All Forum Posts by: Meghan Cheek

Hello BP community!

This is my first post so I first wanted to introduce myself! I have been listening to podcasts, researching, reading forums and BP books for the past year and would love your input as my husband and I look to embark on our first deal. We will be purchasing in Upstate NY (Capital District area). We plan to house hack using an FHA loan. I was originally looking at B class properties in B class neighborhoods with a max purchase price of 250-300k; however, we found a B+/A property in an A neighborhood that is listed for 420k.

Here are the details: 

Duplex built in 1999

Target Purchase Price: $392,000

Unit 1: 4 bedroom 1.5 bath rents for $2100/month

Unit 2: 3 bedroom 1.5 rents for $1900/month (we would occupy this side)

Total monthly income: $4000

Expenses:

Principle + Interest: $1950

Insurance: $100

Mortgage insurance: $253

Taxes: $720

Vacancy (5%): 200

Maintenance/repairs: $330 (1% home value/year)

Cap Ex (5%): $200

Tenant responsible for utilities

Total expenses: $3753 (this does not factor in property management as we will be owner occupying, however if I factor in property management at 9%, it would add $360 which would be negative cash flow).

Total cash flow $257

CAP rate: 6.4%

Cash on Cash return: 9%

Without property management we should have positive cash flow, given that I am estimated expenses correctly. Do these expenses seem correct? I am ok with the lower cap rate and COC return given the A neighborhood, I expected that the taxes would be higher for this reason. However, I am concerned about our financing. Because of the FHA low down payment, we will be highly leveraged, and the high monthly payment (and mortgage insurance) has me concerned for several reasons. It eats into cash flow, we may have difficulty saving for our next down payment,, and I am worried that the large mortgage will affect our debt to income ratio when we apply for a loan for our next property.

I am also concerned about paying too much for the property as there are no solid comps in the area.  I do know that the current owner purchased the property in 2015 for 370k.  With the housing market expecting to decline, I am worried that we will overpay.  

Any thoughts or opinions would be greatly appreciated!  I have learned so much from everyone here and now that it is time to apply the concepts, I want to make sure we make a smart decision.  

Best!

Meghan

Hi Dylan,

Thanks for posting, I am also new to the forum and looking to invest in my first property using the FHA house hacking method as well. What part of upstate are you looking to buy? I'm looking in the capital district up to Saratoga county.

As for you questions I don't have much experience yet but I would suggest the following:

1. I think the question of whether to buy a fixer has to do with the area you are looking at and your overall goals. I believe it's an advantage to do a live in flip as you can go at your own speed and make improvements on your own schedule and even do some of the work yourself and gain some experience. But depending on your market you want to make sure you will see a return on the work you put in. Maybe look into the BRRRR method a bit more and see if you can apply those concepts to this property. Because an FHA loan will carry PMI for the duration of the loan, I plan to refinance to a conventional loan once I have 20% equity in the property, I need to do more research and would be open to suggestions from anyone who has done done this in the past

2. As for finding tenants, you may inherit tenants when you purchase the property. Based on their lease agreements you can choose to keep the existing tenants or if you plan to raise rents or move in a different direction maybe consult with you're real estate agent that you are working with (who hopefully has experience with rental properties) to see what they say.  If the property does have vacant units make sure you account for the time you will need to fill the vacancy when calculating initial expenses.  

3. As for concepts to consider, just make sure you do your research! Read as many books/posts/listen to podcasts as you can, biggerpockets is such a great resource. Look into local REI meetings to network and get to know your market.

Good luck and let us know how everything goes!