All Forum Posts by: Andrew Kiel

My instinct would be to sell the home.

1. It's owner occupied and you should be able to realize the 200k profit tax free (please verify with CPA).

2. You have a real need for a larger home, interest rates are fantastic right now so getting a larger home with part of your current equity should be a good solution.

3. $700 per month income on 200k in equity is only a 4.2% rate of return and I believe you should be able to do a lot better if you invested this in down payments on other properties.

There are a number of ways to present that idea.  One of my favorites is to say to the seller, "do you mind if I ask what you're planning on doing with the proceeds from the sale?" This can open up the door to an owner financing discussion.  A friend of mine wrote a good book on the subject that you may find helpful in Who Needs the Bank.  I've handed this book to sellers thinking of doing owner financing before and it can help answer a lot of questions for them.

If you are not adverse to using leverage, I'd be buying as many homes as possible with the very low conventional financing rates you can get today - and this is important as you still have W-2 income to qualify. You can utilize the HELOC for down payments as well. Having a few more cash flowing properties will be a nice bump to your retirement income.

@Dmitriy Fomichenko - I both agree and disagree with you at the same time.  

Here's where I agree - prices are historically higher than they've every been, in Tucson our median value has just broken $300k, which is up from around $210k at the peak of the market in 2007-2008. I certainly don't have a crystal ball and don't know for how long the prices will go up or even stay stable.  If you are using hard money, or other short term financing you may be in a lot of trouble if the market takes a turn.  One should have a good (and many) exit strategies, if this is the case.

Here's where I disagree - while prices are higher, rents are significantly higher than 2007-2008.  Interest rates are significantly lower as well.  A $150k loan at 6% would have cost me $899.33 per month in 2008 where a $200k loan at 3.25% is only $870.41 a month today.  As a long term investor, I care about cash flow far more than purchase price.  If I can get $500-$700 a month in net cash flow every month I have a strong cushion if we do have a market correction.  Locking in a great long term rate takes the speculation out of the equation, in my opinion.

@Elizabeth Phillips - Rental market is very strong for single family homes.  And I don't deal with multi-family properties but I understand from colleagues that it is very strong as well.

Tucson numbers for single family homes are still great IF you get the right property and the right financing. My partner and I just closed on a home yesterday on the East side of Tucson for $208k with 20% down conventional financing and will have a payment of $875 (PITI, 30 year fixed, 3.25%). If we did a straight rental this would probably be around $1300-$1350 and as a lease/option we'll probably be around $1495 per month. Very competitive market to buy, but the cash flow can be amazing.

@Lionel Mosby Jr -yes, they are state specific.  Having your documents written or at least reviewed by a great real estate attorney is always recommended.

When we buy a subject to deal we do NOT ask the lender's permission (very unlikely to get it).  We have the seller sign the deed, transferring full ownership to our entity of choice.  We also make sure we have access to the online portal for the lender so we can make payments (an alternative is to have a title company service the loan).  We have the seller sign a power of attorney form as well and some disclosures that we have no intent of paying the loan off early.

See the post below, it should be helpful:

https://www.biggerpockets.com/...

We just offered (and lost) on a good investment property and based our offer on the targeted cash flow we wanted. We then worked the numbers backwards into a purchase price and made our offer. For the long term buy and hold investor, the purchase price isn't the most important thing, cash flow and ROI (return on investment AND return OF investment) are.

My best advice is do the math, pick a number you're happy with and make your highest and best offer.  If they take it great, if the don't, offer to let it be a backup offer (we've gotten many due to the first offer falling out).  There's always the next property out there.

You've clearly put some time into analyzing this one.  Not knowing your area/market I would also tend to go with your "nice" projection since you're planning on doing a buy and hold. Assuming overruns - the additional 44k between nice and excellent will only net you $150/mo - not a good enough rate of return for me.  And if you only go livable I don't think you'll attract the right, longer term type of tenant you want.

If you have access to the amazing conventional financing we have today, take advantage of that by getting the $135k financed for 30 years at 3.375%.  Keep your cash and line of credit for repairs, emergencies, and other opportunities.  After you do the fix up work you may have an opportunity to refinance again and get your cash back out, if you choose to.