New Investor I got a 80/20 ARM Loan on a multifamily property HELP!!?

Question

I am 20 years old from washington, I somehow managed to buy a duplex w/$0 down 80/20 Arm loan 80@7.5% 115,000 and 20@11.5 32,000 Yes rates are very high but w/ 0 down and no assets other then my car I had to take what I was given. Now being a landlord at such a young age is good experience I think, anyways, my question is I want to buy more properties. I will be paying interest for the first 2 years and I have no extra money to pay extra on top of my minimum payment. I am losing money rents out both units@$1125 + $115 water +75 add to mortgage payment so I'm losing $190 a month, I know it's stupid but atleast I know now. Did I screw myself? Or is it possible w/ all these high interest rates and expand refi and buy more property in 2 years? Any suggestions? I would deeply appreciate anything from experienced investors. Sounds to me I screwed myself. Both tenants are very nice and on time one is month-to-month and other is on a lease and begging for me to renew it again. Please help Thx!

Answer 1

Cash flow

If you have positive cash flow, you're in good shape. Otherwise, you need to find a way to generate cash flow. Maybe find some Section 8 tenants?

Answer 2

I bought my first duplex at 20, a year later I've got 3 apartment buildings. Since both of your leases are ending (the one at the end of the month, and the other whenever), simply tell them you will renew the next month at a higher rate. Adding $50 to each apartment's rent and making them pay water would bring you back in the black right?

After a year or 2 you should be able to refiance your place and get a new, lower mortgage. Save the extra money you make a month to cover closing costs and you should be able to refinance 100% at a lower fixed rate. No matter what, make sure your arent losing money, if that means you need to find new tenants then that is what you are going to have to do.

Once you refinance, you will be making even more each month, save up for a while and you can put some money down on something else. Buying on contract works extremely well for me, since I don't have to screw with a bank, so you might want to try that.

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Answer 3

You are upside down- congratulations on your first investment! It is not rocket science, did you not know up front the lease terms?
What do you mean "somehow" managed to buy? YOU applied for the mortgage and YOU signed a purchase agreement. Who held a gun to your head? Your agent? Looks like it, as from what I see they did not service you properly.

You should have had a class on Landlord 101 from your a agent before you made the buy. Now you are paying the piper. An adjustable rate mortgage in a decling real estate market and rising interest rate environment, I'd have strongly recommended you walk from that deal. But you did not ask me nor did you walk.

Water is a tenants responsibility not yours. Same for electric, trash pick up, natural or propane gas, and mowing their side of the yard. Your job is to maintain the roof and building exterior. They maintain the interior.

Forget buying more properties until you get a handle on the one you have or you'll be bankrupt at age 21. Take some classes on property management. Befriend a real estate broker that has experience in this business and use them exclusively as long as they are doing their job, that being, providing you with sound advice and not focusing only on their commissions as many do and loose sight of their real job that they happen to get paid to do.

So you need to renew the lease- at a rate that will get you out of the hole. The month to month can be raised with 30 day notice unless otherwise governed by a lease. The other needs to be raised as already stated. You should get a rental rate that equals 10% to 15% of the market value of your duplex, rule of thumb. That has to cover your mortgage and a set aside for future roof or a/c costs, pay taxes and insurance. You will not "make money" on the rentals but on the resale later on. You have to cash flow or don't do the deal. That is how this type investment works, I don't care what some of the late night get rich quick guys tell you on tv. They also fail to tell you that they went broke several times when the market slowed, and as the fine print says "Not typical of all investors" when they introduce you to "Jim Bob" or Mary Sue" that "...made $25.000 last year on my first sale".

Can you not get $725.00 monthly per side? If not there are worse things to come. Look at getting out at the earliest opportunity and never invest in income property via a 100% mortgage at your level of experience and lack of liquidity.

No free lunches my friend, there is always a cost. One guess as to who is paying for this one!

Answer 4

I have never seen a lender who would finance a rental property with 0 down. I think you must not have been totally honest on this deal. Regardless, you are going to lose money until you can refinance. It will probably be at least two years before you have enough equity to make this worthwhile, so plan on losing money for two years. Make the sacrifice out of your personal money. In two years, when the value of your property goes up, you can refinance and take out the equity. Then, you can use that money to buy another house. For right now, your broke, sorry.

Here's a warning:
There are other ways to acquire rental properties and a lot of people on the internet try to get you to buy their books and courses on how to do it with "NO MONEY DOWN." This is a hard, hard way to do things and usually you end up having to buy absolutely dumpy property and put much into it.

Answer 5

Even if the loan is new, you can refinance. This should be priority #1. YOu are paying way too high an interest rate to be profitable. This is unless you raise the rent.

My guess is your tennent who want to resign wants to because they have a great deal. Evaluate your property to see if your rent is within comparitable rates with others on the same scale. If not, then you need to raise them anyway. Typically, new owners raise rates also, so no one would be shocked.

You are screwing yourself. You have done a great thing, though and I admire you go getting attitude. However, that same attitude can sink you. Find some one to refinance your loan. EVERYBODY WANTS TO REFINANCE YOU. They do not care, they just sell the loan anyway. Get it consolidated to one loan @ 7.125 and you will save yourself about $300 a month just in finance charges.

Answer 6

Can you raise the rent to cover the negative and get a littly breathing room while new plan of action is put in place?

2 other choices,
1. Spend a little more money on fresh paint, landscape and other low cost items to give the place a face lift, then get it reappraised for refinancing.

2. Flip it, put it back on the market, low down, terms whatever. Chances are you will walk away with cash in your pocket. Then do it again.

Answer 7

Try to pay off the loan with high interests rate. In the meantime, you can see if housing market continues to slump. Usually a correction would take years to unfold.

Answer 8

I do a lot with investent properties. I finance them and I own them. I can give you advice on both. You can contact me at www.diversifiedlender.com