All Forum Posts by: Matt Morgan

Hey Meg, if your home is underwater, you're not going to be able to refinance. Typically lenders will only finance 70-80% of the loan to value ratio. At a little over 6% interest, you aren't getting completely hosed, and it looks as though your renter is taking quite a bit of financial burden from the mortgage. I would closely monitor prices in your area, and as Joe said, look for a no-cost refi once you feel you have some equity. Good luck!

I would start off by saying that most will advocate that the first piece of real estate you buy should be your own home. Having that first mortgage will not hurt your chances of obtaining a second mortgage so long as your debt to income ratio is below the banks threshold. If you rent the house out, a lot of banks will look for the rental income to be claimed on your most recent tax returns before they can count that against your debt when evaluation your ratio. If you're using a conventional loan, you don't need to worry about living in it for a certain amount of time before you rent it out, sell it, whatever. However some banks may have slightly different qualifying criteria and terms should it be for investment. You won't have to disclose that it's for investment purposes if you intend to live in it right away. If you're looking at an FHA program, they will require you to owner occupy the home for a year. This can be a great option as it only requires 3.5% down. I would recommend you start with your own home, evaluate your options, and move forward from there. Welcome to BP and good luck in your investing!

Thanks a lot for both of your responses @Mehran K. , you helped to clarify things quite a bit. From what I've read, multifamily units seem to react differently than a large portion of the market due to prices being dictated by rental income and expenses, and not home prices. So in a down housing market, multifamily home prices may or may not correlate, and there could be less risk of a property being underwater and not having the ability to refinance.

Is this 3-7 year term with a balloon the only option when obtaining commerical financing or are there more typical 15-30 year terms with normal amortization out there?

David, would you mind breaking down this kind of financing into simpler terms? Specifically, what kind of payment is due after the term is up? Isn't a balloon typically the payoff amount? Also, what is meant by interest rate risk of change?

Sorry for the simple minded questions, just trying to get a handle on these types of loans.

Fully understood @Ned Carey . You spelled it out perfectly, thanks.

If I'm buying a duplex in an area with 5% vacancy at or a little below FMV, but both units are rented when I buy it, should I be too concerned about what my exit strategies are? I understand the importance of exit strategies when flipping, but am curious what one would like for buy and holds. Thanks

I don't know your specific situation but if you're credit gets you a 15yr @ 4.1%, I would imagine you can find a better deal than 5%+ with 25% down. I would shop around with various lenders - maybe some smaller banks.

Regarding the deal, if you property manage yourself, I'm still seeing cash on cash returns of almost 11% and total ROI of 16%. This is assuming a 30yr mortgage at 4.7% and 20% down, which I think is achievable. There are definitely better deals out there, but if you're looking for a long term investment vehicle, this still beats most, and it gives you the added security of being close by.

Welcome to the site Matt. Although you may have already read it, The ABC's of Real Estate Investing by Ken McElroy may be of some value.

How's the market up there in Salt Lake? Utah is a pretty awesome place...

What kind of financing are using? PITI of $1350 sounds very high unless you're using a 15 year term or something. Even at $2400/month in rent, this is not a profitable deal with $1350 PITI. Research the 50% rule and use that to determine the income you'll have left for debt service payments. (excluding taxes and insurance) Gross income / 2 - debt service = monthly cash flow.

My mortgage calculator is showing a debt service payment of around $700 with 20% down and 5% interest, in which case I'd say this deal is definitely worth looking into further. Good luck!

I believe you can put verbiage in the lease agreement to make the tenant responsible for, lets say, the first $50 of any repair. This should help deter the abuse of the warranty by the tenant. Never used this method myself so I can't speak to it's real life effectiveness.