All Forum Posts by: Ranga Ramanathan

@Michael Henry thanks for your input.  I guess you mean 15 - 20% discount on rental rates for normal single family homes n the area?  Yes the multifamily buildings look pretty decent, not fancy but decent.

Congrats on your step forward, If your numbers are good it looks like a good deal for owner occupied quadplex. The most important things is how realistic are you with your assumptions, make sure to error on the safer side if you are not sure about something. Here are few things I noticed

1) You are not considering the closing cost related to the loan and home purchase, It may run in to few thousand dollars easily for a home this price, ignore if seller pays all closing cost.

2) You probably have 4 furnaces, 4 water heaters, 4 of every appliances considering this is a quadplex, your maintenance expense of 1800$ seems too low, do you have all new furnaces and heaters and appliances?  it is only a matter of time before you have to change something, so it is good to consider a chunk of money every year for that or bump up your maintenance cost.

3) Are you paying the water bill and renters will pay other utilities?  Depending upon what all you pay, utility bills may swings a lot depending on the renters, so make a worst case assumption on that too.

4) You are not considering the landlord tax deductions (property tax, mortgage int, insurance, and whole bunch of other expenses related to being a land lord), which will make the analysis look better.

5) Do exit strategy analysis, It will be a good idea to run a long term analysis (over a 5yr period) considering possible home price variations and how you will fare if you have to get rid of the home in 1, 2, 3, 4, 5 years, don't forget to include broker commission and seller related closing cost in that analysis.

Just my 2 cents, good luck.

Hello Lee, this is a question I battle with all the time, I have the same concerns as you in having a partner. BRRRR strategy takes its own time to scale up. I typically go with MLS and try to find a deal that works so I don't buy 40% below market value. I am not a big fan of investing in low cost areas, may work for lot of people and good for them. If i was open to low cost areas I can buy home for cash and invest to repair then rent and then leverage the equity to buy the next home and so on, but the typical home I am comfortable investing in is about ~200K and I don't have that kind of cash to play with so I have wait till I have enough money for down payment. The problem with B+ areas with good school district and low crime is that it is hard to find run down homes that I can buy for cheap and generate equity.

I have considered C- areas (Mediocre schools, little bit crime prone few block away) where I can afford cash purchase but have rejected the idea as I am worried about the direction these areas will go in future. Here are few more options

1) find a market where you are comfortable with what your cash affordability can buy

2) Buy property as primary home for low down and you can make it an investment property after a years stay and buy a different primary home and keep it going till you can find a lender

3) Find a hard money lender if you are rally serious about scaling

4) Do personal sacrifice and save lot of cash to get started

What ever you do evaluate your risk and numbers and make sure you are comfortable with it, good luck

I am working on closing a Single Family Residence (SFR), I am getting a decent enough deal and numbers work even for a conservative rent value. I am paying about 10% below average for the area probably because this property is in a block where on one side are duplexes other side is another single family, dead end and a nice park, opposite side is full of 6-8 unit multifamily rentals. In fact this property is a stone throw away from one of my other investment property that I have had for little less than two year and working out great. This is a B+ suburb of Milwaukee, with good schools and low crime.

My questions are

1) Will there be a decrease in rent due to the location of this SFR other factors being equal?

2) Will there be a problem getting rid of this home if want to, is there a standard percentage cut in home value that makes sense for this situation?

Thanks for reading my post.

1) Try community banks or credit unions that holds the mortgages in their own portfolio rather than selling it away, you may have better luck, it wont be easy you may have to make dozens of calls.

2) Yes, you can buy another primary home, Typically most mortgages that you take on for your primary home requires you to live in the home for 1 year, beyond that you can convert it to a rental home and buy another primary home with lower down payment as long as you can qualify for a loan, I have done this.  Most banks don't have problem with this conversion but it is good to check with your lender and also it is up to you to figure out if your home is suitable for renting in terms of return. 

Good luck

Great advice Mike, also a great warning for a lot of us who don't hear from our renters unless there is a leak and just see the checks every month, it is really good to schedule periodic checks on critical maintenance.

Raj, First thing you are better off talking to a real estate attorney in your area about your concerns as the laws vary from place to place. My understanding is you live in your primary home and rent the other unit, just looking at your housing situation I don't see a need for LLC, since you live and maintain the home. Also LLC will not provide any tax advantage from rental income stand point, it protects you from your personal wealth in case of unexpected catastrophes with your rental property. I cannot advice about if you need LLC for private lending in the mix, but one thing I know is people involved in real estate private lending are very experienced in the real estate market they are dealing with and can see a good deal from bad deal miles away because of their experience.

I own three single family rentals and don't have a LLC but considering it and have no experience dealing with or being a private lender. Good luck.

Hello Jordan, As long as the number work and you know the area well and have a good exit plan one hour away should  not be a big problem, I live in suburbs of Chicago and invest in Milwaukee area which is about an hour away.  I would strongly recommend a good property manager, personally for me self managing from an hour will be very hard. Good luck.