All Forum Posts by: Anthony Thompson

Victor, it's hard to know why someone paid what they did, especially for 1-2 families. 

With those, people might be buying it just as much because they want to live there as for cash flow. In fact they might know it will be cash flow negative but figure any help they can get with their mortgage payment is great.

I would say, when people are paying for 3 and 4 families and the cash flow is negative, then I'd worry that we're starting to reach a top of the market (though how long that can last, who can predict).

On the other hand, rents have risen in the last few years, so be sure you're using current realistic rents when you do your #s as well.

@Lissette Deleon Business cards aren't essential but it's true they are a good idea. They don't need to be anything more complicated than your name, phone number, and email address. If you feel the need for a title, you can just put "Real Estate Investor" or something similar.

Get a small number printed up for free/cheap - Vistaprint is the classic recommendation but there may be others doing small runs for free/cheap now too. You could print them out yourself too, as long as they don't have that perforated edge look :)

@Lissette Deleon welcome to Bigger Pockets! There's a lot of great material here including the Ultimate Beginner's Guide (pdf) and the entertaining and informative podcasts.

As far as meeting and connecting with people I'd recommend connecting with a local REIA. I've attended and can recommend Black Diamond REI for Massachusetts and RIREIG for Rhode Island.

Good luck, and of course feel free to post any specific questions you come up with along the way, here on BP :)

@Tom Canterino I haven't worked up the #s in a spreadsheet but my knee-jerk reaction just based on my own activity in the RI market is that it sounds a little pricey/tough. However you didn't give the specific area so maybe if it's an A area which will easily get A tenants it justifies the premium.

The main thing I wanted to say is that I recommend you read the fine print on the RI grant you referenced, which I'm assuming is the one described at firstdownri.org

Specifically, besides only being available for certain areas and zip codes and being subject to income limits, the big one is:

"Buyers who remain in homes purchased with the assistance for at least 5 years are not required to repay the loan. If the buyer sells, refinances, or no longer uses the home as their primary residence within the first 5 years after closing, a portion of the loan would need to be repaid."

I mention this because you said several times how you intend to only live in the property for 1 year and then move out - but that would violate the terms of that program. That may or may not be an ethical quandary for you, but you should know that you may open yourself up to other liabilities if you intentionally misrepresent your intentions on the loan application.

Also you mentioned that all tenants are good and long standing, but that may be exactly because the rents are below market and the picture may not be as rosy if you aggressively raise rents.

You might think, well if they don't pay the increased rent they can just move out and find another place. And that could happen, I won't deny it. But what I've been seeing and hearing from other landlords is that sometimes in situations like these, the tenants find when they look around that rents have risen so much they simply can't find something in their price range for their needs (esp. when # of children dictate the # of bedrooms they need).

So you may ask yourself, can you float the property if one of the tenants takes 6 months to get out and requires an eviction? (I know that sounds like a long time, but we had a presentation at RIREIG last week by an experienced eviction attorney who said a smart tenant or tenant with a lawyer could easily stay in that long in some circumstances.)

I don't say that to dissuade you or to be gloomy, just to recommend extra care and consideration before raising the rents significantly on both of your units. If you have a hard time affording the extra $7500 for the down payment, you may have an even harder time with 6 months of vacancy and an oppositional tenant, if things happen to work out like that.

Other than that, I agree with @Ben Wilkins that you shouldn't count on any pet rent income or coin op income in your #s, and with @Josh Caldwell that a significant part of this decision should be whether you actually want to live in this property (for the 5 years of the loan assistance term).

I don't think the #s are going to be cash flow positive for a while, but if you look at it as "monetary assistance for a place I want to live anyway, along with an introduction to landlording" then the whole package may still be good for you in this case.

Steven, please don't interpret this as legal advice (it's not), but one alternative way of looking at it is, you could first find a property/deal you want to invest in, get it under contract in your name, and then form the LLC before closing, and close in the name of the LLC.

This is a common pattern of events, and won't be a surprise to any of the attorneys involved in the deal, and it allows you to bring not just an LLC formation but also a closing to the attorney.

I mention this for two related reasons.

One, if you don't end up pulling the trigger (getting something under contract you intend to close on), then you won't be out the $1000-1500 attorneys commonly charge for forming an LLC.

Two, I know of a few attorneys who don't want to spend time helping someone form an LLC unless the person is actually going to do business (in this case buy a property) with it.

I know that might seem like an off-putting idea, something counter-intuitive (they should want to help you form the LLC and then grow with you, right?), but I've found that often the best attorneys (and tradespeople for that matter) are very busy, so it doesn't surprise me that some of them prefer to work with people who are actually going to close deals, rather than new investors who just want to talk about what might happen in the future.

I'm not saying that's what you are by the way, just that it's something you might encounter out there "in the wild". And also to consider first being on your way to having an asset (in contract to close on a property), then worrying about how to protect it (forming an LLC and using it to buy the property).

See this blog post and its videos, from an attorney in Ohio. It is Ohio law specific but my impression is that it applies to other states equally.

<< My real estate agent who is a close friend of mine wants to talk to him directly, is that normal? >>

I think it's normal as far as the agent wanting to stay aware of where in the loan process you are.

A lot of what agents do is stay aware of various timelines (e.g., the mortgage contingency deadline) and keeping the wheels of progress moving, so I think that's normal and fine.

If you are concerned you could remind your mortgage person that while he's free to share generalities about the status of your mortgage application, he's not free to divulge any personal financial information to the agent.

That should be one of those "goes without saying" kinds of things, but there's probably no harm in being explicit about it if you're concerned.

<< What should I be prepared to ask - what kind of questions besides having my safe zone numbers ready to go? >>

Usually the mortgage person will ask most of your questions.

The important thing is, if you are talking to multiple mortgage people, let them know about that up front and don't commit to paying for an appraisal until you've picked the one you're going with.

Do some honest thinking about what you WANT your monthly mortgage payment (principle & interest, and taxes and insurance - aka PITI) to be. Maybe, according to the mortagage person, you can afford $2000/month. Do you actually want to spend your max though? (Especially if you also want to own rental properties later.)

You do want to ask about all fees, so that you won't be surprised by them, and you do want to get an estimate of how much you'd have to bring to closing for a house in the $X price ball park, again to avoid being surprised close to closing.

Depending on where you are in the buying process, the loan person may ask who your attorney is, or may give you a "list" of attorneys they recommend. I was told by an attorney that while it's presented as "this is the list you can choose from", often you can choose a different attorney just by asking - it's more of a "suggested" list even though that's not usually how it's presented. But you'd want to ask about that of course, if you have an attorney you want to work with who's not on that list.

You'll also want to get the list of documentation they're going to need for the loan applicaiton, though s/he will give that to you. It'll include things like last 2 years' tax returns and W-2s, 2 months of complete bank statements, last 3 pay stubs, etc.

If you're planning to buy a property that needs work, and doing something like a 203(k) loan, make sure to mention that up front and ask about what additional documentation they're going to need and what else is involed beyond a "regular" mortgage.

<< What should I tell him? >>

Whatever he asks, of course. You're asking the bank to loan you a large sum of money, so they're going to want to understand your financial situation thoroughly, so expect detailed applications and lots of questions/documentation. In small residential properties, they're lending based on the individual as much as (if not more so than) the property itself.

<< If get into something that's costly, will I still be able to borrow from him if something else pops up , that kind of thing? >>

It will be based purely on the numbers. Yes, if you spend a lot on your personal residence, you will have less borrowing ability for the next property. It won't depend on how nice you and the loan person chatted, whether you had any hobbies in common, etc. The person you speak to, who takes your initial application and holds your hand through the process, is NOT the one who makes the final lending decision, chances are that's done by a combination of computer algorithms and people located in other states.

<< What questions are geared towards someone wanting to get into multi family and investing, owner occupied financing options, low down payment options, OPM, etc. >>

I think you should just be honest about what you're looking for and about wanting to understand that if you want a certain kind of property, wanting to understand what information the bank is going to need.

The lenders are the ones with the money, they're the ones taking the risk and the ones who will be asking you questions based on what they need to know, in order to make the loan. I think you're over-thinking the process a bit.

The primary way you can help the lender and process is to be specific about what kind of property and price range you're looking for, and to fully disclose everything about your financial situation.

If you're looking for a fixer-upper 203(k), let them know up front. Rental property where you'll occupy one of the units, let them know up front - including how many units you think you'll be looking at (2 fam? 3 fam? 4?). If you plan to move out X years down the road, ask the loan officer what that will mean for the loan, whether you should really live there for a certain # of years before moving, etc.

(The latter is also a question for your accountant since there are tax implications for living in a property X years and then moving out or selling.)

<< Are there are deal sweeteners that I can offer? >>

Loan officers love it when you bring documentation to the initial meeting because it means you know what's required and you'll probably be easy to work with. They love it when you have good records (sexy) and you're not afraid to show it. If you want brownie points feel free to bring to the meeting:

• 3 most recent pay stubs
• 2 years of complete Federal tax returns (all pages)
• 2 years of W-2 tax returns
• 2 months of bank statements (all pages)
• Explanations for any deposits on those bank statements which weren't payroll/salary

And if you have extra time on your hands this weekend and want super duper brownie points, you could start working on the detailed listing of income, expenses, assets and liabilities on a version of the Uniform Residential Loan Application.

Or you could just go to the meeting and let her/him tell you what they want and need from you :)

@Steven Harrington, @Christian Allen makes a good point, in particular be aware that some municipalities, and Providence is absolutely one of them, have a separate tax rate for non-owner occupied (i.e., a landlord tax). 

I often look up property tax rates using the link at the bottom of ripropinfo.com and always look out for the little footnotes which let me know if that's the case.

Also be aware that Woonsocket currently has a proposal in the works to do the same.

For Providence, it got so bad after a few years of big non-OO tax rate increases that an organization of landlords formed, the Providence Apartment Association, to fight it, with some degree of success. (The organization is still around and meets yearly I think - see the PAA website if you own, or plan to own, rental property in Providence.)

Many cities and towns have long term financial commitments they will struggle to deliver on more and more, and unfortunately I think a lot of them will look to fix the problem by hitting landlords since the thinking is, well they don't live here so they can't punish us by voting us out of office at the next election :-/

@Steven Harrington yes, depending on which direction you travel, the neighborhood can change drastically over just a few streets. Particularly if you go south of Westminster (which heads into South Providence, a much less desirable area), or west of Harris Ave / Eagle Square toward Valley St & beyond.

@Steven Harrington Other than the difference between the East Side of Providence, and East Providence, which @Bruno C. mentioned, your impressions about the East Side and West End/Federal Hill are essentially correct.

I would offer two thoughts.

First, if the numbers don't make sense, don't feel pressure to buy just because "everyone else" is. A lot of people bought too much house in 2006 for that reason, and regretted it a few years later.

Second, if this is an investment/rental property, and it's going to be "far" from you anyway (Plymouth -> Providence vs. Plymouth -> anywhere in northern RI) you might want to look where (fewer) other people are looking.

For example, rather than look on the East Side and Federal Hill as many others are doing, consider a different town altogether. For example, East Providence proper, or Warwick, or Cranston, or Johnston, or Coventry or West Warwick.

Just some ideas, since I don't know if there's much difference to you for Providence vs. Johnston, from Plymouth anyway.