEEEEELLLLLLLLLLLLLLLLLLL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Thanks! There are 2 furnaces, not water heaters. The 2 furnaces are brand new, and so is the roof. The current owner has already updated all of the units regarding flooring/painting, so updating between tenants really won't cost a whole lot. My property manager would take care of this unit for an extra $50/month, so I don't really include it in my cash flow, although I should. Just not enough for me to worry about at this point. There is only 1 water heater, in pretty good shape, but those are cheap. Capex is minimal on this property (for the time being). I think it's a good find and could appreciate over the next few years pretty substantially.

It's absolutely the best way to go.  If I knew what I know now, back then, I'd house hack like crazy.  Talk about building wealth for virtually nothing and living for free for as long as you can!  Ask @Brandon Turner...I think he would approve...he's kinda obsessed.

I love this thought. Just keep in mind that only putting 2.5% down will require you have have Private Mortgage Insurance (PMI) on top of your home owner's insurance. Depending on the price of your property, this could be anywhere from $60-$200 extra monthly. However, if you can live for free and have someone else pay your bills, who cares??

@Sean Ploskina thanks for the reply.  I had calculated my cashflow off of a 100k sales price, so the mortgage would be around $550/month total at this small credit union.  Also, rents can be increased immediately by $25-$50 per unit, which brings me in right about $1k/month.

As for the 2 furnaces, those are the only 2, both of which were replaced.  So the owner technically only has to pay for water and heat for the building.  With the roof and furnaces being new, I would only have to worry about a water heater, which isn't the worst thing in the world. 

The rents are lower because the units themselves need a little bit of work.  The owner also bought this property for 50k, so his cashflow is ridiculous at this point.  He keeps his renters longer by keeping the rental price under market value.  With a little bit of love, these things can turn a higher return very quickly...based off of comps in the area as well.

Hello everyone!

I just came across a 6-family (6 1 bed 1 bath) units.  Here are the details:

Purchase Price: $119,900

Fully Rented: 2 long-term tenants

Annual Rent: $35,700 (35460 rent + 240 laundry)

RE Taxes: $1532

Insurance: $1489

Water & Sewer: $3750

Gas & Electric House: $3480

Gas and Electric Tenant: $4450

Maintenance - 10%: $3546

Vacancy - 5%: $1773

Total Expenses: $20,020

NOI: $15680

Cap Rate: 13.08%

Roof: replaced in 2013

2 furnaces: replaced in 2012

A few things to note.  The "gas and electric tenant" is used to describe what the current owner is paying for tenant utilities (not common areas).  He does not have to pay this, as there are separate meters, however, he charges additional money per month to give an "all-expense-paid" unit.  He actually profits $10-20 per unit when doing this.  But, I could choose not to do this, increase the rents slightly, and make a better return.

Some minor repairs include fixing 2-3 main entry doors, and the only major items are the windows.  I figure I can replace these slowly as units turn over, or get the owner to replace some before closing.

This rental is right on the bus line and is .1 miles away from a major area high school.

When units turn over, I could do a nice upgrade on the unit and increase rents nearly 50%.

My 4-family is less than 1 mile away, and this is where my property manager lives.  He takes care of my 4 family and could easily take care of this one as well.  That's why this is so attractive to me.

As of right now, the owner can come down in price.  Since this is over 4 units, it is obviously my first commercial property.  I talked with the owner, and he says his bank will probably do the loan, seeing as it is a very small, local credit union who analyzes the rental itself and doesn't focus solely on your personal debt ratios.  I mentioned to the owner that I didn't have the 20% to put down, and I asked him if he could provide a second lien and give me the 20% down.  As of right now, he said he would do that as long as the bank agrees.  I may be able to snag this property for $0 down and well surpassing the 2% rule (almost 3%!).

After paying the mortgage, it will be around $1000/month in cash flow.

Before I make any offers, I want to know if there is anything else major I am forgetting.

Any thoughts would be greatly appreciated.  If this goes through, I will officially be at 11 doors :) Woohoo!

This is not a cash-on-cash calculation.  Cash-on-cash = cash flow/cash investment.  Using your number, the cash-on-cash is $10,098/$41,541 OR 24.3%.

The original "ROI" that was posted was more likely that actual cash-on-cash return.

Sounds like a winner to me.  Do you pay water as the owner?  Are there other expenses you pay as the owner?  Are there any major upgrades that need to be done immediately (structural, plumbing, hvac, electrical, roofing)?  Why are the selling almost 25k lower than the recent appraisal - that would be a red flag for me, unless you have a motivated seller.  @Tatum F. is correct in asking about your capex, vacancy, and regular maintenance numbers.  Have you done a full analysis to come up with your as-close-to-exact-as-possible cash flow?

Dan - a cash offer is ALL cash - 100%.  If you have 100k house, you are giving them 100k in cash.  Otherwise, if you are giving them 50% cash with 50% financing, then you essentially have a 50% down payment...this is not a cash offer.  Cash gives the seller a more guaranteed closing.  There are tons of deals every day that fall through because a buyer can't qualify for financing, a down payment, have the right amount of cash reserves, etc.  There are many reasons why an individual can't qualify for a loan.  All cash always qualifies :).  Cash can also allow you to close immediately, whereas financing could be a 3-6 month closing process.  If a seller has a 4 month closing scheduled and then the deal falls through 3.5 months into the process, then it's a waste of time/money for everyone.  Hope this helps.