All Forum Posts by: Anthony Thompson

@Raymond Hill My impression matches what @Steph C. said, namely that the markets are similar but there is definitely a price bump once you cross the line into Attleboro or Seekonk.

@Sean Price It's fine, there are good areas and not as good areas, same as any city I think. Due to RISD and Johnson and Wales there are nice local scenes for art/design and some great restaurants.

The median income you mentioned wouldn't surprise me at all. To be honest there are only a few big employers in the state and while I've heard of some new ones entering the state, it seems like an uphill battle to me.

At least in technology, the area I'm most familiar with outside of real estate, it's common knowledge that there are far fewer employers & jobs in RI, and the salaries are much lower, than heading up toward Boston. That's why many people either move up into Mass (and pay much higher housing costs), or settle in Providence/north and just accept a long commute.

So I think your concern has some serious merit and bears some further investigation if you don't have your heart set on Providence specifically.

@Sean Price The market is good, but I do get the feeling it is much better in other parts of the country, so relatively speaking it's not good compared to other areas.

However in absolute terms the market here is doing pretty well, with both rents and prices rising a good amount in the last couple of years.

So if you're already set on Rhode Island, I think you could do reasonably well as an investor or agent.

Every town has its pluses and minuses so I think it really depends on where you settle, how far you want to travel (especially if you're managing properties yourself), etc.

Many people like to focus on Pawtucket because it's closest to Mass. and is close to the Attleboro T stop... but many people are also aware of this, so there's more competition there.

So there aren't really any secrets or "tips" to give out, since most market participants (or their agents) are in tune with the market for things like that.

Another area you could investigate is the west side of Providence which includes Federal Hill, but again, that's no big secret, many people know that area's been improving, and prices have reflected that.

My suggestion is that you get settled in on the ground and then start investigating areas yourself, talking to agents, attending or joining at least one real estate networking group such as RIREIG in RI or Black Diamond REI for southern Mass, and seeing what areas appeal to you for the factors that are important to you.

Good luck, and of course as you have questions along the way feel free to post them here on BP :)

@Matt Caldwell, it seems about right, but it never hurts to get a second opinion if you're able to.

And if you can make the #s work (i.e., cash flow positive) with a 15 year note, massive kudos to you :)

@Sherwin Vargas what you describe does sound like "trying to make a deal out of a non-deal". The #s sound too tight for comfort/aggravation.

I would determine what # you need for the amount of investment and aggravation involved in your chosen scenario, and then make an offer to the bank for that amount (or a little lower, expecting some negotiation) for the short sale #.

Basically, if you're willing to walk away anyway, there's no harm in throwing out a # you would actually want the property at, especially if you already have a line of communication with the bank.

They say in a negotiation, "(s)he who cares the least wins". If you're about ready to walk away anyway, I think it puts you in a good position to negotiate with the bank, if you want to take a stab at it.

I guess if it was me I'd make a lowball offer to the bank at a # which actually works for me in my chosen scenario, but mentally accept that it's a long shot and probably not going to work. Most banks seem to have dollar signs in their eyes these days, unfortunately. On the other hand, even a long shot is better odds than a casino :)

Sherwin, it's a little hard to follow the #s here. I guess if it were me, I'd try to understand a few scenarios.

What would the house be worth if you put it on the market today, how much would you (or your dad) have to invest to acquire it, and if you had to sell it on day 1 as-is, doing no work, what would you get back (if anything), or would you lose money. This is the baseline scenario.

Second scenario would be, what would you have to put in not only to acquire it, but also to at least stabilize the property and make it a bare minimum acceptable quality - for example, fix the pest issues as best as possible, fix the electrical issues, etc. This doesn't mean "making it a great property" this means "making it acceptable so that there are no glaring risks or big problems that would stick out to a potential buyer". Again, you'd want to look into how much to acquire, how much to bring it up to that level, and then what you could get for it if you put it on the market at that point (which would involve paying off any mortgage of course - what you'd get "at the end of the day").

The final scenario, one you probably don't want to get into but is worth thinking about, is what would you have to put into the property to acquire and bring it up to a reasonable quality level, to actually make it a "good property". Obviously that's the biggest investment scenario, and you'd want to similarly understand what you'd be able to get for all your hard work.

Chances are this last one isn't the maximum profit scenario (if any scenario has a profit), only because I find doing things "right" is rarely paid back fully to an appreciative buyer - the main benefit from doing things right is if you keep a property long enough to benefit from those decisions.

There's also the scenario of holding onto it, but it doesn't sound like that's really what you'd be wanting to do for geographical and other situational reasons here.

My basic thought is, if you don't see a way to make at least $10,000 in the first scenario (acquire and sell as-is), strongly consider just passing. But if you are up for a bit of a project then maybe the second scenario (fix the glaring issues and put it on the market) is more appealing, in which case I'd say if you could make $20,000 then maybe it's worth it - only you can decide the "minimum profit for the required aggravation" level for yourself of course.

There are probably other, more creative ways to look at this. For example if you think there's a little money being left on the table but not enough for you to do a project with the property long-distance, with everything else you have going on, you could wholesale it to someone more local (in RI or Providence), walk away with a little $ and let someone else deal with the aggravation.

I still don't have a sense of what the house would be worth, the top line number, so this is all just theoretical, but hopefully some of those ideas will help you and your dad think about it. Good luck and let us know how it works out of course!

Steve, I wouldn't just order a 2nd appraisal for the sake of it, you'd want a reason to do so, for example to challenge the tax assessment (if you think the house is worth less than it's being assessed at) or as part of a refi, and then the lender will order the appraisal.

I would talk to whatever mortgage person you used on this house, as there is likely a waiting period (at least 90 days, may be 6 or 12 months) between when you buy it and when you can refinance.

If you're not rehabbing to add value, then even in a hot market I wouldn't expect the rise in value over 1 year to offset the costs of doing a refi, not to mention the higher rate for a cash-out refi.

If you do rehab and add value, my sense would be you'd want to hold the property for at least a year anyway. You want the lender to feel comfortable that the increase in value is really justified, and that the property is stabilized. Then the lender would order an appraisal as part of the refi.

I thought the limit for FNMA/FHLMC loans was 10, and certainly more than one, so what your saying sounds surprising. If in doubt, you can always check with other mortgage folks as well. There's been a lot of discussion on the topic here on BP too of course.

Finally, if this is your first property, I would give yourself time to "digest" the property and ramp up on managing it - again a year is a good guideline s before moving on to the next one.

Steve, the lender will use the appraiser's overall "opinion of value", which for a multi-family will have already given significant weight to the income approach compared to the comparable sales approach, using the appraiser's judgment & experience of course. In other words, the relative weight of income vs. comp sales is already "baked in" to the final appraisal number.

All the lender cares about is, is the appraisal at or above the purchase price, they don't care if it's 174 or 184. (Though you'll be amazed at how often the appraisal comes in just slightly above the purchase price.)

Hope this helps, and congratulations on getting the clear to close! Soon you will be enjoying all the fruits (and labors) of Ownership :D

Tarcizio, thanks so much for posting a follow up and letting us know what happened, and of course congratulations on your purchase (and built-in equity :)

Definitely shoot me a PM when you're going to be in Rhode Island and either way I hope to see you at a future RIREIG meeting!

@Matt Romano Your analysis is probably quite correct. No one who's "house hacking" should expect to live for free (what I think you're calling cash flow) in most cases, especially with a 2 family and especially in nicer areas (higher acquisition cost).

As you've noticed, it's harder for a 2-family to cash flow than a 3- or 4-family, and I think that's largely due to the fact that you're still mostly competing with (bidding up the price on) owner occupants instead of investors.

Most owner occupants don't "run the numbers" and are mostly buying for personal use, because they like the area, etc., and look at the other unit as a little help with the mortgage payment.

With 3- and 4-unit properties however, most owner occupants aren't willing to deal with the increased headaches of them so you find per-unit prices much more reasonable from an investment point of view because that's the main pool of buyers, investors.

(By headaches, I mean that 1) fire coding is more onerous for 3- and especially 4-families and 2) the "tenant mentality" is tougher for 3- and 4-families, much more of a "not my property not my problem" mentality, more conflicts between tenants/units, etc.)

Also it's harder in general (even for 3- and 4-families) in nicer areas for investment properties to cash flow, because the properties are lower risk, and the tenant selection is much better, so investors are willing to pay more and get a lower return.

The real advantage of house hacking (occupying one of the units in an investment property) is getting favorable, 30-year fixed rate owner-occupied financing, which is the best you can do. And some minor tax benefits as well. If you move out in a few years to house hack another property, you'll still have those benefits and they'll definitely help the first property toward cash flowing better.

The question of "bigger down payment on fewer properties, or lower down payment on more properties" comes up frequently on Bigger Pockets so I'd recommend searching for similar posts and seeing what comes up.

In general, for newer investors my recommendation is that because "you don't know what you don't know" (i.e., this is mostly all new), that you put a larger down payment on one/fewer properties to give yourself a safe buffer for learning, for the market to turn against you, for expenses you didn't anticipate, etc. Once you feel comfortable you can always change strategies on future properties, but personally I consider higher leverage more of a riskier/advanced strategy.

Good luck and let us know how your hunt goes of course!