All Forum Posts by: William Simon

@William Simon, lenders offer mortgages to people who can prove continuing income, whether that is from employment, self employment, business ownership, investments or retirement funds.

I think what you may be indicating is that you do not report your income on your tax filings.  If this is so, I would not advertise this fact on a public forum.

William:

I don't have a lot more to offer/add than the others have, as you can tell the people on BP are awesome and informative. I wanted to let you know that your line of thinking is sound and you are far and away ahead of most people your age. Nothing wrong with that at all!

I'd offer some words of advice and encouragement -- the properties and neighborhoods you are looking at are important. Kingsessing is pretty rough and it sounds like your numbers barely squeak by to make it a good cash flow option, but if anything goes wrong you need to cover it as part of your calculated expenses. What if someone breaks into the property, or neighbors make it undesirable as a place to rent? My point is not to turn you off from this, but sort of lay out what could happen beyond the numbers.

As someone else suggested, a househack might be a better way to start. Lets say you can increase your available cash via a second job and buy a similar property in a better neighborhood, maybe in the Northeast; thinking of a 2 bedroom/1 bedroom duplex. You live in the 2 and rent out a room, as well as the one, have people cover your mortgage AND provide positive cash flow. In the interim, you still save for retirement and continue to put money aside for your next property. You also have a roommate sharing expenses and you are in front of this house 24/7. You would be far more involved in the property, seeing how tenants and wear and tear take a toll on the property, and can also be involved as a resident in community affairs should you choose, and help to keep your neighborhood safe and vibrant.

Personally, this strategy at your age seems like a safer investment. You get into a better neighborhood (a place you would live -- I think its incredibly important to invest where you would choose to live, or could live in if needed) and get 24/7 hands on training of a property (versus showing up after the problem has occurred, e.g. a roof leak, crime, etc.), and STILL make your numbers on cash flow.

I never encourage anyone to pump their brakes -- if the numbers work and it looks good, ACT -- but for someone in your situation, I think you would be better served taking a househack approach versus buying a mediocre property in a bad neighborhood, and hoping a lot of things go right.

Good luck young man -- I only bring up the above as a Devil's Advocate. If you've accounted for it all then you are far more prepared than most!

Hi William! First off- awesome that you are getting started young! I wish I had done the same :)

I am also new to investing in the Philadelphia area, and am in the process of buying my first place as well. From what I looked at with your numbers, it looks like it works out- although have you thought about looking at a duplex instead? Only because there are so many in Philadelphia in the 75k-100k range that could help improve your numbers to increase cash flow a bit!

Agreed with the others advice to make sure you plan for vacancy and capital expenditures (especially because so many of the properties that you see in Philadelphia have been built a long time ago...after inspection I found a ton of little issues in mine that are going to add up over time!)

Your insurance number looks spot on as I just finished getting a bunch of quotes.  Would love to stay in touch since it looks like we are both investing in the same market. Good luck!

William,

First, congrats on thinking this way at an early age. You are so far ahead of where I was at 20 years old. 

One thing you will want to include in your calculation is a monthly expense for capital expenditures. This is money you will save for major projects that come down the pike like a new roof. Many folks like to use 10% of monthly rent for Cap Ex and it should be an additional line item to maintenance and repairs. After all is said and done, your ROI for this property is low.

Have you considered house-hacking? With your hustle and age, this is certainly the route I would go if in your position. Also, consider an FHA loan which would allow you to put down a smaller down payment.

Best of luck on your journey. 

Sean

Hi William,

Here are my couple tips. I am sure more people will comment.  First you should include some vacancy rate in your monthly calculation.  I use 10%.  This is a reserve to hold you over when the property is unoccupied.  Second, you repair costs seem very low.  Unless you are doing the work yourself, a new furnace will cost $3,000 and the flooring will be about $800 if you use carpeting.  Additionally I would figure another $300 to get the place up to rental condition.  Meaning paint, replace door locks, any items to get the place up to code.  I would recommend getting the property inspected.  Lastly, I wouldn't use the Zestimate. As you will read on many forums, it is not very accurate.  Instead, use Redfin to look at comparable homes sold in a half mile radius of yours.

Good luck.