All Forum Posts by: Alan Le

Sorry to hear about this; I know unaccounted expenses can be a big headache and stressor. Hindsight 20/20 but wanted to offer my thoughts.

If you have reservations about unresolved inspection items before the objection deadline, this should be communicated with your agent. There are a couple of possible solutions, which most sellers are understanding of and will work with to keep the deal together. Your agent should have it as a priority that you are at peace of mind prior to moving past inspection. Here's a couple solutions:

1.) Amend the contract to extend the inspection related deadlines. Delays happen, by no means is it game-over if you are unable to get further expert opinion on a particular item. 

2.) Have a clause in your inspection objection that reads along the lines of, "The seller agrees to extend the buyer`s inspection termination / objection period for the HVAC as the buyer was unable to schedule further inspection prior to Inspection Objection deadline"

3.) Write a contract with longer time alotted for inspections as you suggested. Some sellers may object to this in a counter as it's pretty standard to have inspection resolved within the first business week. Not to worry as you have the above two options once under contract and are more in the "driver's seat".

Once pending and under contract, last thing a seller wants is for the deal to fall apart and they have to go back on market after being off for weeks. An amendment to inspection related item, especially a very reasonable one in this case, shouldn't be an issue for most sellers to work with. 

1.) As Brayden had mentioned, most lenders will only go up to 80% on a cash out refi. Simplified illustration of this would look like: if your home is worth 100k, and your outstanding loan balance is 70k, then you would be able to pull out 10k in a cash out refinance. At 6.25% down, it would take you about 4 years to reach 80% equity assuming 7% interest rate and 3% annual appreciation. So it would be several years before you can refinance any significant amount, assuming it makes sense to even refinance with whatever prevailing market conditions are during this future time. 

2.) As Zach had mentioned, doing a house stacking strategy is a great way to accumulate properties by taking advantage of low down payment primary residence loans. Your occupancy requirement is only 1 year, at which point you can start your next house search and use the rental income from the first house towards your lending qualifications. 

If your living situation allows, you can house-hack the first home, (renting out portions of your house to offset your monthly costs and boost your savings), to set yourself up to be ready for the next purchase. This is the best way I think to get introduced into RE investing and accumulate properties in the beginning.

Hey @Alfred Hall, If you haven't considered it already, I'd like to offer the perspective of buying vs. building. A plot of land in Denver that allows for quadplex development would cost at least half of your $1m budget. Whether building or buying, house-hack numbers are harder to make work in general on 2-4 unit residential buildings in Denver; factor in the higher interest rate environment and it makes it even tougher. 

Have you considered buying a SFR to house-hack? That would be an effective start to getting into RE investing without all the headache of a new development. It would offer better margins as well when considering potential rents vs price. If privacy and separation is of importance, you could look specifically for properties with attached/detached ADUs or walk-out basements.

If you are still curious on development and financing for that, speaking with a few local lenders would likely be your best bet to get your specific questions answered as others have mentioned. 

Hopefully not being a debbie-downer on your goals here, just want to offer another perspective :) 

Hello @Priti Gupta!

Joe covered the question very well. It's good to get in touch with a couple of lenders, a great place to start would be asking your agent for some lender contacts. I would recommend getting pre-qualified with at least one lender before seriously starting your property search. Doing so will mean you are ready to submit an offer when you find the right property with a letter from the lender to support your offer. 

Colorado real estate contracts have a Loan Terms Deadline, which is the date by which you are able to back out of a contract if the terms of the loan are not to your liking; up to your sole subjective discretion. It is before this deadline that you will still be able to shop around rates before locking in one satisfactory to you. As Joe had mention, rates fluctuate regularly and you will likely have a different lender winner every day of the week. You should aim to have an understanding of the range of rates you are likely to get while running #s on your potential properties, and then once under contract is when you can aim to get a rate locked.

If you have strong credit, I would recommend going with a conventional loan. A conventional loan is often better if you have good or excellent credit because your mortgage rate and PMI costs will go down. With a conventional loan, once you reach a LTV <80%, you can have your PMI removed from the monthly payments. FHA mortgage insurance premiums stay for the life of the loan unless you down > 10%, or if you were to refinance to an FHA once you reached the LTV threshold. A lot of nuances between the two but the big thing to consider is that going with conventional is generally better if you have good or excellent credit.

@Cole Doyon, yeah and of course you can also just ask the seller what rents they have been getting per unit, usually something they disclose when selling an investment property. Square footage is key too and should be factored in addition to bed/bath count. Not sure if rentometer takes into account sqft

Interest rate seemed a bit low at only 6%. Have you spoke with a lender yet in your area to go through pre-qualifications and get an idea on what loan terms would be? I would imagine rate to be closer to 7%. But yeah, considering that and the adjustment to home insurance, should still be a cash flower. 

As Nathan pointed out too, this is not an area or home I'd anticipate to do great on the growth and appreciation side, but if the cashflow is your primary consideration, then looks like it can be solid!

I'd verify rents in the area as well for similar units in that bed/bath count and square footage. Just a quick zillow look up could work great for confirmation. You could also get an idea of demand by looking at the days listed and contacts/applications received. Not familiar with the area but 2500 does sound high assuming 1500 square feet between the 3 units. 

Hi Seona, 

I would not see your desire to move out of Columbia after a year being a deterrent to buy a house, rather it could be a pro! If you are at a spot where you feel financially comfortable to purchase, it would be beneficial to start the investment process and get time on your side. When you do decide to move, you have the option of selling the home or continuing to rent it out. Plus during that time you will get a feel of home ownership and what it's like to be a landlord in that market. Think of it as an opportunity to leave a trail of houses during this nomadic part of your life--  you'd be able to take advantage of more favorable loan terms, (down payment %, interest rate), since you are owner occupying.

In short, take advantage of your long investment time horizon, start the house-hack, save a bunch of money by offsetting your living, and move onto the next property when you're ready to move!

To your first point of purchasing a 2-4 plex, if your plan is to move out of your current primary residence and into this next property, then you do not need to down 20-25 %. Rather you can take advantage of low-down payment (low as 3%) primary residence loan since anything <=4 units is still considered single-family. Being that you are wanting to move into the next place, I would recommend taking advantage of this low down payment option and this would remove necessity of creative financing.

There is also low inventory for 2-4 plexes in my market, and when available, they're at quite a considerable premium that usually does not make the #s work out. A good alternative is looking for a single unit that has a floor-plan that could be "split" into two. These characteristics may be separate entrance, walk-out basement, or stairwell to basement located near an entrance. Not sure if this floor-plan is typical where you are but a pretty common strategy here that can get almost duplex level rents at a much lower purchase price.  

A little more detail on the #s maybe helpful here too; we are seeing appreciation of 35% but only at 83% LTV on your current townhome? Even with downing 0% at time of purchase, appreciation of 35% would mean at least ~74% LTV assuming you did not take any equity out. If so, you may have more equity than you think and this could open the door to HELOCs or a home equity loan. Also, I am curious as to the type of market you are in-- if it's desirable and appreciation is good, I would imagine you are able to cashflow even as a LTR if the home was purchased in 2018?

You do not need, and I don't think you should either, get an LLC for your first house-hack. One of the big advantages of house-hacking is the low down payments of a primary residence loan. However, lenders will not allow you to put the house under the name of a LLC if going with this lending option. If you choose to transfer the title of the home into an LLC at a later point this may even trigger an acceleration clause or due-on sale clause with your mortgage; essentially the lender calling the remaining loan balance due upon transfer of the title.

Agreed with points that Ben made above as well. I was also looking into getting a LLC when I got my first house-hack but ultimately found it unnecessary and was just myself doing some over-worrying. It is good that you are conscious and thinking about steps to protect yourself, which to me tells me you probably wouldn't do anything so outwardly negligent that you find yourself in a lawsuit. Follow the normal safety steps, (CO/Smoke Detector, egress window if basement bedroom, etc.), and you will be all good.

Regarding an umbrella insurance policy, I would consider the gap between this umbrella policy and what a typical homeowner's insurance policy + renter's insurance (paid by tenants) would cover. If the above points Ben and I made resonate with you, then I would also even forego the umbrella policy. I do always require my tenants to get renter's insurance to cover their own personal belongings. 

Good luck on your investment journey, stoked for you!

Hey Jaime -- one other consideration is that you are required to have a real estate license to manage rental properties that are not owned by you in the state of Colorado, (with STRs being an exception to this). But if you are leasing out your property otherwise, a license is required for management. Is this person a licensee with the state of CO? Most complaints filed with the real estate commission board are related to property management practices and having someone unlicensed managing your property could expose you to other liabilities and risks. 

That said, I agree with above points made already. I would charge a market rate for rent and have the agreement/compensation for management be something else separately.