1st Property...Do I Have A Winner?
Hi All,
Just starting out in all of this, but I found a property I think is a safe bet. I have made an offer and I am waiting to hear back from the seller. I am not real far away from what they are asking. The place is a little more than 200k and is a 3 family and is in good shape(maybe needing a paint job this spring).
With a loan for at least 95% LTV and an interest rate of around 7% plus property taxes, insurance and I round up to be safe. I come up with around 2000k a month total. With the rents in this area I hope to bring in $2700 a month total. This is assuming I am renting the apt out around low to mid market value. My question is if a $700/month spread is enough to cover any unforseen maintenence issues/vacancies etc? I see a couple more properties in the area that may have the same potential is it smart to jump on them all at once? Or is it a safer bet to take these things slowly? The more properties the more cash flow per month and this would help cover the unforseen vacancies/issues without having to dip into my own pocket......10 properties X700 = 7K a month...not too shabby! Would someone let me rack up all this debt over a short period of time? 
Sorry lots of questions please fill me in on anything I might be missing too!
Any and all advice is appreciated.
Thanks! 
If you have already inspected, and all it needs is a paint job, $700/mo should be more than enough reserve for you.
I would suggest you try to set some of that aside as a reserve, so when things do come up, it hasn't been spent on buying another property or a new car, etc.
Thanks 64ford it has not been inspected yet so your right I do not know for sure. I won't waste money on an inspection until the offer is accepted. This money from the rental will be going into an account set aside strictly to cover any/all expenses. I am still working full time for the next few years anyway until I can do this full time. Depending on the appraisal I may also try and get a loan for a little more than the purchase price to cover 3-6 months worth of vacancies to start....If this goes through and the numbers work is there anything to keep me from buying say 3 of these properties over the next year? Is there a limit to how many mortgages you can take out in a certain time frame w/o hurting your credit score?
First of all where did you come up with a 95% LTV loan @ 7% on a Non Owner Occupied building. Usually we do a first and a second 80/15/5. However it seems your numbers have been estimated high-so it could work if you have good credit and income. Do you estimate the cap rate to be about 14?
Hi Dirtman..I did estimate high and I am going off of something I was quoted. I do have decent credit and good income. I am still real new in all this and I am still reading up on cap rates and I don't have a firm handle on the term yet. So I can not intelligently speak to that.....
curious dirtman, why a cap of 14%? is that what multi family is going for in your area? It seems high in a high demand/competitive market, unless the property is really old and needs more than just paint.
The property should cash flow but I wouldn't expect that $700k/month. From the numbers you give(which are only a starting point) I would guess you will cash flow about $250/month. Make sure you allow for 1 month vacancy per year. The price seems very reasonable.
Thanks davmille, I will now be figuring in a month of vacancy per unit per year when I add this all up. Your right if that's the case I don't think it would be 700/month cashflow. But I am curious as to how you came up with $250/month cashflow is there something blatant that I am not figuring in to this? I was figuring on property taxes, Misc Bills, Insurance, vacancy plus loan payment. Pretty nervous that the numbers I am using are not taking everything into effect......Thanks!
Hey sbacci,
I gotta agree with the other guy. I think you should go to a lender first and get pre-approved with some factual costs on the property. Lenders suck...especially in our area so I'm not to sure your gonna get 95%LTV and a 7% interest rate on a pure investment piece.
Dont make your first deal your last deal.
Remember that lenders also require PMI for any loan with a LTV greater than 80%. This will make your debt service number even higher than just P&I.
I would not worry about cap rate calculations because they will be meaningless. You can still use residential financing for a 3-family property and the property value will be established by an independent appraisal based upon comparable sales rather than cap rates.
If i were you, and I am in the process of doing the same thing, I wou ld do 4 familes not 3, because of the extra rent. You should safely store away about 4-5 months of rent, for any down time, or repairs that you need.
[addsig]