All Forum Posts by: Lucas Mills

Sean, based on the report I ran with the offer at 100k, do you feel the numbers are more reasonable in this scenario?

https://www.biggerpockets.com/calculators/shared/7...

Here it is at 100k: https://www.biggerpockets.com/calculators/shared/7...

Still, I don't know how conservative or not I'm being with my variable expenses. I feel that they're fairly conservative. And I might not need 8.5k in repairs.

 So, here's how it's gone thus far:

Initial offer from me: 105k with 400/mo rent for 3 months for owners (owners need to stay for up to 3 months so I offered discounted rate)

Counter: 115k with 400/mo rent

My Counter: 110 with 300/mo rent

Counter: 113.5 with free rent

My Counter: 110 with free rent

Their counter: 112k

My counter: 115k, they pay closing costs up to 3k

They agreed to the last counter. However, it was at this time that I found out that I would be paying $183/month for flood insurance (or $101 if I want a worse policy) as opposed to $40/month which the sellers state they are currently paying. I have a contingency to get out of the deal if I don't approve of the insurance or the financing terms, so no problem there. But that's where we're at.

So to some degree I feel that if I come back much below (say 90k) then they will really not consider it, whereas maybe they would if I was closer to the last number we stopped at?

I don't know. I've never done this before which is why I'm asking for help here.

I think that at 100k I would feel comfortable, now knowing how much I will have to pay for flood insurance. Perhaps I should tell them as much and leave it at that -- 100k or I walk.

Thanks.

Well, the other side of the coin are my expenses. Is it possible I'm being too conservative in my expenses?

https://www.biggerpockets.com/calculators/shared/7...

The killer on this property is the flood insurance. The lowest I can get it for is $101, and that's with only insuring the loan amount as well as having the highest deductible possible. So it's really bad flood insurance at $101.

That said, the owners have said they've never had problems with water, even during heavy rainfall. They said it has come up to halfway in the backyard, but that's the worst they've ever seen it.

Anyways, what do you think about this deal? Are my expenses too conservative? I'm using 8% for vacancy, repairs, and capEx, and 10% for property management. Also, I have 8.5k in for repairs but that may be a bit too conservative. Planning on putting in new flooring in both units as well as new paint, but that's about it (right now). Planning on doing the work myself. It doesn't need a ton of work I don't think.

So, this is where I'm at. I'm looking to do a house hack but also looking to do something that will be profitable after I move out a year or so down the road and have both units rented and, hypothetically, with property management (because one day, I don't want to be managing my properties). This just barely scrapes by at a cash flow of 50 bucks per month, and the cash on cash doesn't look that great with 8.5k in repairs.

I would personally feel more comfortable at 100k. I started at 105k and we negotiated to 115k with them paying 3k in closing costs (I still have 3.5k in closing costs because I'm planning on paying PMI up front.

The property is in a fairly good area, and other investors have told me its a favorable area to be in. I know an investor that owns a duplex in the same cul-de-sac and his rent is $650/month which is what I accounted for. I think that getting $700 might be reasonable with a little bit of work and time, but I don't want to plan on getting $700/month right now.

Looking for some thoughts on this. Good deal or bad deal?

@Bob Okenwa

Yep; that makes sense. Here's what we ended up settling on:

115k with free rent until Aug 31st with seller to pay closing costs up to 3k.

Even better.

I'm currently in negotiations for my first property.

The owners live in one side of this duplex and need to continue living their until Aug 31st. With closing date of June 1st, my first mortgage payment wouldn't be due until Aug 1st.

At 112k, the owners would like to live for free until Aug 31st. This would mean one month of mortgage/insurance payments at about $640 that I would be paying without a paying tenant.

Or, I could pay $115k for the property and the owners will pay me $400/month for rent until Aug 31st (potentially 3 months but they may only need 2). This would be up to $1,200 in rent. However, at the higher price of 115k, my monthly cash flow is reduced by about $14/month.

 I know that what's better is very subjective, but I'll say this: my current goal is to achieve 3k in monthly passive income within the next 5-7 years. So on one hand, my brain is in "highest cash flow" mode, which would mean going with the lower price and giving the owners free rent for 3 months at a cost of $640 to myself.

On the other hand, I can see how $800 - $1,200 up-front would be helpful, and to sacrifice $14/month in cash flow doesn't seem terrible. I am having a difficult time weighing the pros and cons of the two and making a decision -- looking for some opinions.

@Daria B. 

Perhaps I should rephrase the question: If I pay the PMI upfront when purchasing a property every time I purchase a property, will I have more cash flow in 5 years than if I were to pay the PMI monthly on every property, and instead use the upfront PMI money to expedite the acquisition of investment properties?

I am looking at a 115k property for which the PMI would be $40/month because I'm putting 5% down.

On one hand, I could pay the PMI up-front for about $3,300 and increase monthly cashflow by $40, as well as save about $1,500 overall ($40 x 10 years is $4,800).

On the other hand, I could pay the $40/month PMI for 10 years and have $3,300 more RIGHT NOW which I could then presumably put towards acquiring another property and expedite that process.

So, what's the best way to analyze this given my goal of wanting to achieve 3k in passive income in the next 5-7 years?

My instinct is to pay the PMI up-front to both save money over the long term as well as increasing my monthly cash flow by $40 over the next 10 years (after which it wouldn't matter anyways because it would have dropped off).

Which option gets me to my goal faster, and why? Are there any rules of thumb when it comes to whether or not to pay PMI?