All Forum Posts by: Oscar Beteta

@Lee Ripma

Hi Lee!

When I'm comparing to the 50% rule, I am not including the debt service.  I am including all non-mortgage expenses including maintenance, deferred maintenance, vacancy and property management.  When I add all of those costs and divide this number by the total rental income I get the following:

Non-Mortgage Costs (with property management):  $2370/month

Rental Income (all 3 units rented):  $3600/month

[Non-mortgage Cost]/[Rental Income] = 66%

If I do my own property management, then I can deduct $430/month so the modified calculations would look like this:

Non-Mortgage Costs (with property management): $1940/month

Rental Income (all 3 units rented): $3600/month

[Non-mortgage Cost]/[Rental Income] = 54%

This is closer to the 50% closer but still higher.  What do you think is throwing this my calculations off?  The property taxes are $770/month :-/

@Michael Badin

Michael,

Thanks for the feedback.  The property is located on Mill Rd. close to Ogontz Park.  I haven't been there in person but I think the neighborhood looks very nice from pictures and google map.  I would certainly love to live there.  It's a suburb close to the Elkins Park train station that can get you in center city in 30 minutes.

This will be my first investment property.  And most likely, I will do my own property management at least in the beginning.  However, I want to run the numbers taking into account external property management so that I can still cash flow the property even if I have to move out of Pennsylvania.

Are there any other numbers that look funny to you?  Or are there any additional costs that I forgot to list?  I'm all about learning right now from more experienced investors so I'm all ears if you have any additional advice to share.

@Bill Goodland

Hi Bill! Thanks for your feedback. I'm working with a combination of real estate agents and wholesalers to find deals in the Philadelphia suburbs. This particular deal was brought to me by a wholesaler and the house is in really good shape so I think I can skip most of the BRRRR steps to get straight to conventional financing. I'm still evaluating the property and haven't yet seen it in person but I think there are no big value add opportunities - probably will just need to do minor cosmetic fixes. I think that buying it off-market will save me the 6% realtor fees though I do have to factor in the wholesaler fee.

I still would like to spend more time looking at the potential rental income but I don't think I'm too far off.  Do you have any information on rental rates for 2 bedroom apartments in that area?  The property I'm analyzing is very close to Ogontz park.

Right now I'm really trying to analyze properties to learn more about process, especially for my local investment area.  This will be my first investment property so I'm still learning a lot as I go through this.  As I mentioned in my original post, I'm trying to understand the 50% rule as it relates to properties in Montgomery County, PA.  I am finding that because of very high taxes, the non-mortgage costs exceed the 50% rule.  However, I want to double check with other investors in the area.

If you have any realtors or wholesalers that you can recommend, I'd definitely be interested in connecting with them.

Let me know if I can help with anything.  I'm big on win-win relationships.

@Frank Leone

Hi Frank, thanks for your feedback.  I'm a bit confused by your suggestion to "times that number by 6%".  Assuming that I can rent each unit for $1300, then the total rental income is $2600.  If I times that by 6%, the amount for repairs, vacancies, capex, etc is $156/month.  Do you think this is enough to cover repairs, vacancies, capex, etc?  It sounds low to me.

Mortgage, insurance, and taxes would equal $2126/month assuming a 20% downpayment.  The cashflow calculation would then be $2600 (rental income from 2 of 3 units) - $2126 (Mort, Ins, Tax) - $156 (Add'l Exp) = $318/month.  This sounds good but I think that we are underestimating opex and capex.  Am I missing something from what you had suggested?

Hi BP,

I'm looking to invest in a small multifamily property in Montgomery County, PA. I plan to use a combination of cash savings, a HELOC, and hard money if needed to finance the property. Ideally, I would like to find a property where I get some nice forced appreciation out of it which I anticipate would require cash payment - then I would follow the BRRR method to refinance into a conventional loan. However, I'm not closed to the idea of going to a conventional loan right off the bat.

I am very fortunate that I have a full-time well paying job and excellent credit.  Right now, it's just a matter of learning this real estate business as fast as I can and sifting through leads to find my deal!

Please - if you have any leads for realtors or wholesalers in the area that can help me find properties to analyze, I'd really appreciate it!  I'm very motivated!

Thanks to everyone in advance,

Oscar

Hello BP!

I could use your collective wisdom as I try to analyze one of my first few property.  I'm looking to invest in a small multifamily property (2-4 units) with the plan to househack for a while.  I would like to invest in one of the suburbs surrounding Philadelphia - Bucks County, Montgomery County, and Delaware County.

I found a triplex through a wholesaler that I met at a REIA meeting (Diversified Investors Group). I've started to look at the numbers.

I'm struggling right now to compare my numbers against the 50% rule.  Based on my estimation of costs, I calculate that my total costs excluding the mortgage payment is about 66% of the total rental income.  My understanding was that the 50% rule was supposed to be conservative.  However, in this case it significantly underestimates the non-mortgage costs.  See my numbers in the attached image below.

I need help to understand if I'm making any mistakes or overestimating some costs.

My own conclusions are that the high property taxes of $9180/year are skewing the numbers.  It's also possible that I may be overestimating the maintenance, vacancy, and misc. costs.  In order to get the non-mortgage costs to around 50%, I would need to shave off about $500 somewhere!  Is this just a really bad deal or am I missing something?!

The property is located in Elkins Park, PA in a really nice street with a creek in the back. Based on my search of the FEMA website, the property doesn't exactly sit into the flood zone but pretty close to it. For the moment, I'm assuming that I would pay for flood insurance. Also, the property has two 2-bed units and one 1-bed unit. I don't feel super confident about it but I think my estimate of the rental income is in the right ballpark.

Any feedback would be much appreciated!  Let me know if you guys have any clarifying questions for me.

Thanks in advance for your time!

-Oscar

@John Capehart  Awesome - I haven't heard of delayed financing.  I'll read more about it and see if this could benefit me on my first purchase.  Thanks a lot for the feedback!

One other thing that has been on my mind is tax write-offs. I've read that HELOC interest can no longer be written off as it used to pre-tax reform. But I've also heard that you can still write it off if you look at it as a business expense. Do you have any insight into this?

Hi @John Capehart!

Thanks for chiming in.

Since I first wrote this post, I am already pretty close to having my HELOC completely set up. It will provide me with up to $120K of credit at a 1.9% intro rate (followed by prime + 1% variable interest thereafter). My plan would be to buy, fix, and hold - doing a refinance to a conventional loan as soon as I can after the rehab is complete. For the acquisition, I plan to use a combination of HELOC, private money and hard money as necessary. I was hoping to work with a $200K budget including rehab but I'm getting a sense that this may be too low if I want to stay away from bad neighborhoods. Your feedback on this would be greatly appreciated!

Regarding areas of focus, my order of preference is currently:  lower bucks, eastern monto, and eastern delco.  I'll send you a private message so we can discuss more in detail.  I'm curious how you're experience has been looking for small multiunits in the suburbs.

Thanks Alex!  I understand exactly what you mean.  I'm learning.

Wow, this thread had so much great information on getting a good HELOC deal. Thanks for everyone contributing!!!

From my own research, I found Genisys Credit Union in Blue Bell, PA offers a 95% LTV HELOC. Also US Bank offers a nice 90% LTV HELOC with fixed rate options.