Posted by Jeff S on December 21, 2000 at 10:44:09:
Yes, you are correct. They generally use comps for single family. I jsut used them as an example. I don’t generally like SFH because the numbers don’t usually work out as well, plus you don’t have any leverage against vacancies. But you get the idea. Sounds like you have some options.
Financing help/question… - Posted by Richard Taylor
Posted by Richard Taylor on December 18, 2000 at 22:04:02:
I have a deal on the table that would result in me having substantial equity. My former next door neighbor has moved away and tried renting their home. Well it didn’t work out (very bad tenant) and they want to sell. The house is worth about $139K and they are willing to sell it to me for $121k. I have 10-15% for a downpayment. At 10% down, I will have a mortgage for about $109k. As a result, I would have approx $30k in equity when the deal is complete and could close 01/30/2001. In addition, I have a renter lined up and can have a rental contract signed by 1/15/2001.
Question #1: If I get the rental agreement signed by 1/15/2001, will the lender consider that as income when calculating my ratios?
Question #2: Overall, does this sound like a decent deal?
Question #3: Does anyone know of a mortage borker in Charlotte, NC that works with investors?
Thanks!
Richard
Re: Financing help/question… - Posted by JasonTX
Posted by JasonTX on December 24, 2000 at 09:29:30:
I’m still new so please take this for what it is worth.
You are getting the property for 87% of FMV. That’s not awful, but there must be properties in your area that you can get for 75-83 % of FMV.
You really only have 18K in equity, the rest was already your money.
Positive cash flow, depending on taxes, ins, etc…will be about 150$/month. And you have 12K tied up in the property.
Instead of renting it out, lease to a tenant buyer, get about 4k option money, make it a 3 yr lease. Then you are set. The 4K offsets the 12K that you put down a little, and you will probably get a better tenant.
Just my 2c (remember, I’m still new)
Re: Financing help/question… - Posted by Richard Taylor
Posted by Richard Taylor on December 21, 2000 at 09:40:57:
Well, the sellers accepted my offer. This offer is subject to my inspection and a professional inspection. The sellers have also committed to making all repairs or I can walk from the deal. I’m starting to feel very good about this deal. I will try to rent the property out for about $1200/month min.
Can anyone direct me to a good rental agreement for investors?
According to my original post, does this sound like a good deal to you all?
Richard
Re: Financing help/question… - Posted by Jeff S
Posted by Jeff S on December 19, 2000 at 17:35:17:
To know if it’s a good deal, we would need to know how much rental income you would have. Are you going to get $1,400 a month rent? Are you planning long-term investment or are you just going to flip it after the tenant is moved in.
If your holding it, then I would suggest asking the seller to hold 10% or maybe agreeing on a higher sale price and getting something back like a major repair that you are planning to do, because in your scenerio you are going to pay PMI since it’s more than an 80% LTV. If you put down 10% and have the sellers hold 10% or even 15% as a second, then you could avoid PMI.
Re: Financing help/question… - Posted by Richard Taylor
Posted by Richard Taylor on December 19, 2000 at 19:06:14:
I’m expecting to get anywhere from $1000 - $1200 per month in rent. I have a mortgage offer for about $761 per month + PMI so I should get a small positive cash flow. The home is 3 years old and I really don’t expect any problems.
I signed a contract today for $121,000 but it is subject to inspection, all repairs paid for by the seller, new financing at my terms, and other smaller items. Because the home cannot be shown until the current tenant leaves this weekend, the contract expires on this Friday 12/22/2000. My offer will probably be the only contract the sellers have to consider until the tenant moves. If they bite, great I’ve already been inside the house so I’m not too concerned. It they don’t bite, we there’re more fish in the sea.
This is a long-term investment. I’m planning to purchase a new home for my family in a couple of years and my current home will become a rental also. (2 rentals next door to each other in a good area.)
The seller can’t hold 10%. All they want to do is get their mortgage paid and out from under the double monthly payments.
Re: Financing help/question… - Posted by Jeff S
Posted by Jeff S on December 19, 2000 at 20:02:17:
How much are taxes and insurance (NC I assume)?
so from your numbers I guess you are using $109,000 financed at 30 years for around 7.5% to get $762 a month then add PMI, insurance, and taxes.
Let’s assume you rent the place for $1,200 a month(your high number), estimate taxes at $100 per month, $25 for insurance and $50 PMI - tenant paying electric, water, etc. and a zero % vacancy factor. That means that the Cap Rate on this property would be $12,300(NOI)/$121,000(sale price) which is 10% (a pretty thin spread on even a 7.5% scenerio). I’d rather see this number in the teens.
Let’s do it another way and figure out the ROI. You have $9,132 = $761 * 12 which is your debt service per year. Your cash flow is $12,300 (NOI) - $9,132 = $3,168. That’s an annual ROI of 26.4% on $12,000. This is your high end with very conservative expense numbers.
Example:
I have a 2-family that I bought for $92,000 that brings in $1,410 and $175 in expenses. $1,235*12=$14,820-$10,128=$4,692. Even if I put 10% down($9,200), which I didn’t, that would be 51% ROI. Also it’s a 16% Cap rate.
I think I’d rather flip this property that you are talking about since you said it’s market value is much higher than the sale price. (Unless you can get more rent out of it.)
Re: Financing help/question… - Posted by Richard Taylor
Posted by Richard Taylor on December 20, 2000 at 09:15:20:
Jeff,
Thanks for your comments and information. This is my first deal and I can see where there are some potiental problems. If the seller agrees to the contract, which I think they will, I will try to get more rental income from the property. Possibly setup a L/O. and sell it after 12 months.
Is your evaluation of the deal a standard practice or something you developed by active investing?
Thanks for the info!
Richard
Re: Financing help/question… - Posted by Jeff S
Posted by Jeff S on December 20, 2000 at 15:11:19:
Actually it’s pretty standard stuff. Here’s a good site to check out that has all of the formulas.
http://www.real-estate-online.com/mm_28.htm
Of course each deal is different and there are always different ways to look at things from the investment side. I just use them as guides to see where things seem to fit in, sort of benchmarks.
Jeff S.
Re: Financing help/question… - Posted by Richard Taylor
Posted by Richard Taylor on December 20, 2000 at 19:35:35:
Jeff,
I read the website you referred me to and it talks about comercial RE. It appears, according to the article, that these calculations do not apply to SFH’S. Do you or anyone else use these calculations for SFH’s?
For SFH’s, I thought I should use comps. Does this sound right?
Richard