All Forum Posts by: Anthony Thompson

Tim, if you can get 100% financing that's great - it gives you more money to invest elsewhere. Of course, it makes your loan higher which means higher monthly payments so be sure you can make those monthly payments.

Leverage is great, but it cuts both ways - it can magnify your return in good times, but it can also magnify your losses in tough times because you have a fixed payment that needs to be made every month whether the unit is rented or not, whether the rents are high or cover the expenses, or not.

I would caution you to ask yourself, if your other unit was vacant for 6 months, could you carry the loan payment on your own without difficulty?

If yes, then you're probably in a good position to take on that loan. If not, then you may want to re-evaluate whether it would be better to put a downpayment down (if you have it) to lower the monthly payment, or maybe look for a cheaper property (and thus, a lower loan amount).

(6 months vacancy may seem too conservative but believe me, I've seen 3 months before without extraordinary circumstances - tough rental market, area declines, you missed something that makes the unit a harder sell to tenants, departing tenant caused major damage that takes a lot of time to fix and then bring it back to rentable condition, you do things on your own so you save $ but it takes longer, etc.)

It sounds like you're comfortable with a 2 family and if you're just getting started that can be a good way to go. Just be careful that, as I said, you can afford the monthly payment on your own - the rent from the extra unit should be "gravy" (bonus), not needed-or-you're-in-trouble.

Also, while singles and duplexes are good for lower maintenance (tenants have a little more "owner" mindset), you'll also pay more per unit that way, mainly because you're competing with owner-occupants who are buying primarily for the "use benefit" (they like the house, the neighborhood, schools, etc.) and not looking at it as an investor. It sounds like a worthy trade-off for you, to do a duplex, especially if you're going to live in one of the units, but it's just something to be aware of.

I'm not sure what you mean about "profitability of the long term investment over time". If you mean, planning/projecting for a big profit down the road, I would forget about that. You're buying at a good point in the market cycle, if you sell down the road and make more profit, that's more "gravy" (nice to have), but don't count on it. Focus on whether the property will cash flow in the first couple of years and whether you can support the property if you have an extended vacancy.

If you haven't already seen it, check out http://www.biggerpockets.com/rei/real-estate-property-analysis/? for analyzing whether a rental property will cash flow (i.e., produce enough profit after expenses).

Tim, if you can get 100% financing that's great - it gives you more money to invest elsewhere. Of course, it makes your loan higher which means higher monthly payments so be sure you can make those monthly payments.

Leverage is great, but it cuts both ways - it can magnify your return in good times, but it can also magnify your losses in tough times because you have a fixed payment that needs to be made every month whether the unit is rented or not, whether the rents are high or cover the expenses, or not.

I would caution you to ask yourself, if your other unit was vacant for 6 months, could you carry the loan payment on your own without difficulty?

If yes, then you're probably in a good position to take on that loan. If not, then you may want to re-evaluate whether it would be better to put a downpayment down (if you have it) to lower the monthly payment, or maybe look for a cheaper property (and thus, a lower loan amount).

(6 months vacancy may seem too conservative but believe me, I've seen 3 months before without extraordinary circumstances - tough rental market, area declines, you missed something that makes the unit a harder sell to tenants, departing tenant caused major damage that takes a lot of time to fix and then bring it back to rentable condition, you do things on your own so you save $ but it takes longer, etc.)

It sounds like you're comfortable with a 2 family and if you're just getting started that can be a good way to go. Just be careful that, as I said, you can afford the monthly payment on your own - the rent from the extra unit should be "gravy" (bonus), not needed-or-you're-in-trouble.

Also, while singles and duplexes are good for lower maintenance (tenants have a little more "owner" mindset), you'll also pay more per unit that way, mainly because you're competing with owner-occupants who are buying primarily for the "use benefit" (they like the house, the neighborhood, schools, etc.) and not looking at it as an investor. It sounds like a worthy trade-off for you, to do a duplex, especially if you're going to live in one of the units, but it's just something to be aware of.

I'm not sure what you mean about "profitability of the long term investment over time". If you mean, planning/projecting for a big profit down the road, I would forget about that. You're buying at a good point in the market cycle, if you sell down the road and make more profit, that's more "gravy" (nice to have), but don't count on it. Focus on whether the property will cash flow in the first couple of years and whether you can support the property if you have an extended vacancy.

If you haven't already seen it, check out http://www.biggerpockets.com/rei/real-estate-property-analysis/? for analyzing whether a rental property will cash flow (i.e., produce enough profit after expenses).

Tim, if you can get 100% financing that's great - it gives you more money to invest elsewhere. Of course, it makes your loan higher which means higher monthly payments so be sure you can make those monthly payments.

Leverage is great, but it cuts both ways - it can magnify your return in good times, but it can also magnify your losses in tough times because you have a fixed payment that needs to be made every month whether the unit is rented or not, whether the rents are high or cover the expenses, or not.

I would caution you to ask yourself, if your other unit was vacant for 6 months, could you carry the loan payment on your own without difficulty?

If yes, then you're probably in a good position to take on that loan. If not, then you may want to re-evaluate whether it would be better to put a downpayment down (if you have it) to lower the monthly payment, or maybe look for a cheaper property (and thus, a lower loan amount).

(6 months vacancy may seem too conservative but believe me, I've seen 3 months before without extraordinary circumstances - tough rental market, area declines, you missed something that makes the unit a harder sell to tenants, departing tenant caused major damage that takes a lot of time to fix and then bring it back to rentable condition, you do things on your own so you save $ but it takes longer, etc.)

It sounds like you're comfortable with a 2 family and if you're just getting started that can be a good way to go. Just be careful that, as I said, you can afford the monthly payment on your own - the rent from the extra unit should be "gravy" (bonus), not needed-or-you're-in-trouble.

Also, while singles and duplexes are good for lower maintenance (tenants have a little more "owner" mindset), you'll also pay more per unit that way, mainly because you're competing with owner-occupants who are buying primarily for the "use benefit" (they like the house, the neighborhood, schools, etc.) and not looking at it as an investor. It sounds like a worthy trade-off for you, to do a duplex, especially if you're going to live in one of the units, but it's just something to be aware of.

I'm not sure what you mean about "profitability of the long term investment over time". If you mean, planning/projecting for a big profit down the road, I would forget about that. You're buying at a good point in the market cycle, if you sell down the road and make more profit, that's more "gravy" (nice to have), but don't count on it. Focus on whether the property will cash flow in the first couple of years and whether you can support the property if you have an extended vacancy.

If you haven't already seen it, check out http://www.biggerpockets.com/rei/real-estate-property-analysis/? for analyzing whether a rental property will cash flow (i.e., produce enough profit after expenses).

Tim, if you can qualify for a RI Housing loan that would probably be very attractive in terms of rate. You should still evaluate other options, like talk to a local bank or credit union (or mortgage broker) for comparing the rates, but usually RI Housing is very low - the trick is qualifying for it.

Also I'd suggest definitely reading all the fine print on their mortgage or agreement. For example, you may not be able to move out of or sell the property within X number of years (e.g., 5 years) without paying them off at a higher rate.

Years ago I looked into getting a low interest loan from RI Housing for renovating a house which had lead paint violations. Everything looked good until they sent over the paperwork, then buried about 3/4 of the way in was a clause saying I agreed to rent the units for X% below market rates and only to tenants that fit their definition of "low income". All of a sudden the low interest loan didn't look so attractive any more.

So I would say, if you qualify, awesome, they will probably beat any other lender's rate. But 1) check against another lender just to be sure, and 2) make sure you're not also agreeing to something - as part of the loan terms - that you're not going to want or be able to fulfill.

As @Robert suggested, going through the pre-license course is a good idea, even if you don't ultimately become an agent. I went through it years ago, and it's a good way to get familiar with some of the basic vocabulary and ideas of real estate. It's takes away some of the fear from unfamiliar jargon flying around you :)

(I don't know if they still offer it, but I was able to take free pre-license classes from Coldwell Banker back in 2004, I just had to sign something saying that if I did become an agent it would initially be through them.)

I won't lie to you: Working full time and getting started in real estate after hours can be tough, but it's definitely do-able - with some discipline. My recommendation would be to start by looking at properties near you, maybe go out for some walks or bike rides, or "driving for dollars" in your own neighborhood, looking for properties that look like they need work. Learn how to research a property in town hall to find out who owns it, whether there's a mortgage on it and how much.

And as @Jesse suggested, also consider going to your local real estate investor association, which in your case is the RI Real Estate Investor Group (RIREIG) that meets the third Thursday of every month. There are also other groups (such as Black Diamond) easily within driving distance of RI. Every REIA I know has events after hours since so many folks do have day jobs to work around.

Matt, that sounds like it's about market value. But, a lot depends on the area.

Can you send me more details about the property by private message please? (address, whether you have it under contract or what your relationship is in the transaction, etc.) Thanks.

Elizabete, you asked a lot of questions here.

The Bigger Pockets book @Richard Cohn (Rick) recommended, and the REIA meeting he hosts, are both excellent resources.

Even though, as Rick pointed out, it would take a book to answer your questions, I'll try to give a few quick thoughts.

I'd say start where you are comfortable, get some early successes there (and keep your mistakes small and recoverable), then branch out when you feel ready.

It sounds like you have a demanding job(s), so if you're interested in owning rentals, I'd suggest starting with a single family or duplex. The mindset of tenants in 3+ family properties is very different (worse) in my experience. You usually pay more per unit for a single family, but often have the least headaches so that or a duplex may be better for you.

(You always have to screen your tenants though, no matter what kind of property; see http://www.biggerpockets.com/renewsblog/2013/01/27/tenant-screening/)

A conventional fixed-rate 30 year loan is usually only available to owner-occupants, though there may be exceptions. If you can get a fixed rate and intend to hold for long term, by all means do so. Since you're an agent, talk to a mortgage broker you like, or ask your broker for a recommendation, and do some research.

Like "buy low, sell high", it's not rocket science - get the lowest rate you can, fixed if possible or if not, with the longest period possible between rate adjustments.

Entities (LLCs and corporations) are a huge topic and there are pros and cons to each, and it also depends on your individual financial, tax, and personal (i.e., free time to devote to things like entity formalities) situations.

I recently read a surprisingly good book, Tax-Free Wealth by Tom Wheelwright, that covers some of the tax implications of different entities well. It only covers that side - the other side of entity choice is liability protection - but I had low expectations and was surprised at how many good ideas it presented.

I'd recommend researching your entity options here (in the Bigger Pockets forums) and also maybe browse through / buy a book or two at a local bookstore (if there are any still around - I think Barnes & Noble in Warwick is still there ;).

I'd also recommend talking to some other real estate investors, such as the ones at Rick's or Ann's groups, and then consulting with one or two professionals - ideally, an attorney with a tax background. At that point you'll know enough to ask her/him intelligent questions and really benefit from paying for her/his advice.

Keith, I think it's a great time to change strategies from working on other people's houses to finding, fixing & flipping your own - it's a much better point in the market cycle than, say, 8 years ago :)

I live in Cranston but my main business partner lives in Narragansett so I'm familiar with your part of the state too. We just sold a piece of land in Narragansett last summer in fact.

I've been an active RE investor in Rhode Island since 2004 and would love to connect with you either one-on-one for coffee, or at the RI Real Estate Investor Group (RIREIG) which has monthly meetings in Warwick near the airport.

Feel free to send me a private message if you want to get together or want more info, or have any questions about investing in RI.

Tim, I live in Rhode Island and have been investing here since 2004. I'd be happy to talk to you or get coffee sometime.

I also attend monthly investor group meetings with the RI Real Estate Investor Group (RIREIG) in Warwick - the next meeting is this Thursday in fact.

Hopefully I'll see you at a future RIREIG meeting, and if you're interested in connecting one-on-one sometime send me a private message.