All Forum Posts by: Elliot Mendoza

Hey Jesse, just some friendly advise since you're looking at a quad and you're military.

Don't go for this deal.

You're getting a loan for a negative CF property. Even if you do pull 150 net from all 4 units, you have very little wiggle room for vacancies and everything else. Will you be doing the management yourself while you live in it? If not, then when you leave and use PM, the amount you lose per month will be even greater.

So, when it comes time for you to move in 1-2yrs, you'll still have a negative CF property, but you'll also be looking for a place to live and stay in. If you're looking to get more loans in the future with which to invest in, having negative CF properties is the wrong direction to go as banks will see that on your tax returns.

Hope that helps put things into perspective. Something I have to consider myself since I'm also military.

Brandon already covered your bases on the analysis but i made this spread sheet to help out with looking at the numbers on these type of deals.

http://www.biggerpockets.com/files/user/EOD_Investor/file/property-evaluation-spread-sheet-1-4-units

Give it a shot, plug in your specific numbers and see what your net income would be -projected- to be.

Well, since you seem to be ignoring almost everyone's opinion and analysis on your property not being worth the price tag. I figure I would simply tell you what you -want- to hear, and you could learn from actually doing it. If you want to argue against everyone else's opinion, then maybe you would learn from experience.

Kind of like a section 8 tenant expecting stainless steel appliances and granite counter tops, or a pan handler getting upset because someone brought them mcdonalds and they 'dont eat that kind of food'. Whats the point of asking for help and others opinion if you're going to argue with what everyone is telling you, for YOUR benefit?

It's a great deal at the price he's selling it. you'll make money. buy it before someone else does.

I myself was homeless twice growing up. Once at 10, and then again at 18. The second time was due to family disputes and not having anywhere to go, but living along the streets of NYC for about a year, I learned some interesting things about poor people. They live for hand outs, and at least the ones I interacted with, spent the vast majority of their panhandling money or welfare money on drugs and alcohol, with the minority going towards food(mainly mcdonalds and pizza usually).

That being said, not all poor people are that way. Back in the early 1900's, a good portion of people were business owners. Most owned their own grocery stores, their own farms, their own . Everything from piggly wigglies to walmart pretty much started out small from regular people having bright idea's and then putting a lot of effort behind those idea's.

Big cities have been attracting people for job opportunities since the industrial era, where back in those days working for a pension was a mentality that has since carried on. 'Work for 20-30yrs and get taken care of for the rest of your life by your pension!' is a mentality a -lot- of people still have these days. The fact is, people are living longer, and pensions dwindle down to nothing due to inflation and how much an individual person earns throughout their lifetime.

My -personal- opinion on wealth inequality? The constitution only promises the freedom for the pursuit of happyness. It's up to the individual to pursue and obtain that happyness. Some, are honestly happy receiving welfare from uncle sam because they don't have to work for it. Others love working hard and bearing fruits to their labor. I won't say everyone can be a millionaire, but life is one big game when you look at it, and every game has to have winners and losers.

That all being said, if I had the -option- to stop paying into social security, and not have it waiting for me when i reach 65, or is it 70 now? I would stop paying it in a heartbeat and use that extra 400 or so a month in order to advance my investing. Give me the money I earn, in order to create my own nest egg. Most everyone here would agree to that statement, but I'd be willing to bet a -lot more- people would take that extra money they'd have every month and drink it all away until they are close to their 40's then realize they have to start saving for their own retirement, some wouldn't even stop there.

And, rant complete. I'm not even going to proof read this as i'm sure i've deviated from the original topic lol.

yep, it's a great deal. you should buy it.

I dunno, if I had 100k in cash, i'd be looking for those properties you can buy for 50k a piece that rent for 1k+ monthly.

Around my area, you could purchase a 100k house that would rent for about 1,000-1,200 pretty much all day.

So just to make this a somewhat more simple number base:

Income: 2560 (512 per unit)
Divide by 2: 1280

You are financing a MF property, 5+ units = commercial lending. Unless i'm wrong and some banks are now lending 1-4 loans on 5+ unit properties.

So most likely you will be looking at 25-30% minimum down payment, as most lenders will also take into account you have no history with RE, so they'll want you to have more skin in the game.

So going by that number: 230k Purchase price
69k down, lets say 70k down for ease of numbers, then say another 5k for closing costs, so approximately 75k out of your pocket in cash.

Now a 160k Loan, at 6% for 20yrs (These are just estimates mind you): you are looking at 1146.29 monthly debt service.

So back to the 50% rule: 1280 monthly - 1146.29 = 133.71 or crap.

It is possible this 5-plex has tenants that will always pay their rent on time, and never leave till the day they die. They may even take very good care of the area around them. The fact is, thats all very unlikely.

Maybe I'm wrong in using the 50% rule for a 5+ unit, but if nothing else, it gives you an idea how much property management and repair/maintenance cost could run you. Or he could of actually not fixed anything the entire time they've owned the property, and now there might be a lot of differed maintenance they're hoping someone else buys into and has to pay out of their own pocket. Do more homework.

You could shop around your rental market and see what other places are offering for 700 a month. No AC unit kind of threw me for a loop personally.

The numbers look good otherwise(it came to be 26% COC return from what i plugged in), but with no AC unit, will renters stay in your units? Will you have to pay for that out of your pocket to have installed and is there vents already in place, or do they have to be ran throughout the property also?

Or is your area fairly mild temperature wise all year round?

Well, what I normally see people advise on here is to purchase property at 70% of FMV minus the repair costs required to get a property move in ready.

The numbers:
FMV: 90k (I'll assume you've used comps or an appraisal of some kind to determine this)
Asking Price: 77k or 85.56% of FMV
Repair costs: 0 (just assuming this for right now)
Down payment: 11k is 14.29%
Finance: 66k
Monthly Debt service: 66k @ 4% for 30yrs = 315.09 monthly

Rent: 1,100 monthly (also assuming either A: it's already rented or B: these are fair market rents for the type of property).

Applying 50% rule: 1,100/2 = 550 monthly, subtract 315.09 = 234.91 net monthly income.

Closing costs(based on 3%) for a 66k loan are around 2k.

COC return based on 13k(down payment+closing costs) is about 21% which is also really good.

Of course, these are numbers solely based on what you've put out, but i'm sure you'd do your own due diligence and make sure everything actually computes correctly.

That all being said, your deal looks sound to me from a numerical perspective(I just plugged everything into my spreadsheet and liked what i saw). Just do the market research to the local area and confirm that you won't be buying a place about to crash or that you will have a hard time keeping tenants.