All Forum Posts by: Igor Messano

@Charles McCabe I will let you know if I can tomorrow but I would love to sit down and take a look at some numbers. But remember that Conshy is very close to many Phila neighborhoods that might be a much better investment area. Sometimes we just need to stop trying to make an area work and just go look at a better area. I will PM you my number and we can try to schedule something. 

@Charles McCabe, @Jeff Zenko

Hey Jeff welcome to BP. I am also a new investor in the Philadelphia area so kind of close to you. I would love to get to know you and Charles since you are in the area and new like me. I am in the process of closing on my first rental after more time than I like to admit spent on analysis paralysis. You will be able to find all the resources you probably need here on BP but the scariest step will always be your first purchase. Run the numbers and when you are comfortable post them here and you will get some very honest feedback. Once you take the first step to your initial property, the next one should much easier and less stressful.

 David,

I can certainly empathize with you on the peace of mind of being able to move back. What you need to actually be thinking about is why are you renting this property? Is it because you are very attached to it that you couldn't bare not owning it? Is it because you think it is going to go up in value significantly in the near future?

As an investment this property sounds terrible so far. Mainly because even if you refinanced to a 30 year, you are barely cash flowing and certainly not counting for potential vacancies, maintenance, and CAPX. The house might be new but what happens when a tenant stops paying and you lose 3-4 months of rent? What if they destroy your property and it takes you an additional 2-3k to get it rent ready again? What if you have a major leak suddenly and have to pay 1-2k in insurance deductible? If you are looking at this as your opportunity to start investing in real estate, then you have to objectively look at the house as if you were about to buy it. If the numbers don't work then just sell and use all of that money to buy 1, 2, even 3 properties that actually cash flow. Maybe a 4 plex that you could one day move into if you needed to.

Another consideration is whether you could even move back into the condo. Just because you want or need to move back doesn't mean you can. If you rent this property then you can't simply tell the tenant they have to go. Specially not if you have a lease agreement. Even without a lease, if the tenant needs some time (lets say 3 months) they can tell you they can't yet and you would have to try to evict which would take a long time, specially since it is not for non-payment.

Sorry for the long response but this situation really hits close to home with me and I want you to make a better decision than I did. If you are looking to invest, try your best to be objective and do was is best for your money. Getting rid of a mortgage and using that built equity to invest could be the beginning of a very strong real estate portfolio. Good luck!

 Jose,

You will have harder time getting peoples magic number to work  for you if they are in different markets. Some markets have completely different ratios that are possible. For example, most of the markets that I am looking at close to me, a rent ratio of 2 just isn't realistic. But to some people (maybe Detroit) this is very common.

 Hey Jacob,

After reading your initial post I was actually wondering how you were planning on financing a 450K property with only $20,000 in cash. If this was a 4 plex you could possibly finance with less than 20% if you lived in one of the units for a certain period of time but a 5 plex or 100% rental is nearly impossible without some very creative financing. You always have to think about closing costs and required reserves which eat away at your 20K. I haven't seen any lenders allow sellers assist on closing costs for investment properties (Not allowed per Freddie and Fannie).

Outside of the actual costs, I think a very important note everyone here is trying to make is that your budget doesn't determine the amount a contractor is going charge. All of the costs including the contractors price make up your budget. The way you have worded your question it seems as if you determined a budget and are now trying to make all of the costs stay within it. That can be a very costly mistake.

The reason why contractors cost don't follow a "rule of thumb" like a percentage of total costs is because the cost of materials don't always match the amount of work that is needed to complete the work. An example is installing hardwood floors. A can contractor charge you $2-$3 per square foot of flooring regardless of the quality of the wood you choose. This means that if you install a floor that costs you $4/sq ft, the contractors charge would represent 1/3 of the total cost of the installation. If you chose a $8/sq ft floor, the contractors installation cost would be 1/5 of the total cost. 

This is not only a big consideration when thinking about what quality materials you are using in a flip (More expensive areas and homes would require better finishes), but different types of work have a heavier cost of materials vs the labor than others (Painting vs electrical).

Yes regardless if this is your only property or not you will need to pay taxes on the income. As Brent explained, even if you rented a room in your SFH you would legally have to claim the income in your taxes. Real estate has significant tax advantages but it doesn't exempt you from claiming the income in your taxes. The expenses should cover the majority of the income making it a very attractive investment vehicle.

Simple answer is no. You consult a CPA and do some research on the topic but it is a much more complicated question. You pay taxes on what you profit from the property in simple terms. This means that you will deduct from your revenue everything from interest paid to the bank, property taxes, insurance premiums, maintenance costs, and pretty much ANY other costs related to maintaining and managing this property (restrictions apply :D ). Some capital costs you wont be able to write-off as an expense write the way but you will be able to add it to the "basis" for depreciation purposes (next).

Then you have the big tax saver, depreciation. To put it in simple terms, you basically divide what you paid for the property by 27.5 and that gives you how much you can deduct from your revenue per year for depreciation. The big ticket items i mentioned above that you can't simply write-off will be added to this total and will be depreciated along the years. Unless you have a property that has an extremely high profit margin, you should be able to pay little to no taxes on the money you make. Sometimes you even get a "loss" after all of the deductions and that can reduce the tax burden of your other income like a job.

In terms of existing loans, I have never heard of one. What you can do is buy a cheaper home and put more money towards principle. But realistically you really have to take a look at how muhc "return" you would get by putting extra towards  a mortgage instead of just saving in a CD of some sort.

There are websites you can use to calculate an amortization schedule for a loan which you will see how much you would owe after 5 years of owning. Then compare the equity you built in those 5 years vs simply renting a cheap place and saving the difference every month. If you can rent for a decent amount less than a mortgage. That might make more sense than paying the bank all of that interest.

Another thing to consider is buying a cheaper home that needs some TLC that you could do in the 5 years you live there. If you put 5 years of sweat equity in a property you could be building even more equity by increasing the sales price 5 years down the road. Just make sure you don't over estimate what you can actually do yourself and buy a money pit.

Will you be living in the residence? Yes you will so for the lenders purposes you aren't commiting mortgage fraud so long as you are living there. Whether living in the garage is a code violation or not is a different story and unless someone reports you or you do something stupid you should be ok. Bringing this up to the lender will cause you problems you don't want. Let's call this a "gray" area so you would be better so doing it and not mentioning. Worst case you could say you are just crashing on the couch.