2-how should I deal with my Realtor?

Question

How should I deal with my Realtor?
hello everybody and thanks for reading my question.
from six months ago I was trying to buy a multifamily property in glendale. property costs around 1000000 $ and I want to pay 100000 as a down payment. property is located in good area and projected income is arount 50000 per year. considering todays option arm loans do you think its a wise investment? my calculations shows that the interest only monthly payment and monthly tax is around 7500$ which shows that I will owe
7500-5000=2500 per month or 12*2500 per year.if I try to sell the property in two years do you think its a wise investment?
what should I ethically do with the realtor? he helped me build up my credit and right now he is pushing me to buy this property saying that we put a lot of time looking for it and...
I still think it is not a wise investment what do you think?

Mr Bostonia I just wanted to hear more responds and I thank you for your comprehensive respond.

Answer 1

Buying anything with an option ARM is something only financial wizards should do. If you don't understand finance, this is not the loan for you. If you can't get a positive cash flow with an amortizing payment, you probably shouldn't do it.

That Realtor is thinking about their commission. You should think about what happens when you owe $100,000 more than you do today. How are you going to refinance? What happens if you can't sell at enough of a profit to make up for the extra you owe?

Answer 2

As a licensed real estate broker, who has many client investors, I would like to know if you have an agency agreement with this 'realtor'? A buyer's agency contract? If you have not signed an agency agreement with this 'realtor' he/she does not work for you, but works for the seller (especially if this is his/her listing).

What kind of a yeild are going to get on your investment? What about a cap rate? Has your 'agent' done any of these figures for you? What are the other multifamily properties selling for? What is their projected income? How does this property compare to those? How long has the current owner had this property? What did he/she pay for it (your realtor can find this on the MLS under history)?

I do not like arms. I know many people who financed under arms and their payments are different EVERY month. Look into a 2-3 year fixed rate with a balloon payment (since you plan on selling in 2 yrs), interest only payment.

If you are having to pay $2500 out of pocket each month, what will you do if a major repair comes up? What if some tenants don't pay rent? What if you have to evict someone? Who will be managing it for you? If someone other than you, you will have to pay them approx 10% of rent per month.

The purpose of investment property is so you can MAKE money, not spend money. If you purchase for $1,000,000, spend $2500 x 24 ($60,000), minus your initial investment of $100,000; (your money will make approx 6% just sitting in the bank) can you sell it in 2 years for $1.2 or more? How is your market? Steady? Declining? Can you wait 2 yrs to see a profit?

If you don't feel comfortable, don't do it. It's you who is going to be responsible for this investment, not your realtor. He is pushing you to buy so he can get his commission.

I'm located in the midwest and have many west coast/east coast investors making purchases in this state because the cap rates are 17% and above (depending on the area); one investor purchased a foreclosure rental property and has a 43% cap rate.

I hope this helps.

Answer 3

Personally, I would NOT buy a property unless I had a fixed rate loan. ARM's are a nightmare in this economy.

As for the real estate agent, thank him for the time and effort and explain that you do not think the investment is sound at this time. If you liked the service of the agent and are still looking for investment property, then look for something else with that agent. If you want to wait to make a purchase, use the same agent later.

Whatever you do, don't let a real estate agent pressure you into anything.

Answer 4

I think that ARMs are very dangerous. You cannot guarantee yourself that you will have a buyer in two years, or that the property value will have increased enough to cover your investment and costs. Also, what if you cannot find enough renters? Can you afford to cover the costs of your mortgage, if you fall short on getting enough rent?

I'm glad the realtor has helped you with your credit; but, unless you have a good chunk of change as a back-up for potential rough spots, you are in no position to be buying this property.

Answer 5

Call me naive, and out of touch with real estate in your area, but if there's one thing I was always told about real estate is to watch out for alligators - properties with significant negative cashflow. $30k a year of negative cashflow, before vacancies and repairs WILL KILL YOU.

You make the most money when you buy a property. Counting on appreciation is like spending money before you make it. If you can't find a property in your area that has positive cashflow, look elsewhere. Simple.

Example: triplex in Toronto. Bought for $350k. Brings in $2700/mo. Mortgage $1800, taxes $220, insurance $90. About $15k of upgrades will allow me to charge $800 more.

I don't think I did especially well, but it's immediate positive cashflow. This is what you want.

Negative cashflow = BAD.

Answer 6

That property is very overpriced. $1,000,000 price divided by $50,000 income gives a Gross rent multiplier of 20. VERY VERY VERY high. A good investment would have a GRM of no more than 12.

It sounds like your Realtor is putting pressure on you, which is unethical at best.

Answer 7

My answer doesn't change from the first time you posted this identical question. Why are you re-posting this? You even re-posted it with the same basic math errors!