All Forum Posts by: Alvin Sylvain

I haven't noticed a spike recently, but recently I've been kind of cut off from radio marketing since I'm not in my car much anymore. So maybe from the radio gurus, the peak was last March. I don't know.

But your second question is definitely true. The advertisers track your every movement, and they know exactly what your interests are to the micrometer, and that's exactly what they try to sell you. Forget about privacy. It no longer exists. 

Of course you're welcome! But hey, sometimes you gotta go through the fire! :-) Better here than at a tax audit ...

No worries, we're all learning as we go. But now you know -- this is a numbers game! Work the numbers, and you'll already have your answer!

Another thing I often do is recommend that people get acquainted with the BP calculator, or just about any other REI calculator. I personally like the one from DealCheck. Just figuring out how to work the calculator is an education in itself. It'll ask you stuff like, "How much to allocate for Cap-Ex?" and the first time I saw that I went, "HUH?" (a very important expense that often gets overlooked with rentals)

So again -- best of luck!

I'm going to say the same thing I've said many times on these forums.

Work the numbers.

Consider: 1 br/1ba with unfinished basement -- Flipping or Renting? How much to you make in either case? Numbers!!
Consider: 2 br/1ba, a Finished Br in basement -- F/R? How much after Improvement Expense? Numbers!!
Consider: 2 units, 1 br/1ba and Basement Studio Rental -- F/R? Add a Kitchen and Bath Expense? Numbers!!

Compare each of those and see if any of them make sense for a GO decision. If you can't make the numbers work, or you can't get the seller to accept an offer where the numbers work, then take a pass.

My point is, nobody can answer your question definitively without running through all the numbers. Don't post them here, nobody wants to do your homework for you.

One quick snarky remark (sorry!): "Do you factor it in as repairs estimating the cost of finishing the unit?"
WELL DU-UH!! You factor in every expense! How you choose to label the expense is up to you.

OK, snark over. Grab that calculator and get to work! Good luck!

Calculate how long it would take you to save enough money to buy three additional rental properties with the money you save by not paying a mortgage on your primary residence. Probably just put the entire mortgage that you aren't paying into some high yield account (if such can be found).

Then calculate how much Total Cash Flow you would get (Rental Income minus Rental Expenses minus Mortgage on Primary Residence) if you bought the three rental properties instead. Put that money into said high yield account.

Do a long-range guestimate. Consider, if you go debt-free now, every year you wait the rental properties are going to be, say, 3% more expensive. Consider, if you buy now, your rental income is going to increase by, say, 3% every year. Compare these two totals (and their long-range accumulation) after 5 years. After 10 years.

After you do the math, I expect that, unless you have some emotional attachment to the magic words, "DEBT FREE", you're probably going to decide to buy those three rental properties. But, everybody has to make up their own mind.

Personally, I don't believe in magic.

Define "better".

The higher Cap Rate will generally mean a larger profit, at least on paper. "ProForma" as @Steve Morris mentioned.
But the lower Cap Rate will generally mean nicer areas and less trouble with tenants.

You want a 15% Cap Rate where you have to hunt down your tenants for rent every week? And not always get it?
Or a 4% Cap Rate where everybody is wonderful and cooperative while you lose money every month?

Bottom Line, Cap Rate can be used for comparisons, but that's about all. You still need to check other metrics, like ROI, IRR and Cash Flow.

There is one way to calculate the Cap Rate.

Net Operating Income (NOI) divided by Current Market Value (or Purchase Price), usually expressed as a percentage.

Be warned: I've looked at dozens of properties, and after a while it gets to be like gathering the EPA mileage estimates. No real live person ever gets an automobile to actually achieve the published EPA mileage, but it gives you some way to compare. So when Car A gets an EPA of 30mpg, while Car B gets 25mpg, well neither number is wholly accurate, except you can figure Car A gets better mileage than Car B.

Put simply, not in one single instance did the published Cap Rate match what I calculated.

But I trust my own calculations more than what's published. Just like I trust the mileage I actually measure from my own driving than what the EPA says.

If Property A is published as having a 7% Cap Rate, and Property B is published as having a 5% Cap Rate, all I really know is that the Cap Rate for Property A is higher than that of Property B. (Unless my calculations go the other way, which is unusual) If I see a Cap Rate of 15%, it's probably either a Tear Down or in a horrible neighborhood, or if I see a Cap Rate of 3%, it's probably a Grade A neighborhood.

Never-mind that my calculations differ, it gives a point for comparison.

So, how many mortgage brokers do you know? How many banks? How many lenders?

You don't suppose all of them use the same criteria? No, I don't think so.

So if you can't get a loan from this lender, maybe it's time to find a different one. Find out what their policy on rental income is before you start with them.

BTW, getting your friends to sign a commitment letter of some kind, maybe even a lease, sounds like a very good idea.

But still, this guy isn't doing you any favors, dump him and find somebody else. Oh yah, you've already started the process with this guy, haven't you? Shucky Darns! OK, so start another process with somebody else. If he gets offended, too bad, explain your reasons and move on.

I remember my wife and I were quite upset with our lender a few years back, even though we did get the loan. So when I went to get pre-approved for another loan, I was ready to go to anybody else. I don't know how, but somehow he found out my credit was pulled and he called me up, all bent out of shape. Oh well, them's the breaks, pal.

I hear the banks are tightening up their requirements in the face of the pandemic. However, there are lenders who will lend. Not all of them are banks, there are also mortgage lenders, hard money lenders, and even folks with some money in their mattress who are looking to find a safe investment.

You can search BP. Seems not a day goes by that I don't see people posting up here that "WE'VE GOT MONEY! WE'RE LENDING! COME SEE US!"

My point is, OK, fine, she got turned down. Happens to the best. Keep looking. Just because one lender doesn't like some nitpicky detail doesn't mean the lender across the street will be the same.

You know how many publishers are kicking themselves right now because they turned down J.K.Rowling's first "Harry Potter" book? Twelve. "Jonathan Livingston Seagull" sold 70 million copies in 1970 and was turned down by eighteen publishers. If you got everything you need to qualify, somebody out there will get you what you need. But they are not looking for you ... you have to go find them.

(BTW, forget about the LLC for the time being, it's going to be more work than it's worth for most people starting out.)

First, full disclosure, I am no legal expert.

1. You don't need to refinance after a year. You just can't convert to a rental until after a year.

2. You don't get depreciation on your primary residence, so this question doesn't make sense to me. You get depreciation only after converting it to business use (rental).

3. I can not say the advantages of disadvantage of 20% or otherwise down payment. The thing to do is to pull out your handy-dandy BP calculator and work out the numbers in various scenarios.