All Forum Posts by: Eric Castelli

Thinks @Chris Mason.  I am going to hit up some of the local small banks to see if they can do the deal.  @Jerry Padilla, if you have any experience here I'd definitely appreciate it. 

@Chris M. I am curious, why would doing conventional financing on each property mess things up?  Is this due to costs?

Thanks!
Eric

I recently went under contract on (2) 4-plexes (same seller) with a purchase price of $47,500 each.  Based on what I have read on BP, it was my belief that I should go conventional on these loans (I only have one conventional on my primary residence).  However, I have now spoken with two separate lenders and they both want me to go commercial.  One even told me that the government won't allow conventional loans of less than 50k because this causes a red flag with the closing costs being such a high percentage of the loan value.  I'd love to hear feedback on this.  Specifically:

1) Has anyone ever heard of this 50k loan min on conventional, or are these guys just trying to push me down the path that is better for them and not necessarily me?

2) Assuming conventional is an option, which would you do? 2 conventional loans or one commercial (20 year amortization, 5 year balloon, 4.5% APR with 20% down).

Thanks in advance for your thoughts!

Eric

Thanks for your feedback J.  Anyone else have any thoughts?  What about my estimates for maintenance and Cap Ex?  Are these too conservative?

Thanks,
Eric

Looking at my first four family and would appreciate feedback on this deal.  Property is an old, well-built brick building in the Midwest built in 1870.  Flat roof replaced in 2008 and new windows in 2008. Plumbing and wiring have been updated, although using fuses and not circuit breakers.  Two units have central heat and air.  Two units have central heat but window AC.  Units are in okay condition but not great.  Area is mostly residential and near train/metro station.  Crime low. Three long term tenants but one unit just vacated (they are filling now).

Here's the numbers:

Price $137,000.00
Down Payment $27,400.00
Loan $109,600.00

Expenses
Mortgage $588.36
Property Taxes $238.00
Insurance $100.00 (estimate)
Landscape $50.00
Utilities $230.00 (owner reported)
Property Manager $193.50 (9% estimate)
Vacancy $129.00 (6% estimate)
Maintenance $129.00 (6% estimate)
Cap EX $129.00 (6% estimate)
Total Monthly Cost $1,786.86

Revenue
Rent $2,200 (4 @ $550)

Cash Flow:
Monthly Net $433.14
Yearly Net $5,197.72

Return Calcs
Monthly Rent Multiplier 1.57%
Cash-on-Cash Return 18.97%
Cap Rate 8.95%

I am investing solely for cash flow and don't expect any appreciation in this area.  Would you do this deal?

Look forward to your thoughts!

Thanks,
Eric

Thanks Michael and Warren for your feedback.  I am definitely still on the fence here as to how to proceed.  Unfortunately, there just doesn't seem to be a lot of inventory in my neck of the woods so I am torn on whether it is better to wait for something to pop up in better town or just get started.  

Thanks again,
Eric

Thanks for your thoughts James.  I think the biggest factor in the slow decline is white flight, sadly.  The town is near East St. Louis and over the years as East St. Louis has declined many of these residents are flocking to this nearby town.  As this has occurred many long time residents are packing up and leaving.  I am not saying this is right, but it is the reality of what's occurring. 

It sounds like you are saying that in your book, this slow decline wouldn't be a big factor for you as long as the cash flow is strong and I can get a good price.  I appreciate that insight.

Thanks,
Eric

I am looking purchase my first four family and have largely been looking in a town about 20 minutes from where I currently live.  I grew up in this town and know the area well.   I have found 2 four families which exceed the 1% rule fairly nicely (1.5-1.6%).  However, for better or worse, the town isn't growing and property values have dropped some in the last ten years, and I don't have any reason to think they will go up.   The town is decent with lower crime rates but generally blue collar, with some smaller pockets of white collar. Even though I am solely interested in cash flow and not appreciation, I can't help but to feel concerned about the long term property price stability in the area.  

I am curious if anyone has an opinions on investing in this type of area.  Is it better to look for growing areas and for less cash flow? Or do I ignore the potential price declines and stay focused on cash flow?

Thanks in advance for any insight or experience you're willing to share. 

Thanks,
Eric

For reference here's a link to the real estate trends for this area: http://www.trulia.com/real_estate/Belleville-Illin...