All Forum Posts by: Jason Slater

Welcome @Jonathan Guerrero! I actually began my RE investing journey in Dedham and have since moved out of my owner-occupied multi there and it is now a pure investment for me so I know the area well. To be honest Dedham is a very expensive community and it has seen substantial appreciation and municipal investment in the last 5 years or so. Personally I have moved my sights elsewhere for my next investment because of the high RE prices. Depending on your budget and planned approach of course this may be different for you. But I would suggest you may find better deals in Norwood and Walpole at this time. Dedham does have 2 commuter rail stops, excellent schools, and the luxury apartments (e.g. near Legacy Place) help keep local rents up, so there are certainly benefits if it is in your price range. I can answer questions about our community if you have any. 

Cheers,

JS

Start by researching rates with some local lenders, most people recommend credit unions and local banks versus large national chains. For myself in MA I did a cash-out refi with Salem Five bank in 2016 and it was easy and they had very good rates.

You'll need to work with the bank to go through the process, it's basically the same as getting a mortgage so you'll need to provide the usual litany of documents like recent pay stub, current mortgage docs, bank accounts, they will pull your credit report, etc. 

In addition they will need to perform an appraisal on your property as this will determine the actual amount you can finance. You will pay for the appraisal as part of the closing costs for this loan. Keep in mind that for owner occupied most lenders have a limit of 75% LTV, although some may go as high as 85%. Have this conversation with the lender up front and make sure you're going to be able to get enough cash for what you're planning to do. If you have $100k equity you're not necessarily going to get $75K in cash from the refi. What's important is not how much equity you have so much as the remaining loan balance and the home value.

Example: you have $150k remaining mortgage and the home appraises at $250k (thus $100k in equity). The bank will do 85% LTV so the new mortgage will be $212,500.

$212,500 - $150,000 = $62,500 cash out.

If the allowed LTV was 75% then cash out in this scenario is only $37,500!

Salem Five Bank, I worked with John Hanewich VP and Senior Loan Officer. Excellent service, used them to appraise, refinance, and get a HELOC on my two family in MA in Middlesex County. John did everything over the phone and electronically so I never even had to go to a branch. Note you will most likely need to open an account with the bank but I use mine to make auto payments on the HELOC, super simple.

I have no business affiliation with John other than he provided me such great service I recommend him whenever I can.

Hi Michael, in general I think you've got a good approach at BRRR here with some live-in sweat equity. This is similar to what I have done so far (bought a two-fam, rented out one unit while fixing mine, fixed 2nd unit on tenant turnover, then moved out and now rent both for improved cash flow).

It's difficult to give specific advice on your HELOC approach with what you've given us so far for a few reasons. The primary reason is I'm having a hard time following your math, the numbers given don't really line up - I'll get to that in a moment. And second I think you need to really characterize your risk/return for both approaches you've outlined and see how that fits your personal appetite for risk. Third, I think you need to do more research on achievable rents for these units. That's not to say you haven't, but right now it's not clear how you're getting your estimates for what market rent is and if your units would in fact draw those rents given your location, competition, tenant base, etc.

So about the numbers: you're saying the 4-plex gets 2100/mo now but the listed rents are 490 + 550 + 525 + 575 = 2140. If you're living in one unit then your rent roll is really just whatever the other 3 units will provide, are you planning to stay in that one unit, or move to a private residence/next investment once the rehab is complete? Also it sounds like you have two tenants leaving so your total rent right now could be as low as $525/mo until those others are filled.

Mortgage is given as $1200/mo but is that PITI? Is there PMI as well? With only one tenant in place your monthly expense is at least $700 currently, if you add in a HELOC payment what does that look like near term?

If we assume each unit needs $4k in repairs/upgrades then you're looking for a HELOC of at least $12k - will that come from this property's equity or from your 2-door investment property? I ask this because the source will determine your ability to write off the interest payments on your taxes - it may be a business expense or personal expense, or possibly not deductible at all. This is a question for your CPA/tax adviser that I can't answer but it is one you need to ask to get the full picture and may sway your choice of equity source.

Finally, on the expected rents, how are you determining that $650 is a realistic number? Do you have local comps getting that much? Have you gotten the opinion of a local realtor who places tenants? I have done this, it was exceptionally useful! A local agent placing renters will have the best knowledge of current prices and tenant expectations - they may be able to give you advice on desired upgrades you may not have considered which will get you better return for your renovation dollars. 

The other thing that makes me question the $650 target is you say you have 2 tenants who already balked at rent going to $600 and opted to leave instead. That tells me they have other cheap options in the area, so make sure whatever improvements you are making will actually get you your desired tenant/rent. It might be prudent to try to fill at least one vacancy at $600 now to determine how likely higher rents will fare. Again, a rental agent will be helpful in knowing current prices, paying a half or full fee to get them to screen and place a tenant would have the additional benefit of having this conversation with them to gauge your market.

Ultimately since you have some flexibility of schedule and funds I would say do your first live-in upgrade from existing funds and get the other units rented closer to full market rate. Save that rental income and then when your first unit reno is complete you will have an exact picture of the time and cost to do each of the next units. At that point you will find out what rent the updated unit will really fetch and that should inform your decision on how best to fund/repair the next 3.

Hi Sam, I have had good experience working with Payless Floors located in Walpole and North Attleboro for carpet installation; good range of price and quality and their installation was on-time and done well.

For doors and cabinets I would encourage you to look at the Habitat for Humanity Restore in North Attleboro. Think of it as salvation army for construction materials, many items are new/surplus from contractors who donate for the tax write-off. You can often find entire kitchen cabinet sets for $1000 or less. In general they are a great resource for the DIY landlord.

Best of Luck!

JS

I'll echo Peter's comment as well - I' d love to hear any more thoughts you have on both mid/western MA and ME or NH. I have units near Boston and looking to invest in a new multi this year but the prices in my current area make finding good returns extremely difficult. I have begun looking out west in MA, potentially Springfield or Holyoke, but really just started my search so any and all info is welcome.

Thanks,

JS

Hi @Moshe H. I am an investor who resides in MA and owns property here. My understanding is that even as an out of state resident you will owe state income tax on any income derived from MA sources over a certain threshold (depending on deductions). They don't call us Taxachusetts for nothing! 

I would direct you to the mass.gov website which states the following: 

"Nonresidents are required to file income tax returns with Massachusetts if their Massachusetts gross income (derived from sources within Massachusetts) exceeds either $8,000 or the prorated personal exemption to which they are entitled, whichever is less. Nonresidents file Massachusetts Form 1 NR/PY- Nonresident/Part-Year Resident Individual Income Tax Return."

And here:

"Massachusetts Source Income That Is Included

General Rule - Massachusetts gross Income includes items of income derived from sources within Massachusetts.

Specifically, this includes income:

• derived from or effectively connected with any trade or business, including any employment carried on by the taxpayer in Massachusetts, regardless of the year in which that income is actually received by the taxpayer and regardless of the taxpayer's residence or domicile in the year it is received;
• from ownership of any interest in real or tangible personal property located in Massachusetts;"

I am not an accountant but I would recommend you take this question to a professional tax preparer to be certain you are in compliance with MA tax law. On a personal note, I highly recommend using a CPA to prepare your taxes. I spent a few years doing my own taxes as a landlord and eventually switched to a local CPA. Every year they have saved me thousands of dollars more in taxes than their services have cost. My current CPA charges around $800 for annual returns and the reduced headache alone is worth the money.

Best of luck to you, claim every cent in MA expenses you can!

JS

Welcome, @Kevin Schneider! Your plan sounds a lot like mine and seems very reasonable. Getting the first house hack done takes a lot of focus and sweat equity and you'll want to find a good mortgage broker or lender to help you understand all your options and requirements with FHA financing. If anyone is gifting you money to help with the down payment be sure to have it done well ahead of your application and have records as FHA has fairly extensive documentation requirements. Don't underestimate the PMI costs if you're putting down less than 20%, it can take a big bite out of your monthly budget. On the plus side though be aware that if the second unit is in rent-ready condition (or already rented) then you may be able to count ~70% of market rent towards your gross income when applying for your mortgage.

With all due respect to Ben, let's keep in mind that ten years' experience includes a period with a huge housing bust which those of us purchasing now are not seeing those type of deals. Whether or not we are near a top in the market, or just a pause or continuance, the fact remains that there are far fewer (if any!) deals now of the type that were available in 2008/09/10. We need to be more conservative in our estimates because margins are going to be thinner right now. In my market there are basically no deals unless you have an inside track in some form. The other reality is that because there was a huge housing bust within the last decade there is also a lot of deferred maintenance out there. I can't imagine a lot of home owners in 2009 decided it was a good time to invest in a new roof or furnace or windows unless it was absolutely necessary to keep their home functioning or to sell. The end result is there is a bubble of sorts in capex working its way through many markets which is starting to come due now as we approach ten years from the major RE crash.

This is a great thread, thank you to everyone who posted.

@Joe Rinella - If you don't mind could you let us know which, if any, of these companies you selected? I'm getting quotes for my 2 unit now and there's a lot of variation.