All Forum Posts by: Craig S.

Ok so I have enlightened my confused brain and think I am understanding this more clearly now.

So according to the 50% rule, 50% of gross rents is set aside for all operating expenses. Then debt service (being PMI, homeowners ins, and taxes) are deducted from the remaining 50% of what's leftover, correct?

I was getting the calculators confused because some were automatically factoring in taxes and/or insurance estimates. Now I realize that I need to find exact taxes and insurance (and PMI) on my own. The mortgage calculators are the exact same when oy considering principal and interest.

Here's my numbers:
Gross rents = $1,200 /month
X 50% = $600 NOI
Total mortgage = $125,000 (including Reno funds - FHA 203k)
Mortgage payment (principal and interest @4.75%) = $652

Then do the rest of the following expenses come out of the 50% rule allowance?
Monthly property taxes = $187.5 ($2,250 annual on current assessment)
Homeowners ins. = $58 /month (estimate)
PMI insurance = $150 /month (estimate for FHA)

Look at these numbers and let me know. Thanks!

@Derek J. I am currently living rent free but will be getting married in 5 months and will either be purchasing a property or signing a 1 year lease on an Apartment which will cost about $1,000 per month including utilities. I would rather put the cash towards my own investment rather than paying $$ in straight rent. I was also thinking about possibly refinancing the property after a year or two and putting in the 20% equity, which will eliminate PMI insurance and lower the payment, hopefully getting positive cashflow. The property is also in a great location close to work and in a decent growth area for Ohio. What do you think? I could also rent for 6 months at a higher rate and search for a better deal in the meantime.

Ok thanks for clearing that up, seems like a dumb question now that I look back at it.

What is the best way for individuals to calculate an estimated mortgage payment, call the banker?

I have found calculators online, but they all seem to be different and have so many variables (especially with FHA that it get's confusing).

Does this calculator seem accurate: http://www.203kmortgagelender.com/fha-203k-calculator.php

Thanks Uwe for your input. The property is listed at $115,000, so I was assuming negotiating to at least $110,000, but hopefully more. Also Uwe, there are several $120,000 duplexes in my area all 2 BR and about 960 SqFt per side.

Any other opinions from anyone else?

1) Do you investors focusing on long term buy & hold usually strive to put down exactly 20% to make your cashflow numbers work, or do you put down the necessary downpayment (20% or more) to achieve the initial cashflow you desire?

2) I see that many investors say that most rentals will get between $100 and $200 /month cashflow. Do you typically put down what it takes to achieve this cashflow?

3) Back to my original question I was interested in... When calculating the investment potential of a property and using the 50% rule, are you assuming a certain downpayment percentage, like 20%? It is hard to cashflow on any property with only 3.5% down and PMI insurance I would assume...

Hello,

I am getting all the numbers gathered for my first deal, rough total purchase price to be about $110,000 on a duplex. I will need to make some repairs to the foundation and replace the carpet in the entire house, I would estimate maybe $5k or $6k in repair cost. I will probably be applying for a FHA 203k remodel mortgage in which the repair costs can be factored into the mortgage. So, total mortgage will probably be around $120,000. It currently rents for $600 per side, although I will be moving into one. I think there is also an opportunity to raise rents after I complete the repairs.

I am considering the 50% rule to play it on the safe side factoring in operating expenses. The roof was recently repaired, all new windows last year, and a new furnace and hot water heater in one side last month.

When calculating in the 50% rule, what do you calculate as the standard downpayment (20%), or do you factor in the ACTUAL downpayment in each case? Obviously with only 3.5% down on FHA, my monthly mortgage payments will be higher, making it harder to achieve cashflow. Also a big component for me is that my PMI insurance will be around $150 per month due to only the 3.5% down/equity (with FHA, PMI insurance is required for 60 months unless I refinance).

Here are my current (rough) numbers:
(Please check and make sure costs look accurate)

Sale price = $110,000
Est. rehab costs (added into mortgage) = $6,000
Total property cost = $116,000
Closing costs added to mortgage (est. 5%) = $5,800
Total Cost = $121,800
Downpayment of 3.5% = $4,263
Mortgage on $117,537
Estimated PMI insurance = $150 /month
Estimated PITI (excluding PMI) @ 4.75% interest = $740 /month
Total monthly payment = $890 ($740 PITI + $150 PMI)

Currently rents for $600 per side.

In this case, I will only have roughly $600 per month of NOI (using 50% rule). Leaving me with a negative monthly cashflow of $290 per month until the PMI is paid off in 60 months bringing my cashflow to [negative] -$140 /month.

But again, this is only with 3.5% down and paying $150 in PMI monthly. Also, after I repair the property I am hoping to be able to raise rents $25 - $50 per month per side.

What do you guys think? I am overwhelmed with learning everything and trying to estimate all the numbers/cashflow/etc. and want someone's opinion?

Thanks in advance,
Craig

Ok thank you guys for the help! I am starting to understand the terms much better now after research.... Interest Rate, APR, ARM, selling loans to 3rd parties, closing costs, FHA, HomePath, Conventional, etc, etc.

Thanks for your reply Slavik... I am still awaiting more responses from others that might have an idea??

Hello,

I am gearing up to purchase my first deal--a duplex.

I am going to be owner occupying the property (living in one unit and renting the other) so I can obtain FHA financing.

I have been on the search for a good lender and came across a company called iFreedom Direct (http://www.ifreedomdirect.com). They are a direct lender and make all the underwriting decisions in house which also speeds up the process they say to about 3 weeks from the time they have a completed mortgage app. They dont say much about themselves or their process on their website, this is the best page about their FHA program: https://www.ifreedomdirect.com/home/hud-fha-program

They don't charge an application fee which my local bank is charging $550, so I save $$ there. Their FHA interest rate is about 3.8%. The processing time is only 3 weeks (they say) as opposed to 45 days with my local US Bank. The only downfall is that they sell the mortgage to another 3rd party or investor (is this a bad thing?).

I just wanted to get advice from someone else and see what you think of the deal with iFreedom as opposed to going with a traditional bank? What would be some good alternatives of this doesn't sound like a deal?

Please let me know!
Craig

I am just about to get into the game of Real Estate investing and will most likely purchase a duplex that I have found. I am in the process of doing my first deal and should have a completed deal within the next 2-3 months.

Michael, it also looks like you focus more on single family rentals whereas I am looking into at least a 2+ unit property. Preferably 4+ units.

Also Loiusville, KY does have closer to 250k population. The entire Jefferson County has closer to 750K.

See here (Jefferson County):
http://www.google.com/publicdata/explore?ds=kf7tgg1uo9ude_&met_y=population&idim=county:21111&dl=en&hl=en&q=jefferson+county+kentucky+population

See here (Louisville, KY):
http://www.google.com/publicdata/explore?ds=kf7tgg1uo9ude_&met_y=population&idim=place:2148000&dl=en&hl=en&q=louisville+ky+population