Posted by Patrick S. Lawson on February 02, 2006 at 07:38:11:
It looks viable if you can put atleast 10% down (not borrowed money, i.e. equity from other properties). If that is not possible than I would agree with James and suggest that you get your finances in order and wait for the next deal. Rates are on the way up and a lot of people got short term ARMs a few years back that are going to be adjusting soon. There will be a lot of distressed sellers in the comming months.
Buying 2 Duplexes when my Debt Ratio is high - Posted by Smart Money
Posted by Smart Money on February 01, 2006 at 23:28:24:
Hey folks,
I’m being offered the first crack at two duplexes for what I consider to be a great price, $135,000 per building. I can probably collect about $500 to $550 per unit in rents, so it should cash flow if I get a reasonable interest rate.
My problem is that I’m holding other properties and we had to get the wife a new car so my debt ratio is about 53%. The mortgages I’m holding are low interest, 30 year fixed loans, so I’m immune to rising rates. I have a bunch of equity in my rentals, but with my debt ratio so high, its hard to access it. My credit score is about 675 due to my debt ratio.
These duplexes sound pretty good, and my wife is receptive to another purchase if it will cash flow. I was looking at alternatives. Can I get a commercial loan as small as $230,000 or so? If I did, would the fees and the interest rates eat me alive? If you try to acquire properties too fast, you run afoul of your debt ratio. I figured the only way to get around that is with some kind of loan that looks at the properties ability to pay for itself.
I’m interested in any suggestions, and I’d especially like to know the interest rates and payback periods associated with them.
SM
Re: Buying 2 Duplexes when my Debt Ratio is high - Posted by Geo NY
Posted by Geo NY on February 03, 2006 at 05:47:07:
It is not my intent to question whether you do or do not buy these properties. I would only like to know what criteria you use to determine if a property will cah flow. I also realize many states have a completely different tax structure than NYS. I see these properties this way.
$135,000 purchase price each. Put 10% down on each and finance for 30 years for 6% makes the payment $728.45 per month each. If you receive $1100 from rent per month each, easy math leaves $372 each month for taxes, insurance, allowance for vacancy and maintenance, water, and miscellaneous expenses. Can you please explain to me how these properties will cash flow? I read stories like this every day and cannot for the life of me figure out how, much less why people would do this?
Again, I wish only to get other theories about cash flow wich may make my understanding better and allow me an opportunity to purchase more properties.
Re: Buying 2 Duplexes when my Debt Ratio is high - Posted by Tim
Posted by Tim on February 02, 2006 at 07:01:44:
Why not do a no doc loan? If you have a job then you could do a version of the no doc but with employment verification and this could get you a better LTV.
Check with a local lender for this and you might be surprised at how easy it could be.
P.S. with a no doc loan there is no worry about debt to income ratio, income verification or whatever. It goes off of your credit score.
Good luck,
Tim - Chesapeake, VA
Re: Buying 2 Duplexes when my Debt Ratio is high - Posted by James Harris
Posted by James Harris on February 02, 2006 at 05:55:57:
Smart Money, I believe that the first thing you must do is to get your finances in order. If you have equity in your rentals, then you should refi the outstanding bills into those mortgages. 675 is a good score, however, a duplex even two of them is not considered commercial. 5 units and up. Stick with a residential loan, it will be cheaper.