First Rental House Questions
Looking to buy a rental house. The house is a one-story ranch with one apartment on the ground level and one in the basement. Selling for $155k, needs 10k rehab, fixed up market value about $175k. Upstairs rented out for $900/m, downstairs empty, has rented in past for $700/m.
1) Is there going to be a conformity issue with one of the apartments in the basement? Or will nobody care, in regard to the city or mortgage companies to refinance it?
2) I only want to use my cash temporarily to buy it and fix it up, then get my cash back out to use again, and hold on to this house for the long term. What is the best way to do that? I would have approximately $165k invested and lets say it appraised for $175k. However, being a rental property with 2 apartments I’m thinking that the appraisal isn’t the same as for a one family house? Do they look at CAP or income from the property? Is this considered as commercial loan?
3) My figures roughly show $1600/m in gross rents - minus $1100/m (165k @ 7% for 30 years) - minus $100/m property taxes – minus $100/m in insurance = $300/m positive cash flow?
[ Edited by The-Rehabinator on Date 11/18/2003 ]
A few things...
1. The property needs to be zoned to allow a duplex. In my town you must get a permit to rent a property to verify things such as egress windows are installed in the basement.
2. It is hard to justify such a relatively small amount of money by refinancing the loan considering the costs involved. I would recommend trying to get the seller to allow $10,000 extra at closing for repairs, closing costs, etc.
Actually, I would be wanting to get the entire $165,000 of my cash back out of the house, leaving me with a $165,000 mortgage on the house.
I have only owned side by side duplexes but I have been told the two story type don't rent as well. Also, I think you may be underestimating your costs. Generally long haul landlords won't pay over 7 times GAR.
Anything up to a 4plex, I believe, lenders consider single family type housing, and loan based on that. 75% of the current rent will be used as "income" to offset any loan amount, in addition to your other income.
I'd check with your city and county on the duplex zoning issues.
As far as a refi goes, keep in mind that most lenders will only loan about 80% on a rental refi, especially if there is little to no title seasoning, and it is not fully rented.
Roger
It sounds like your profit on this deal might be the lesson of what not to do on the next deal.
Don't have any duplexes right now but it would seem to me that your 1st renter (main part of the house) should cover your expenses and the lower level (basement) would be the potential profit free and clear.
I do not think I would consider a duplex or such type house where the possiblity of having an empty unit would put me in the red. I don't like your numbers they would not work for us.
We don't have very many basements here but we do get apts over garages. And anything under 4 units is considered single family.
Quote:
On 2003-11-29 10:58, Dreamin wrote:
Don't have any duplexes right now but it would seem to me that your 1st renter (main part of the house) should cover your expenses and the lower level (basement) would be the potential profit free and clear.
I do not think I would consider a duplex or such type house where the possiblity of having an empty unit would put me in the red. I don't like your numbers they would not work for us.
We don't have very many basements here but we do get apts over garages. And anything under 4 units is considered single family.
Do you mean anything up to AND including a 4 plex is considered single familiy?
yes
Single house
Duplex
Triplex
and duplex
is considered single family where I live
and by the lenders and all the taxing entities here.
But your income when buying with all you deducts and vacancy rates (we use 10%) but it can be higher or lower depending on where you live must be in your formula when you present the purchase to your lender.
Remember FYI also that rental property depreciates in value each year.
Five and over is considered Multi family.
Quote:
On 2003-11-29 11:45, Dreamin wrote:
yes
Single house
Duplex
Triplex
and duplex
is considered single family where I live
and by the lenders and all the taxing entities here.
But your income when buying with all you deducts and vacancy rates (we use 10%) but it can be higher or lower depending on where you live must be in your formula when you present the purchase to your lender.
Remember FYI also that rental property depreciates in value each year.
Five and over is considered Multi family.
LOL Dreamin you say 'YES' then you say something different.
I take it in your first post you meant to include 4plex but you said anything UP to 4 is residential.
Then I take it in your last reply you meant to say QUADRAPLEX NOT
Duplex
Triplex
and duplex
Correct???[ Edited by MrMike on Date 11/29/2003 ]
Sorry Mr. Mike
Get tired and don't pay attention sometimes!
A 4 plex or quad is considered a single family dwelling.
Anything over 4 units is mulit-family at least that is the way I am taxed by the counties my houses are in.
Mostly We buy on Contract for Deed or Owner Financing (these dont go on our credit report like a mortgage does) but My Mgt Broker finds financing and Insurance guys cover anything over a 4 unit building as commercial or Multifamily.
Not sure why you are even considering this property. The numbers do not work. You purchase the house for 155k, put 10k into it. Don't forget closing costs and finance charges, which will bring you to 170k.
Now, for a 170k house you should get a MIN of 1700 per month. You are already negative cash flow before you start. Walk away from this deal, it's terrible as a rental.
I agree with telemon, it doesn't sound like such a great deal. Plus there have been several posts on this site of people from Denver having a hard time renting out their properties.
Also, as a loan officer I will tell you that up to 4 units is considered a residence under FNMA guidelines, for loans. Whether you can get all of your money back would depend on a lot of individual factors.
Good Luck in whatever you decide.
[addsig]
The house rents for 1600 a month now, in terrible condition. After rehabing 1800 a month would be conservative rent.
Yes, there are people who are having a hard time renting out properties here, as everywhere. A lot of those people are basing their rental rates on their expenses and not marketing the rental as a product, which is by value. Just because you need $1100 a month to cover your nut doesn't mean your $950 a month rental is worth it. The fact that people are looking and leaving over and over again can mean more than you are in a tough rental market, it could mean you are not offering a value to the renters that are viewing your property. Offering that $950 a month rental for $850 and you will have the opposite effect.