All Forum Posts by: Derek Dame

@Fabrizio Vallejos Welcome! I would start about by saving as much money as you possibly can. You definitely need to develop a budget for your spending and stick to it. I believe living frugally is the key to financial success!

The route I would have liked to gone is to buy a 4 unit apartment building with FHA or low down conventional financing. I would have rented out the other unit and have a roommate in my unit.

You should practice running numbers on properties and familiarize yourself with your local market. The best place to start is your own backyard!

Good luck!

Hi Bill! 

I may have done things a little different than most people. I dove in head first into buying property. We purchased a duplex in June of this year. We planned on fixing, renting, and managing ourselves. We fixed up the top unit and got that rented 2 months later. We just finished fixing the lower unit mid-October. We are hoping to have that rented out soon. I didn't know anything about buying or managing property. I knew the numbers were pretty solid for my area. I found Biggerpockets as I was trying to learn how to manage and rent out the units. 

We had a crazy idea to buy a small apartment building as all of this was going on. We started the process of acquiring that the first part of September. We just closed on it Oct. 28. Things have been a whirlwind! We have a management company in place on that building. It is located 400+ miles away. 

I would recommend you read real estate/self development books. They have helped me out a lot along the way. Rich dad poor dad, the millionaire real estate investor, the richest man in Babylon, and listen to the Biggerpockets podcasts. 

PS - Don't get stuck in the analysis paralysis! 

Best of luck!

@Melissa N.  I would increase rents as the new leases come up. If they are on a month to month lease, you can raise with a 30-60 day notice depending on your state. Some states do not allow a pet fee on units. In North Dakota we cannot charge one, but we can charge the non-refundable deposit. I also invest in South Dakota and we can charge pet rent. You should definitely check with an attorney on the laws in your area. If you can charge a pet fee, I would do it. Just be careful that you don't raise rents too quickly. You could end up with a lot of vacancy.  

@Zane McLaughlin I did talk with a local bank. He said that they are fine with doing it as long as the property will still debt service. The seller must also take the second position on the loan. 

@Yasser Narvaez Have you thought of doing a live in flip? Talk with lenders and see if you can get a 203k loan. That should give you enough to complete a flip. 

@Stanci March - I just closed on my first MF property. In North Dakota, what I have found is that commercial lenders require 25% down. I think your numbers look a little thin, but that is because you will be at 100% financing. I think that the deal will work out just fine for you. You just need to be prepared to inject some of your own money into the deal for any unforeseen expenses. 

Does the seller have any interest in refinancing the property after the 5 year balloon? Something I have discussed with my loan officer is a seller carry-back or the seller having a second position on the mortgage. They will allow that as long as the property will debt service itself. They require me to have a 1.2 DTI. I ran quick numbers on your property and at 100% financing you are around 1.15. I would think after 5 years you should be able to get a loan for the difference in equity needed.

Remember, if you have a good deal, the money is easy to find! Best of luck to you!

Hello everyone!

I was listening to a BP podcast last night and the guest was talking about using creative financing. In the example, he used 75% bank financing, 20% owner financing, and 5% cash as a down payment. My question being, is it difficult to convince the bank to allow someone to use this strategy? This strategy would be used for small apartment buildings, 10-40 units. Would someone have to make enough money through a W-2 or 1099 to have enough debt to income to make a loan like this work? On the MF properties I have bought, the bank looks not only at the property but the purchaser’s personal financing and income. Also, would the bank take the first position on the loan and the owner take the second position?

Thanks in advance!

One more tip for everyone. If you have multiple small loans, you can usually refinance SOME of them down to a lower, variable interest rate. I did this will all of my loans, but I didn't have a lot when I graduated. I was able to get my interest down to 1.89%. I went to a private bank to refinance these. The only down side to this option is that it voids any loan forgiveness on the loans you transfer. If you choose to pay them all off anyways, it might not hurt.

I think it would be acceptable to use an ARM for a rental property as long as they have a decent term (5-7 years). If I was buying smaller properties (1-4 units) I would try and get fixed rates. With interest so low right now, I would lock in as much as possible while the rates are this low. If the lower interest rate on the ARM allows you to buy more property, I would go that route. On a side note, once you buy property larger than 4 units or have 4 loans underwritten by Fannie/Freddie you will have to get commercial/portfolio loans. These loans typically have a balloon payment after 5 or 7 years. My point being, you will eventually be using loans similar to an ARM eventually.

I would agree with the other BP members. I would wait it out and see if you can manage living in your current home with the new addition. Congratulations! If you are unable to manage the current home with the kids, then look at getting a larger property. I would also recommend acquiring the third or maybe even the forth rental property in 2017. As @Scott Trench mentioned, you might be surprised by how much buying power you currently have! Good luck!