Lowering Expenses or Cash Flow or Both???

Question

I recently wrote a post about wanting to house hack in Socal to lower my living expenses and I received a lot of great feedback and advice. I am also just as interested in buy and hold investments in the Cleveland market to create some passive income, i.e. cash flow. I've been listening to some podcast and the path that some successful investors have pursued is to first lower their living expenses and save money, then pursue cash flowing strategies.

Here in Cali, I'd be using a FHA loan. Ideally, a 203K for a multifamily, but a SFR could still be a good personal investment.

In Cleveland, I'd apply the BRRRR strategy using a hard money lender for the purchase and a portfolio lender to refinance.

So, it seems I could do both at the same time, but most days my head is spinning just trying to focus on one or the other. In trying to stay focused on "one thing" should I first secure the real estate that allows me to save, then and only then, do I start to pursue obtaining out of state real estate???

Kerry Baird · Answer

Food for thought: To buy in Cleveland you will need a investor friendly Realtor to help you identify good areas in which to buy and areas to avoid, a renovation crew or general contractor to do the renovation, a property manager to advertise for tenants, screen individuals, and to handle the daily issues that crop up.

Buying a fixer at a distance is a challenging endeavor. I’m doing a renovation now in my local area, and because the market is in an uptick, contractors are very busy. It is ever so difficult to find tradesmen right now, while the process of building a team in a new location has been taking some amount of time. I have done a dozen renovations in person, and none at a distance (though it can be done, of course).

That leads to my advice: if you buy in a remote location, buy new/newer rather than a renovation. I have done so three times, with three properties we bought while stationed in England 2 of which are located in Texas, and one in Florida. You can also buy a home warrantee to cover repairs when they crop up (such as hot water heater or AC going out).

My point is that there are inherent risks with renovation; with all the moving parts, something always crops up. I am glad I did my renovations close at hand.

I know this is getting long, but I also want to comment on the financing part. The best money for deals in terms of low down payment, low interest rate, 30 year fixed money, are those first 10 conventional mortgages. These are the ones people talk about where you call around and ask in your local area (local to the property) if they do investor loans, and how many they can hold. The mid price portfolio lenders are quite a bit more expensive. My VA loan was in the 3.85% range, our conventional investor rates have been 4.875% to 5%, while the portfolio money appears to be in the 7%-9% range, and my hard money guy is 12.5%. They still do look at FICO scores, and debt to income (DTI) so your credit is still an important factor.

~All the best

Todd Solberg · Answer

If you save a dollar, you earned a whole dollar. If you earned a dollar, you only earned .75 cents.

That said, house hack first! Duplex/triplex if you can as you can rent on side out while you fix up the side you're living in....then move to the other side when the lease is up and repeat. Instant equity and gained cash flow when you rent the brand new side.

Get your living costs low asap. Hence, the house hack first. Then wait a year and consider buying another place....repeat.

Lowering Expenses or Cash Flow or Both???

Lowering Expenses or Cash Flow or Both???

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