All Forum Posts by: Andy D.

@Ian Walsh I feel I need to reply as I'm afraid I don't concur with your last sentence the way it stands in relation to your sentence preceding it. While it's certainly true that higher debt (service) means less (positive) cash flow, it does not mean that "higher debt makes it more difficult to sustain a down turn" (pointing out the logic of your statement when looking at it from the other side). As long as my debt service demands are fulfilled by the cash flow I'm making from the asset which is leveraged I do not care about the assets vlaue/equity (all within reasonable parameters of course). More or less equity has no influence on cash flow. It influences other aspects, figures, percentages etc, yes, but not the cash flow. So as long as one is not overleveraged in relation to the income derived from that asset (= leaving enough room for a positive cash flow factoring in vacancy and other nuisances when speaking of real estate) and has some cash reserves, leveraging is not a problem.

The problem we saw in  around 2008 with leverage on the private side is that people completely overleveraged. Getting 120% on your property value and, of that, using 20% to buy a car (which is underinsured and then totaled in the worst case) - that's stupid. And not the fact that one has leveraged a property.

To close this post: no, you nowhere said that leveraging is stupid! I'm looking at other readers here who could interpret it in such a way, though. That's why I wanted to point out the above.

@Jennifer Ozuna From what I understand you are looking to get money out from the existing rental property. I don't see how that's going to work. As others have stated, you're pretty much at 25% equity. Even if you find a lender that will go lower, i.e. higher LTV, (doubtful at reasonable rates) you probably do not want to do that - overleveraging at this point in time is not a good idea! Don't you see what you did in 2004? Yes, you overpaid (albeit unknowingly) and therefore, factually, overleveraged. Just look where that got you over the last decade. Sorry to point it out but it's a fact.

Just be happy that you now own a rental property which - even with a comparatively expensive ARM - seems to cash flow positively. Don't jeopardize that in this market.

As for reducing the monthly payments: it's all about running the numbers. A 30 mortgage is going to be much more expensive than, say, a 5/1 ARM when comparing current rates. Then again, it might be cheaper than what you currently pay for your old ARM. Only you can know that by looking at the figures involved.

In any case, don't try forcing the purchase of another property by whichever means necessary. The market is toppish, i.e. expensive, and you probalby do not want to repeat "your 2004"...

@Jason Baker Good, new input, new parameters. Assuming the property is worth enough that, it being paid off (right?), you can pull out some ~50k while having some 30% equity in it then go for that and buy something else (not in CA! ;-) ), using these 50k plus whatever else you can invest as a down payment for an additional, leveraged property  - assuming the financing is no issue for you guys. Better to do it now compared to 2 years down the road, that's for sure. At least when looking at interest rates and overlays.

As for holding the property: do it in your name. No entity, you do not want to make things more complicated in CA than they already are. Also, who wants to throw $800 at the CA Government! LOL Just make sure you get good insurance. AND have a GOOD property management company!

You do know what the most difficult thing of those just mentioned is, right? Yes, you guessed right. The PM.

@Eric James If one was indeed at a point to pay down a mortgage then - from a risk point of view - it would make most sense to pay down 1 property rather than spreading the "invested" (I hear Thomas S. cringe ;-) ) money over 1+ properties.

Basically: one bird in the hand rather than two in the bush. That way you own at least 1 property free and clear rather than having to still share all - albeit at to a lesser degree - with the bank(s). Who will take them away from you if push comes to shove.

@Thomas S.

@Thomas S. again gets very little praise/feedback on his - repeated - input re opportunity cost of cash/equity. It seems very few people understand what he is actually saying. I guess when trying to simplify it one could say that the logical deduction from the often voiced mantra "use other's people money" is "hell, even more so use your own money where available! (to add more other's people money)".

Albeit I do concur very much with his statement "Cash buyers are the quintessential conservative investors and receive the lowest possible returns of all real estate investors" one should also realize that - again - person A likes this and person B likes that and that the vast majority of "investors" is extremely conservative. Not pulling out equity to reinvest into whatever is extremely conservative and perfectly in line with probably 95% of all people doing some sort of investing. Is it wrong to do so? I'm not to judge. Dpeends on their risk appetite which all of us here cannot judge. Then again, spyicing things up a tad typically would'n hurt those 95%...

On the other hand, the less cash these people pull out, the less cash they have to invest, leaving more properties out there for me to scoop up! Ha! There you have it.

@Jason Baker Here's a different input from me: you live in FL. You have lived in CA. There was a reason you left CA. ;-) Now you are "gifted" with a property in... CA. Not trying to be a smartass but that's on the other side from where you live. How do you - especially as a novice in landlording - plan on taking care of this property (properly!) from FL? Being a landlord is a responsibility. Not a priviledge.

You seem to be eager to get into the game of "being a landlord". Go for it! By all means. But I would recommend doing the following: sell the place in CA and buy something, heck, three places in FL or at least AL or GA, i.e. closer to you. Why? Again, CA is too friggin' far away and you have no experience (and no people on the ground there, as far as I understand). Also, it's a seller's market in CA. Cash out and use that money to invest in areas that have seen less steep an appreciation than, from what I understand, FL. You may be able to increase your cash flow quite a bit if you do it right.

As for wholesaling and flipping: partner up. Even if your wife looks like Cristina you will dig yourself a deep hole unless you partner with someone who actually knows what they are doing... The question about any entity to use will also be answered by these people as an add-on. Most likely. ;-) Good luck!

@Robbie Taylor As @Peter Mckernan has basically said, there is more than one way leading to Rome. As with pretty much everything, there are various opinions, beliefs and therefore approaches. I'm a firm believer that - within the "reasonable parameters" - there is no wrong or right, just variations of things of which some will suit person A and other(s) will suit person B.

As a very general approach I would say that if you plan on building up a cash-flow generating "empire" you probably want to leverage as much as reasonably possible so as to rather quickly increase the numbers of units you own. At a magical percentage (depends on you!) you may want to start using some of the cash to pay off (some) of the properties. This will actually - obviously - increase your cash flow but will also, initially, for a certain period of time reduce the available cash you can then accumulate to use as down payments for more units. I hope this makes sense.

Those people who paid for 1 unit all cash and then then wait forever to use that cash coming in until they can afford to buy another unit all cash (making it a whopping 2 units...) will miss out a lot during that time phrase, simply because of market action (price increase!) and inflation. To circle around to my point at the beginning of this post: that's my opinion. But I'm definitely not alone. ;-)

While I do not actually know the rules on this I would be very surprised if something that is actually owed to you by law (i.e. rent and security deposits) and not just a "gift" from the seller to you (e.g. taking on your half of the commission etc) would be part of that 2% cap. Would seem very odd. I call BS overlay. Anyone knowledgable want to chime in? @Chris Mason would probably know. I'm rather curious about this myself now. Deal on 22 May works, but deal on 04 June not? Naaaah...

Your best luck might be with a local bank/credit union. Generally many don't like to do that on investment properties but I believe that actually Wells Fargo seems to be somewhat relaxed on that.

@Jessie Griffin I would love to hear more about this as I'm currently contemplating "parking" some cash for a shorter period of time to not have it sit around doing nothing until I find another deal. Would you mind elaborating a bit on the options? Especially the part about "providing a deposit" sounds fairly flexible. Then again, how would my deposit be secured? Thanks.

I'm fairly confused by your above post especially in combination with your opening post. You seem to have a financed property and yet you say no bank will finance investment properties?! What do you think most people here on BP have (including yourself, apparently)? Also, "outrageous interest rates" at this point in time? Have you at all followed the market in the last few years??

As for properly tagging people: you need to add the "@" sign before their first name and then, if you wait a moment, a suggestion pop-up-window will appear where you can select the correct person.