All Forum Posts by: Sean Pour

Thanks Derek. Can you clarify what you mean by 40% expense as I am seeing that my total expenses are $1560 per month for a rent of $2000.

Hi BP Community:

I am about to finally purchase my first SF rental property. The investment doesn't pass the 2% or even the 1% rule (hard to find these days) but the overall performance looks better than what I have found and analyzed so far. The property is in a college town in mid-west  (very low vacancy rate, very high rental demand), tenanted, 4 master bedrooms, each room is rented at $500 a month (a total of $2,000 monthly income). This is a relatively new construction (2016) and the seller just accepted the offer for $210K. Utilities are paid by the tenants.  I am planning to take a loan with 25% down payment. Here is a summary of my analysis. I appreciate any insights or comments. Please let me know if I am missing anything and how you rate this investment. Thanks!

Performance
Total Cash Needed	$56,500
Monthly Income	$2,000
Monthly Expenses	$1,560
Monthly Cashflow	$440
Pro Forma Cap Rate	6.9%
NOI	$14,580
Cash on Cash ROI	9%
Purchase Cap Rate	6.9%
Yield	14.0%
Debt Service Coverage Ratio	1.57

Purchase Estimates	Amount
Purchase Price	$210,000
Purchase Closing Cost	$4,000
After Repair Value	$210,000
Estimated Repair Cost	$0

Loan Details	Amount
Down payment of purchase price	25%
Loan Interest Rate (%)	4.250%
Loan Amount	$157,500
Amortized Over How Many Years?	30

Income	Amount
Total Gross Monthly Rent	$2,000

Fixed Landlord-Paid Expenses	Amount
Electricity	$0
PMI	$0
HOAs	$0
Property Taxes	$215
Water & Sewer	$0
Garbage	$0
Monthly Insurance	$90
Other Monthly Expenses	$0

Variable Landlord-Paid Expenses	Amount
Vacancy (%)	5%
Capital Expenditures (%)	5%
Repairs and Maintenance (%)	5%
Property Management Fees (%)	9%

@Hai Vu Some HELOC lenders require that the property that they are issuing the loan against be a primary residence. Some might ask you to also remain in that property 12 months after the loan is closed. I hope that answers your question.

@Brent Thanks! The part I am wondering about is whether the HELOC lender would be fine with using it for down payment on another property. I have read that they are happy when you use it to improve the property because if you end up not paying it, the property is worth more. Can they impose any restrictions on where the money is being spent or can any issues rise later?

I have a home equity line of credit against my primary residence. I am planning to move to a larger house and would like to use HELOC as a portion of my down payment. Are there any regulations limiting the use of HELOC? Will my new lender be fine? There are many articles out there about buying a second home using HELOC but not many about financing a primary residence using HELOC. Thanks!

@Christopher That was a good point. I will run numbers and ask her to review and let me know if I am missing anything. This property is in a high value area, so I am running numbers to see if it has the potential to become positive cash flow when I am ready to move out in about 5 years.

Thanks @Aaron Hunt

Thanks Mike Wright I agree that I asked a general question that is hard to answer, maybe if she responded differently I would have felt better. I just asked an honest question and didn't know anything about license requirements. I had already discussed my goals and criteria with her. She had provided general investment advice before. I was wondering why she is not just telling me that looks like the house is next to a busy street, and the price is very low, you should find out why before making any conclusion. Is this too much to ask from an agent too?

Thanks @Brandon your comment was very helpful, and knowing she is a conservative person, I respect her decision. Although I was not planning on holding her responsible for my purchase. I thought no one else is responsible for the purchase because I am the one who is signing the contracts and getting a huge mortgage from the bank. In your experience, who would be the right person for honest advice on RE investments without putting them in trouble?

@Ken So you are confirming that I was asking for her judgment call and she rightfully refused so she doesn't risk loosing her license?