All Forum Posts by: Jesse Waters

Generally, no. The FHA 3.5% down payment is only for owner occupied properties. If you currently have a house you should be able to purchase a duplex, tri or quad on the FHA so long as you intent to move in, you will then either have to sell or rent out your other house.

I agree with @Hattie Dizmond house hacking is the way to go when you are just starting out.  If you are looking at a $150k quad, then your DP is only $5250, any should get enough from renting out the other units to cover the mortgage and then some.  Not to mention that could be one of the cheapest educations in real estate possible.

I'm going to suggest something a little different...  I would first get a month or two ahead on each mortgage before paying them down.  It all comes down to cash management.  If you pay extra what do you get your self?  Savings in the interest and not paying as long on the loan.  Both of those are long term points, and very valid.  If you pay all your properties ahead one or two months what do you get?  You get the peace of mind that if something happens to your cash flow, you can exercise the advantage that you have just bought yourself and be able to to skip a payment or two.  Paying ahead a month or two will help in lowering your overall interest, but not a whole lot.  

After getting ahead I would then switch over to paying extra on the principle, targeting one loan first.  Think of Dave Ramsey on this one.

However, if you are concerned about cash flow or rate of return you aren't doing your self any favors.

Me personally, I would just get a month ahead, then save the cash for a DP on another property.

Because my rentals are spread out I have the benefit (good, bad or otherwise) of dealing with different managers.  I have two mangers who charge 10% placement fee on top of the normal 10% management fee.  My other manager charges 1/2 months rent placement fee with a max of once a year (so I don't get double hit if I have a tenant move out early) but, she only charges me 8% management fee.  I have talked with a few other managers in my area, it seems that most of them charge 1/2 months rent for placement, which includes any marketing fee's, time for showings & time for screening tenants.

My orriginal number didn't include insurance. By estimation only I'm calling it $600/yr. ROI/COC=$4398/38,000 = 11.57%

Even though you are paying cash, you will still have some closing cost.  Make sure to factor that in as well.  Unless the $38k includes that.

Otherwise looks pretty good.

Aaron, first check your local laws, I would start with your land-lord tenant act followed up with some research into LLC's in your state. If you do a LLC you may want to consider an out of state LLC for the better protections that another state may offer (Nevada or Wyoming.) Give "Loopholes of Real Estate" by Garrett Sutton a read. Should answer some questions.

In some states, if you are the only owner, the state treats it as a sole proprietorship & you really gain no extra legal benefits.

Generally speaking, an LLC will limit your exposure to law suit to the equity you have in a property, ie your down payment plus appreciation. So, if you only own one property, you get sued, if it is all in your personal name, then they can attach all of your assets, if its in LLC then they can just go after what is in the LLC.

Each legal structure has its own pro's & cons. Partnerships can be good, but generally they have to have one non-limited managing partner, which could be a person or a LLC setup as the management company.

As far as insurance goes, we keep a healthy level of liability protection of each property, and we will be adding umbrella to the LLC as well.

But, to keep us safe, we try and take care of our tenants, meet their needs & take care of our properties to try and avoid any legal issues all together.

Your questions are very good, but more along the lines of the subject of a book, rather than just a forum reply.  Also, I'm not a lawyer, please don't take my opinions as legal advise.

Gwen,

Each of my properties are mortgaged with the taxes & insurance paid through escrow.  It is possible that I could bundle the policies, but I doubt my insurance company would go for that.  I think it is easier to keep things separate.  At the end of the year the bank sends me a statement for each property telling me what I paid in principle, taxes, interest & insurance.  

I also run all my rentals through a LLC so I keep everything separate, insurance, banking, everything. Hope that helps.

Yes, @Damian Baynes  I forgot insurance.  For a single family I pay about $85/month, I would guess that a condo would be about $50.

That changes your COC to $3630 or 9.5%.

Robert,

A few things to check into first. Does the HOA limit rental's? Does the building need maintenance which will require the HOA to hit you with a special assessment? Also, is the $38k purchase or purchase & closing cost.

Using your $700/mo for rent number here's what I got

Annual Rent less 10% vacancy= $7560

Less 10% Management=$6800

HOA=$1680

Taxes=$202 (check to see if your taxes will change for non-owner occupied property)

10% reserves/maintenance etc=$680

Positive Cash Flow=$4238

COC/ROI=$4230/$38,000=11%

Hope this helps, can't say if I would take it or not. Depends on the market, your strategy & your willingness do deal with condo HOA's. Personally, I am not a fan of HOA/POA/Condo Associations etc.

@Kevin D. Tough to say exactly what the industry standard is. It depends on the individual investor & your strategy. I look for 12-15% COC for single family properties and about 25% on my quad's. But, I also look at my internal rate of return. This includes mortgage pay-down, tax advantages and property appreciation. If a property wasn't going to change in value I would want to have a higher cash flow. Or if a property is in a hot area and would shoot up in value I would accept less cash flow for a gain equity that I could cash out either by a re-fi or selling it.

Hope that helps.

I re-did the hardwood in my own house.  Took about 5 days all said and done.  After you have sanded, I would test on a small spot to see how it looks.  I used a stain sponge to apply the stain, don't rush the job, make sure it's applied evenly.  After it has dried good do 3 coats of poly, make sure to use the stuff specifically for floors.  I used a finishing pad on a 4' handle, again, go slow, don't get bubbles in your poly.  After each coat has dried use at least 150 grit on a pole sander and do a light sanding to break any bubbles and smooth out the coat.  Then I use mineral spirits on a rag to clean up the sanding dust.  Repeat for each coat, (I don't remember if I sanded my final coat or not), and apply the stain/poly in the direction of the wood grain.