All Forum Posts by: John K.

@John K.

-you should house hack

-you should not try to build something

-you should not move to a random market solely because of home prices

-i would not tell you where to move to since I don't know you.  what is important to you - city, suburbs, weather, sports?

-the goal of a house hack is not to cash flow - it's to repurpose your housing payment

hope helps

I would buy a 2-4 unit in the Austin market with 5-10 % down. Save 6 months for reserves and use the remaining money to do a BRRR deal either in Austin or in a market that may cashflow better.

 I agree with Randall. 

I would say you should focus on diversifying. You can save a lot of money a month which is great. I would put some of that in non synthetic ETFs and have it in the stock market. That enables you 10% nominal anual returns while it's still very liquid (fast and easy accesible cash).

If you want to invest into real estate, why don't you look for seller finance or rent to own deals? Those will require only a small amount of money down and won't appear on your credit. You'll have monthly payments but the idea is that you put tenants in these properties so that you cash flow. That way you can invest in multiple properties without having to bind up all your cash. Plus you can cashflow. Just make sure it's a good deal and you can actually make money after all monthly payments. 

Hey John - I'm also in Austin! If you are starting out, I think relocating to a market with higher cash flow and lower taxes makes more sense. You can move to one of these markets and do a 3.5% down FHA loan, live in the property for a year, and then get another 5% down conventional. With this, you will have 8 units with as little down as possible. Then, I would go ahead and start to use hard money and DSCR to BRRRR properties. This is my strategy, but another may be better based on your goals and risk tolerance.

Buy a rental, SF or duplex cash with 10% ( OOS of course)  or better net income, Refi cash out buy another, rinse and repeat . After about 10 that should net you about 5-6k per month. 

 Good luck 

@John K.

Your DTI definitely factors into things, but presuming you have rental income from your houses, that gets to be applied as a credit to offset that debt. Sometimes they require a certain time frame to be shown on that. But DSCR loans can be a little more forgiving on that. It is up to each lender to some degree. Portfolio lenders - ones that don't sell their loans to Fannie Mae have more leeway.

Another thought is to build a 4plex - so it is one purchase with 4 doors.  

You only have to put 20% down… so if you are talking smaller cheap homes you can get away with $25-30k down, depending on where you are looking at.  

7% interest is crappy no matter how much you put down.  But when you run the income numbers including  the other write offs 4 will outperform 1 every time.

A 3% gain on 1 - $100k house is $3,000/ year.  On 4 it is $12,000/year.  3.3% depreciation is similar numbers - usually almost eliminating all your taxable income from financed properties after repairs and maintenance is factored in. 

Truth be told, very little cash flows well at 7%… so timing also factors into your plans… but rates are expected to start dropping later this year and into next year. 

Randy  

@John K.

Hi John,

I probably wouldn't recommend foreclosures as a starting point.  While you have enough money to probably buy into and repair one foreclosure, your money would go farther by financing properties and putting as little as possible down.  The short version of that is if you can buy 4 houses financed, it will make more money than 1 free and clear house;   especially when taking into consideration all the benefits that come with each house - your tenant paying down your mortgage, 3.3% depreciation on 4 houses, market appreciation on 4 houses, plus the rental income on 4 units.  

Foreclosures also come with A LOT of inherent risk - you don't know the condition of what you are buying until after you have bought it.  We have bought 4 foreclosures - 3 went great - the other one literally wreaked of cat urine so strong we had to wear respirators to walk into the house.  We ultimately sold that one to a handyman and only made about 1/2 the profit we could have made on it - but we were worried about being able to sell it on the open market with how bad it smelled.  So point being - you never know what you are buying there.

I also probably wouldn't touch the money in your 401k.  That has a different purpose in life and you should leave it alone to be there for you down the road (especially since you have other money and income available).

Just know that the whole "stop working my job" thing is a long term goal.  We have gotten to that goal post - but we were at 20 units when we decided to do it where we were replacing about $200k worth of W2 jobs.  We are now at 37 units and our full time job is managing those properties.  It's not quite a passive as the RE world makes it out to be (we self manage our own properties)... but it is a very nice lifestyle.  No alarms to wake up to and as many vacation days as we want in a year! 

So presuming you are on the "add one rental a year plan" after maybe buying 4 with the money you have, I would think it would take a number of years to achieve that retirement goal - but your mileage could vary depending on how much income you need to live on. 

Flipping houses is good for big chunks of cash... but it comes with lots of questions - Who is going to do the work?  You while you are working?  Do you have the skill set to do that?  If not, managing contractors and not getting exploited in the process is a whole different set of skills as well.  It's really hard to pay retail prices on renovations and come out ahead on a flip.  We went the "Do what we can do ourselves" route, and then worked with more handy-man type people for the things we didn't know how to do.  But we never had a shiny truck show up with people in monogrammed shirts.  It's was all about maximizing every dollar spent and minimizing every expense we could to have as many dollars left over for profit for us. 

All the best!

Randy