All Forum Posts by: Tom Wagner

Hi Bob, the rate you mentioned sounds competitive but the points sound expensive to me. Also just curious, you mentioned $90k/year "in peak season". Do you mean the home will do $90k in revenue total per year? And regardless, could you break down what you anticipate your revenue to be by month?

Congrats on the equity and good luck with the sale! Selling properties in or near Chelsea? That market has been booming.

And just curious, what made you decide to sell them together as a portfolio sale?

Hi Tommy (nice name!) -- some good questions that I'll take one by one.

1) For HOA, I would just consider that an expense on your income statement that will affect the property's cash flow. If you get HOA benefits that increase rent (pool access, parking, etc.) make sure to factor that into your analysis as well.

2) Everyone values properties differently. Some investors invest for cash flow, while others focus on appreciation. In Newton it will be virtually impossible to meet the 1% rule, and I would instead focus on whether the properties are cash-flow positive (ideal), cash-flow neutral (acceptable) or cash-flow negative (not good). Of course this changes with 100% down, so I think the best way to compare properties would be by calculating Net Operating Income (using the Bigger Pockets calculator or similar) and then calculating the properties cap rate (NOI / purchase price). Some somewhat-complex terminology in here so feel free to ask follow up questions, or hit up the Bigger Pockets youtube page.

3) The interest rates question is top of mind for everyone right now and it is impossible to know how they will impact the market. Personally, with supply still at or near all-time lows I don't think rates will affect the market unless they push past 5% (which seems possible). If more supply comes online while interest rates are >= 5% that's when I think we will see a modest correction, but it is impossible to know for sure and I don't foresee significantly more supply coming this year. As rates push higher sellers also become disincentivized to sell because they'd be going from 2.X% or 3.X% interest up to 4.7% (or whatever rates are tomorrow, since they seem to fluctuate 20bps per day these days)

Hope this helps and happy to chat further!

Let's play out a hypothetical. If you buy a $800k 3-family and put in $100k, then sell for $1.1mm you'll walk away with approximately $1,050,000 after paying 5-6% in commissions and have a gain of $150,000. Uncle Sam will then swoop in and take another 20%, leaving you with $120,000 after taxes.

However, if you instead refinance the property the equation will look something like this:

Initially: 25% down on $800k + $100k cash = $300k initial investment and $600,000 loan balance

After refinancing: refinance at 75% LTV based on a $1.1mm value, new loan of $825,000. Pay off the original $600k mortgage and pocket the difference of $225,000 -- leaving you with $75,000 tied up in the property.

Here's the kicker: you now own the property and will collect the ~$20,000 in cash flow per year indefinitely. PLUS, if it appreciates at 2%/year it will gain ~$20,000 in value. AND, your tenants will be paying down your mortgage on your behalf, and your principal paydown will total ~$20,000 per year. You'll have fluctuations year to year but over the long term you'll be gaining $50,000+ in equity / cash flow every year indefinitely.

Personally, I would hold onto that property for dear life and refinance opportunistically to continue pulling out equity.

I agree with others here: sellers see down payment percentage as a proxy for your ability to make it to the closing table. We could debate whether that is fair or true, and I would be curious to see a graph detailing how likely an offer is to close based on the down payment percentage (ex: buyers with 20% down successfully close X% of the time).

Tangentially, my friend @Andrew Freed shared in another thread that FHA buyers still represent a substantial portion of the market on multifamily properties, so if you hear someone say "It is impossible to buy with an FHA loan in this market!" that simply isn't true. It may be harder to compete and your FHA offer may not be considered in a 20-offer-situation on a single family, but you can still take down a property with an FHA loan even in this crazy market.

Great question and I think this is something that a lot of house hackers / investors wrestle with. To answer your question, I think the only things limiting the size of a potential house hack are conventional and FHA loan limits. Before moving to Boston I closed a four-unit property in Jersey City for $999,000 and financed in $470,000 in repairs using the FHA 203(k) loan, ultimately coming within $3,000 of the FHA max loan limit for a fourplex. Similarly, if you found a suitable property you could house hack a four-unit property in Boston that cost over $1,400,000 with only ~$60,000 down. However, finding a property like this will be very difficult. A two- or three-unit property for $700k to $1.2mm may be more obtainable.

And to address your concerns about paying the mortgage if you don't have tenants: When underwriting and analyzing a property using Bigger Pockets calculators or other analysis tools you have the ability to include vacancy in your analysis. If you want to stress-test your deal, enter 10%+ for vacancy and see what happens to your cash flow. And while I personally think prolonged vacancy is unlikely in Massachusetts, this is one reason it is important to keep reserves on hand.

Happy to chat further here in the forums or via DM -- but in my opinion there is no such thing as "too much" for a house hack!

If you are looking to live in the property and interested in purchasing in Worcester, then I think an FHA loan is hands-down the way to go. Your rate will be significantly lower than a HML and you only have to put 3.5% down.

Andrew Freed is an active house-hacker and investor based in Worcester that recently shared some good data on investors/buyers using FHA loans to close 2-4 unit properties:
https://www.biggerpockets.com/...

Incredible chart, thanks for sharing.

Going to save this one for the next time someone comes at me with "yOu CaNT bUy A prOpERtY wITh An FHa LoAn iN tHis MaRKeT"

Hi Matthew, a few places come to mind for me:

- Worcester

- New Bedford

- Fall River

- Providence

- Lowell

- Nashua

- Lawrence

Happy to chat further and lots of tradeoffs!

Hi Steve, to me it sounds like you have the difficult part down! Finding good contractors at a reasonable price is incredibly difficult in this market so you are set up well to succeed.

Are you looking for an equity partner, a financing partner / lender, a deal-sourcing partner or all of the above?

With some more detail on what exactly you are looking for I'm sure people will come out of the woodwork to connect.