Hello, everyone and welcome back to a new video shawn's, the name and today we're going to be going over all of the numbers and finances when it comes to my first investment property. What's the cash flow situation, look like how am i calculating everything and, most importantly, how did i determine this property will yield me some good returns and then, as a little bonus, i'm going to include in this video how you go about locking down some great financing On a future investment property, so stay tuned, all right. So for those who don't know, i'm a licensed mortgage lender in arizona in texas. So while this might be my first investment purchase on my own, i actually do about one to two investment loans per month for clients.

So out of everything in this entire process, the financing section is my bread and butter, and this is what i know really well. Oh and real, quick, if you haven't seen episode one in this series, i'll leave it linked down below, i highly recommend you check it out. I go over in that video why i chose this specific property all right. So, let's start with my property and the financing and cash flow numbers on that property, and then i'll talk about kind of what you can look forward to in financing your own property.

Now, in episode 1, i talked about how i was buying a duplex for 350. 000, except i actually managed to get the purchase price down - another 10 grand. So we actually just closed a few days ago, and i bought the property for 340 000, which is actually twenty four thousand dollars less than what the seller wanted to get for it. So pretty sweet sean's still happy and the property is still bringing in a thousand nine hundred and sixty four dollars per month.

Now i know, there's some great paid calculators out there when determining. If a property you want to buy is going to be worth it for you, but why pay for something when you can get something just as good for free go to calculator.net rental, dash property, dash calculator i'll leave a link in the description? Don't you worry, this thing is money and is exactly how i determine if a property will yield good returns or not, and it's actually what i highly recommend to my clients when they come to me for financing. So when you see a property that you're thinking about buying plug in all the numbers of it into this calculator, so you know if it's worth it or not, and we're going to actually do that right now for the property i just bought. So, let's drop in all the details of our transaction, so we're going to put in 340 000 that we're buying this home, for we are using a loan we're getting a we're doing a down payment of 25.

I actually got an interest rate of 2.875 percent, mainly because i was able to do it at cost, got a loan term of 30 years that we're putting in there closing costs on my home particular, you know. Actually, let's pull up the exact closing costs. The total closing cost it came out to was 5 181 in 90 cents. Now there was also a massive amount of adjustments and other credits, but i don't necessarily want to count those because a lot of the things that was included in that was actually the rent rolls from.

You know prorated rents from tenants because there's already tenants in there and also security deposits, and things like that, so i will eventually have to be paying those later and i don't really see them as a credit. So that's going to give us closing costs of 5181 and 90 cents we're gon na plug in right there and also keep in mind the tax on this property is really low, as i mentioned in episode one. So that's kind of why the closing costs are wicked low. The insurance and taxes make up kind of the bulk of the closing costs when it comes to escrowing those, so we're gon na.

Do that we're gon na do no repairs really need um. I will kind of come back to that later, but we're gon na. Do you know no repairs needed right now. Um we're gon na have to pull up the property tax, the insurance, any hoa maintenance and other costs in here.

So, starting with the property taxes, mine came out to a thousand three hundred and twenty dollars and sixteen cents we'll leave an annual increase of three percent. I think that's pretty good. Total insurance came out to 537.96. Again.

These numbers are wicked low for what you're probably going to be looking at it's going to vary depending on the property, and you know, obviously, where you're buying the property in there's no hoa fee maintenance for manual or for for annual maintenance. I think i'm gon na leave it at about a thousand dollars and that's kind of just you know. Putting a very blanket number majority of the maintenance on this house is gon na be pretty low, because a lot of the things were just replaced. We're talking refrigerator stoves ac units things like that, so i don't think there's going to be any major roofing as well.

I don't think there's going to be any major big ticket items, so we're going to kind of leave it out a thousand dollars a year for little things here and there as little things break so we'll leave that and then other costs. This would be things like you know. If you have any landscaping or um or any other type of miscellaneous things you can kind of put in there. Okay, so then, the last box is other costs and this kind of comes down to whatever you got.

If you have to pay specific utilities or you have to pay um, you know landscaping or just specific things on the property um that you'd have a yearly fee on. Maybe there's a yearly hoa or something you know. There's two hoas. I don't know capital improvements.

You know land leases, there's a bunch of other costs you can put in i'm gon na do zero for now, um, i'm probably gon na have other costs that i'm not thinking of right. Now that i can add those in later, but i'm gon na put zero for now and then you come to this next column and you start putting in your monthly rents again. My property is renting for a thousand nine hundred and sixty four dollars a month. As is right now before any repairs or anything else is made, so i'm gon na put that in there there's no other monthly income.

You would put some other things in here. If people were to be paying transaction fees - or i don't know if there was like - maybe you know, washer and dryer - that you're collecting like couple dollars a month on or specific things like that vending machines. You know you put that in there vacancy rate i'm gon na leave it at five percent. That's pretty typical for a long-term rental, so we're gon na leave that there super important, don't forget to put in a management fee.

If you have that some management fees are flat fees instead of percentages, so then just put it in other costs. At that point i am self-managing the property, so i'm not going to be inputting any fees um right now, so we're going to leave that all is and then you know when it comes down to sell price. I don't really worry about because you don't um. If you don't have an exit strategy, you don't know specifically what you're going to be selling it for then i just kind of leave this, as is i'm going to do.

If i do the entire 30-year loan we'll put in 30 years, costa cell is gon na, be six percent, three percent for a buyer's agent, three percent for a.m - for a listing agent and the value appreciation is super important in arizona right now, we're seeing on average Over the course of 20 to 30 years, it's about six percent currently at the time of making this video it's more closer to 10, but i want to be pretty conservative with these numbers. So over the course of the last 20 to 30 years, it's been on average six percent. So that's what i'm going to use and then the best part about it is you just hit calculate and you get so much data on on your property. So you can kind of see these um these columns.

Here you can see my monthly revenue annual revenue and then, after all of my expenses, you can see my cash flow every month, so i'm going to be cash flowing 569 and 48 cents every single month, um, which is pretty great in my opinion, um. Because, again it's a very low risk investment, so i got that so annually i'll be pulling in close to seven grand and that's if i leave the property as is and don't touch anything on it and if you're sitting you're going well. What should i be looking for and what kind of numbers should i be looking for? A lot of people focus on the cap rate. I would say it's definitely not worth it if you have a cap rate under five percent, at least in today's market that could change um, but the biggest thing people look at is your cap rate uh.

If you want to look up what a cap rate is and what determines that, you can do that for me specifically, what i was looking for in this property was honestly the appreciation. The cash flow is great. Don't get me wrong. I'm gon na actually be increasing.

That as i renovate and make the property better and bring it up to market rent um, so that's great, don't get me wrong, but i'm really focused on the appreciation. I want this to be a very long-term hold and then eventually sell way down the line when i'm way older um and so for me, the total profit when sold is huge and honestly, if you price that out with any home in arizona or even texas. Right now, too, because those homes are appreciating really quick, you're gon na see some massive numbers. So if you see total profit, when sold 2.3 million dollars absolutely insane and the odds of me keeping this property for 30 years is probably really rare, but a man can dream.

Am i right the biggest thing i like about this too? Is you see everything all the way down to the year? You sell it so you can see specifically what your annual income is going to be with your rents, increasing three percent every year. You can see your mortgage that's going to stay static until obviously it's paid off. You see your expenses, your cash flow all this stuff, and you can see a breakdown of maybe there's specific years. That would make sense for you to sell it.

Maybe there's years where it wouldn't i really like it. You can make updates and this this this website is sick. I mean it's so simple, but it's awesome. Big thing, though, is obviously your cash flow.

If you're cash flowing well and you're happy with those numbers, then i'd say you got yourself a good one and you can purchase it again. If you watched my first episode in the series, you'll know that i wasn't necessarily going for the deepest discount and the craziest returns out on the market right now. I'm simply buying this property. To get my feet wet, get a fairly low risk property.

That's still going to generate me some decent returns. So again, i'm not going for the creme de la creme and the best property on the market because with high rewards comes high risk. But now, let's look at how you can secure some really great investment financing for a property you're thinking about buying, because a lot of people don't really understand the different programs and options that they have when it comes to buying an investment property and there's tons of Different routes, you can go so i'm going to order them in most popular. To least popular first is conventional investment financing.

All right, second, is commercial investment. Financing. Third you've got your conventional primary residence financing. You've got your fha primary residence financing, your non-qm financing and then lastly, your hard money.

Now, while i can't go into massive depth of each of those programs in this video, i am going to touch on them very briefly, but because i can't go into them in incredible depth, i highly recommend you talk to a mortgage lender license in your state, where You're buying the property, and you want to talk to a mortgage lender who actually knows what they're doing and that they've done a lot of investment loans in the past, because one they don't make. The lender typically has much money they're a lot harder to do and they just require way more brain power. So most lenders don't do a lot of them and then, when they do them they do them really bad. But let's briefly break down each of these loan programs and then in the future i will have dedicated videos to each so you know exactly what you're getting yourself into and once those are done, which will take me a little bit of time.

But once those are done, i will leave them linked in the description, and i haven't said this yet, but you should definitely hit that subscribe button, because these videos take me a lot of time but seriously. These videos do take me a really long time so hit the like button. Subscribe, show the video to your mom and your dog. I'd really appreciate it, but okay, starting with a conventional investment loan now just know investment loans are going to have a higher interest rate than that of a primary residence or a secondary residence.

So just keep that in mind, and they also require you to put way more money down than a primary or a secondary residence. Okay, on investment loans. You have to put down at least 20 percent and for multi units you actually have to put down 25. That's kind of why house hacking is super popular with millennials, because most millennials don't have enough money to put down on a property.

Secondly, commercial investment. Financing is really meant for people who are looking at buying non-residential properties, so things like offices, warehouses, churches, storefronts, etc, or residential properties that are five units or more now, keep in mind. These loans are way different than a typical residential home loan, and they require way different guidelines and way different qualification, metrics, and it all really depends on the property that you're buying. Typically, i will say that you need a minimum of 30 to 35 percent down depending on the property and again not a smoke.

Show interest rate number three is the interesting one and what a lot of people try to do for house hacking. So that's pretty much. Just a conventional or fha primary residence loan - okay, it's gon na have a far lower interest rate and allow you to put way less money down we're talking three to five percent down opposed to 20 or 25. However, you have to 100 percent move into the property, because one you're committing mortgage fraud.

If you don't, you can go to jail for like ever and then two. It also has to actually be believable. When you're in underwriting and you're saying, you're gon na buy a home as your primary residence. Well, if you already own some gorgeous six hundred thousand dollar home, that's like four thousand square foot and you're buying a new primary residence where you're like yeah.

This is an 800 square foot. You know 200 000 home that i'm gon na move into with my four kids yeah. The underwriter is going to look at you and say you're, clearly not moving into this as your primary residence - and this is an investment mortgage. Underwriters are not dumb.

Believe me, they are very hard to sneak things by then, but then next you got your non-qm financing, and this is something i try to avoid at all costs. Non-Qm financing is for individuals who can't qualify for a normal mortgage. We're talking like self-employed individuals who write off all their income on taxes or people with no income to show you pretty much, have to go this non-qm route and you get qualified for a non-qm loan based on the property and how well the property is going to Be cash flowing for you. The interest rates on these are definitely a lot lot higher and the loan fees are even higher as well.

So you have to know that getting yourself involved with one of these and they're, typically just a band-aid product for you to then refinance later they're, pretty much one step below hard money which is going to bring us to our next financing option. And that is hard money. I never recommend going hard money. This is an absolute last resort and should never be a long-term solution, because hard money is for people who not only can't qualify for a normal loan, but they can't even qualify for a commercial loan or a non-qm loan, and the interest rates on these bad boys Are like 12 plus and they're basically impossible to cash flow, a property on they're, typically meant for fix and flips, or something where you need a very you know brief amount of financing to then sell it or to then refinance out of it again.

I don't recommend hard money for long-term rentals. Okay, so what's best case scenario, when it comes to financing a property. Well, best case scenario is what i was talking about earlier with home hacking. You can buy a home to live in it and once you're living in it, you know you can put very minimal down.

You can get a great interest rate and after you live in that property for about a year or so, you can then move out and rent out the entire thing and you've got some phenomenal financing on that specific property, and you didn't have to put that much Money into it problem is when most people learn about that, it's usually too late, and you have already bought a pretty awesome house so by the time you're looking to buy an investment property doing a house, hacking doesn't necessarily work unless it's a home of similar value And similar square footage now going back to my property at the time we making this video in the time i closed. This loan i got a smoke, show absolutely smoke, show interest rate pricing. It was a 2.875 on a 30-year fix, which is absolutely unreal and don't expect to have amazing rates like that at all times. You know we never know where rates are going to go, they could go down, they could go up, but this is historically the lowest they've ever been, and that's why i secured this property because i knew i can get really cheap financing.

So don't look at financing and compare it to what other rates people have on other properties, because it's like the stock market, it's moving up and down all the time. So you know you just kind of have to be wary with that and i'm super stoked. I got a great interest rate on mine, but again for the time being, that's really what you want to focus on, not necessarily in history and rate's, not everything, because if you're paying 10 grand to get a lower rate, you're really just making less money and then The last thing i want to touch on real, quick when it comes to financing on a property is a lot of people, primarily look at interest rate and loan amount and all sorts of those things when it comes to the actual loan side of things. But one thing you really need to think about is the actual property, taxes and insurance.

You know because i'm licensed in texas and arizona i do a lot of texas loans and the property taxes in texas are probably three times as much as the property taxes in arizona. So it's a big difference and when you're picking a property, you really want to look at the actual taxes on it. And if it's in a specific, like flood zone or if it's in a tornado alley or or what the insurance policy is going to look like on the property, because i've seen some mortgages be really cheap and people focus a hundred percent on on all the financing Details and they forget to look at the taxes and the insurance and when they get their total monthly payment on that property. They're like wait a minute, i'm really not cash flowing as much as i wanted to, because they totally forget about the taxes and insurance.

Those are just some things to keep in mind again, that's just my two cents when it comes to cash flowing and really financing on a property but hey before we end this video. I just want to do something for funsies real, quick. Let's see what the cash flow situation is going to look like on my property after i do the renovation i have planned, the total estimated renovation is going to be roughly 15 000.. We'll see how close i stick to that, but that's going to include flooring.

Some appliances, kitchen cabinets, repainting resurfacing, you know, interior painting, some electrical and other like miscellaneous fixes all right. The expected rent per unit after it's done is roughly 1400 each that's 2, 800. In total. So i mean this is looking like a lot nicer on the cash flow and the renovation pays for itself in the cash flow alone in about 18 months, not to mention it's going to raise the value of the property as well and in those 18 months it's Gon na also be appreciating, which i'm not accounting, for because i like to keep things very conservative but hey that's the plan who knows we'll see if i actually know what i'm doing.

Let's see if i don't know what i'm doing make sure you subscribe to check out the future episodes in this playlist, and i cannot wait to look back on these videos in like a year or two or three years to see if i even came close to What i was planning and what i was kind of expecting so it's gon na be fun to kind of see and i'll say it one more time if you enjoyed the video, then definitely smash that, like button drop me a comment down below and otherwise i will See you in the next video have a great week. You.