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All Forum Posts by: Craig S.

Craig S. has started 31 posts and replied 108 times.

Post: Factoring in downpayment on 50% Rule, first deal!

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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!

Post: Factoring in downpayment on 50% Rule, first deal!

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

@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.

Post: Factoring in downpayment on 50% Rule, first deal!

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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

Post: Factoring in downpayment on 50% Rule, first deal!

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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...

Post: Factoring in downpayment on 50% Rule, first deal!

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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

Post: Question about mortgage loan??

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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.

Post: Question about mortgage loan??

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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

Post: Question about mortgage loan??

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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

Post: How Did You Get Started In Multi or Apartments?

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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.

Post: How hard is it to find apartment or duplex tenants?

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

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